MONDAY, MARCH 28, 1966. INTERNATIONAL DEVELOPMENT ASSOCIATION WITNESSES LIVINGSTON T. MERCHANT, U.S. EXECUTIVE DIRECTOR, INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT BERNARD ZAGORIN, ALTERNATE U.S. EXECUTIVE DIRECTOR, INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVEL OPMENT RALPH HIRSCHTRITT, DEPUTY TO THE ASSISTANT SECRETARY FOR INTERNATIONAL FINANCIAL AND ECONOMIC AFFAIRS, TREASURY DEPARTMENT MILAN C. MISKOVSKY, ASSISTANT GENERAL COUNSEL, TREASURY DEPARTMENT E. JAY FINKEL, DEPUTY DIRECTOR, OFFICE OF INTERNATIONAL FINANCIAL POLICY COORDINATION AND OPERATIONS, TREASURY DEPARTMENT ERNEST C. BETTS, JR., DEPUTY ASSISTANT SECRETARY FOR ADMINISTRATION AND BUDGET OFFICER, TREASURY DEPART Mr. PASSMAN. The committee will come to order. This afternoon we shall consider the appropriation request of $104 million for fiscal year 1967 for the International Development Association. We have the Honorable Livingston T. Merchant, who will testify for the appropriation. GENERAL STATEMENT Mr. MERCHANT. Mr. Chairman and members of the committee, I am appearing before you today to support the administration's request for an appropriation of $104 million covering the U.S. contribution for the fiscal year 1967 to the increase in the resources of the International Development Association (IDA). This increase was agreed upon a few years ago by the Association's major member countries. Today's request is for the second of three annual installments of $104 million each, comprising the $312 million contribution which the United States agreed to in May 1964. The U.S. contribution is part of a package of $750 million in further resources for IDA to be provided over a 3-year period by the United States and 16 other economically advanced countries as agreed after intensive negotiations com pleted in 1963. (Kuwait subsequently agreed to provide $3.4 million as part of the same arrangement.) U.S. agreement to this contribution was given pursuant to Public Law 88-310. IDA was established as an affiliate of the World Bank in 1960 through the initiative and leadership of the United States. U.S. membership and the payment of our initial subscription of $320,290,000 were authorized by the International Development Association Act (Public Law 86-565), which was enacted by the Congress in July 1960. The further funds covered by the request before you today would permit the United States to fulfill an international obligation approved by the Congress and undertaken in agreement with the other nations of the free world. The original subscription of the United States to IDA was payable on a schedule calling for five annual payments, the last of which was made on November 8, 1964. Funds for each of the five installments were obtained through annual appropriation acts. Similarly, the three installments of $104 million each which make up our new contribution are being sought as regular appropriation items in the fiscal years 1966, 1967, and 1968. A table showing the schedule of installments for this U.S. contribution to supplementary resources for IDA has been submitted for the record, along with certain other tables dealing with IDA's membership and operations to date. CONCEPT OF IDA IDA is a means of mobilizing aid resources from other developed countries. Other developed countries together provide to IDA more hard currency resources than are being provided by the United States. The U.S. contribution of $312 million under the present program compares with aggregate contributions of $441 million by the other countries. In other words, the other developed countries are providing the equivalent of $1.41 for every dollar provided by the United States under this new program. IDA is, therefore, one of the most effective ways we have to get other nations to share the financial burden of aid with us. IDA is an affiliate of the World Bank, and only World Bank members may become a member of IDA. IDA's membership consisted of 96 of the World Bank's 103 members as of December 31, 1965. IDA provides financing for essentially the same purposes as the World Bank, but it does so on terms which bear less heavily on the already heavy burden of repayment of the developing countries than do the Bank's loans, and which the Bank could not offer. The need for large amounts of development financing on terms better adapted to the payment capacity of most of the developing areas is widely recognized, and is a major principle of our own aid program. IDA is an economical and effective institution. It has no staff of its own, but draws on the Bank's management and staff, which are regarded throughout the world as being of first caliber. IDA reimburses the Bank for the facilities and services of the Bank's officials which it uses, thus avoiding duplication of effort between the two institutions. Equally important, the IDA-World Bank affiliation insures a coordinated policy approach to the problems of development with which the two institutions are concerned. OPERATIONS IDA began operations in November 1960 and announced its first development credit in May 1961. Through December 31, 1965, IDA had signed credit arrangements amounting to $1,192.6 million net of cancellations involving 72 credits to 29 countries and territories. The two largest borrowers are India ($584.9 million) and Pakistan ($266 million). IDA credits for these countries are provided within the framework of the consortia of capital-providing countries which the International Bank has organized for each. Five other countries of Asia and the Middle East were extended $47.8 million in IDA credits. In Latin America, 10 countries have received IDA development credits totaling $100.5 million, while 12 African nations have been the recipeints of $127.7 million of such credits. IDA's European activities have been confined to one country, Turkey. Disbursements on IDA credits as of December 31, 1965, were $555.2 million. IDA's development credits have been extended for projects of the same general kind as those financed by World Bank loans. Thirtyfour of IDA's 79 credits, representing slightly less than half of the dollar value of IDA's commitments, are for projects in the transportation and communications fields, including ports and harbors; 18, representing over 20 percent of total commitments, are for agricultural development and irrigation. Seven credits are for electric power supply and six for potable water projects. Local development banks have received four credits for making small subloans to private enterprises and one credit has been extended to an industrial development corporation. There have been seven credits for education projects, and two credits have been granted to finance imports of spare parts and equipment for high priority industries in India. INITIAL SUBSCRIPTIONS Total IDA initial subscriptions amounted to $999.1 million as of December 31, 1965. Of the amount subscribed, $770.4 million was paid in in the form of dollars and other convertible currencies, $5.8 million is to be paid in convertible currencies but is not yet due, and $223.0 million is in the currencies of less developed members. total amount paid in by the United States on initial subscriptions was $320.3 million, as against $431.1 million paid by the other part I countries. The In addition to the hard currencies being subscribed by the part I members to IDA, 10 percent of the initial subscriptions of the part II countries the less developed members were payable in hard currency. These countries have paid $24.8 million in hard currency along with $223.0 million equivalent in their own local currencies. Five less developed member countries (Ireland, Israel, Jordan, Mexico, and Panama) have released a total of $4.6 million of their local currency subscriptions for IDA lending on a convertible basis. SUPPLEMENTARY RESOURCES In May 1965 the United States and 16 other economically advanced countries agreed to supplement IDA resources by $750 million over a 3-year period. The U.S. share of the new resources is a total of $312 million (41.6 percent) or $104 million per annum. Subsequently, Kuwait agreed to contribute $3.4 million to IDA resources in the same supplemental arrangement. One part I member, Sweden, has made four voluntary supplemental contributions in hard currency of $18.1 million. These contributions mean that Sweden has voluntarily made available an additional amount equal to 180 percent of its initial subscription. TERMS OF IDA LENDING IDA's credits are repayable in dollars or other freely convertible foreign exchange. They are made for a term of 50 years, with repayment commencing after a 10-year period of grace. Thereafter 1 percent per annum of the principal is to be repaid for 10 years, while in the remaining 30 years of the credit 3 percent of principal is to be repaid annually. No interest is charged on the credit, but a service charge of three-quarters of 1 percent annually is made on amounts disbursed and outstanding in order to provide IDA with funds to help meet its administrative costs. Lending terms on the IDA pattern are essential for many countries if they are to maintain the momentum of development and if the free world's development is to take place on a sound financial basis. Taken together, the developed countries of the world other than the United States contribute a major share of the IDA resources, and in this way these other countries bear a major part of the cost of making IDA repayment terms possible. CONCLUSION IDA has been doing a vital job and doing it well. It deserves our continued financial support. It operates in our national interest, yet we are not required to bear its full cost, because it is financed to a larger degree by the other advanced countries than by ourselves. In supplementing the work of the World Bank, it also supplements U.S. programs of bilateral lending for development. The United States urged the formation of IDA and has supported it in its formative years. It has the confidence of developed nations and developing nations alike. The United States has pledged this contribution to an enlarged IDA pursuant to congressional authorization. |