they found those estimates were underestimates. It is really the same program, recosted.

Mr. MERROW. Now we provided $45 million this last year, for India? Mr. LOFTUS. That is correct.

Mr. MERROW. Suppose we do not give them any more than $45 million for technical assistance this year and say that we will give the same amount of money but we are not going ahead with this other large sum for implementing the 5-year program, or for implementing our technical assistance, that we will give only the same amount of money? What will happen then?

Mr. LOFTUS. Well that money would be put very usefully to work. I think the question that is raised however is whether we would then have a reasonable chance within the period until the end of 1956 of accomplishing what I assume is our objective here. It seems to me what we are of necessity trying to do in India is to hold the country together during this critical period and to hold it on the right side of the fence.

Now there is no question that any amount of money that the Congress saw fit to give for this work could be usefully employed, but that does not answer the question of whether it is enough to enable this country by 1956-57, to have shown to its people that measure of economic progress that they are demanding of this Government.

Mr. MERROW. Is it your opinion that if we do not give them anymore for the coming fiscal year than we have allocated for the current fiscal year that they will be on the wrong side of the fence or that there will be a deterioration or that of the Government will fall or something of that sort?

Mr. LOFTUS. No, sir. I think, however, that if by the critical date of 1956-57, if they have fallen notably short of what the people are demanding be done, that there will be a reconsideration in India of what kind of a government to have, what kind of a set of institutions to have.

I do not think you can say anything necessarily would happen this year as a result of the size of the aid we might extend to them this year, but it is taking the period as a whole, this type of government has to deliver on the promises which in effect carried it into power, if it notably falls short-and I cannot measure "notably" sir. It is not possible to make a precise measurement here, but if there is a substantial short fall and the people feel that this system of society and this system of government has not given them what they have needed and what was denied to them over a century of earlier history, they are going to look to some other kind of government.

Mr. MERROW. Do you think they have the capacity to absorb effectively not only the same amount that we put in last year but this additional amount which makes it around $100 million?

Mr. LOFTUS. I think there is no question about that. You see their 5-year program of expenditures is faced in this way:

They figured to spend about $600 million in the first year of the plan-and they did spend that. They figured to spend about $800 million in the second year of the plan and they did spend $775 million. The third-year tempo calls for them to go up to about $1 billion. That is a going concern, and the projects also which we proposed to help them on are going concerns. It is a continuation and expansion of the same things that we have been doing, and the slow period of

the halting start is over now. This program is in business, and I think there is no question whatever that the specific forms and projects in which we would propose to use this $110 million can be carried out during this fiscal period.

Mr. MERROW. There is a question in reference to Pakistan. They had $12 million to spend this last year and they will have $1 million left over as I understand it on June 30, and they are asking for $13 million for technical assistance for this coming year, plus the developmental aid, plus the wheat loan.

Now since they have $1 million carryover this year, it is difficult for me to see how we ought to keep increasing that technical aid at the moment as well as putting on a lot more for economic development. I question their capacity to absorb that.

Mr. LOFTUS. There may be others who may be able to speak with greater knowledge of detail about Pakistan. I am quite sure however as far as this goes, this is correct, that we have gotten off to a very slow start in Pakistan, much less fortunate than in the case of India. They in turn, the Pakistan Government in turn, has been much slower in getting itself organized. I think the two things are interrelated. We have not been able to be effective because they were slower in getting their plans firmed up and crystalized, but I am told that we now have a very efficient American operation in Pakistan and that the Government's plans have firmed up to a point where you can now expect the kind of rate of progress that we have in fact realized in India.

Mr. MERROW. I am trying to determine if there is a possible way to do this at a lesser figure because for these two countries we will have to ask the Congress to authorize and later appropriate $210 million, approximately, when you get the wheat and developmental aid and everything included that is a pretty high figure and it is going to be very difficult to get it.

(Discussion off the record.)

Mr. MERROW. Mr. Chairman, just one thing more: If we go ahead with this program this year and give India the money, that means that we are helping the 5-year program for the next fiscal year? Mr. LOFTUS. Yes, sir.

Mr. MERROW. Though that involves no commitment for the future, the fact remains that the plan is to run for approximately 2 more years after.

Mr. LOFTUS. That is right.

Mr. MERROW. Then, what, in your opinion, are we going to be asked to do, to make up the rest of it at the tune of $200 million a year, perhaps? And, then, even that would not completely cover the deficit.

Mr. LOFTUS. Mr. Merrow, what I was trying to say at the outset is that if you look at the Indian arithmetic of their 5-year plan, it looks as if the total deficit is not less than $500 million for this 3-year period remaining in the plan.

That arithmetic, however, is based on a whole series of estimates which could be wrong at any one of the several different points. In involves calculating what the different projects are going to cost, what they can raise in taxes, what they can borrow from their own people, what help they will get from other members of the commonwealth.

Now, there is a possibility, of course, that all these possible errors will accumulate in the wrong direction and that the deficit would be

greater than $500 million, but there is also a possibility that they would work in the opposite directions, or in a favorable direction, so that the deficit might not be that great.

In other words, I do not think we can make firm forward plans now on this kind of a calculation, but the calculation for this coming year of what they must do in this year, and what they will do is sufficiently definite that you can put forward a figure as we are putting it, of $110 million, and simply say that there is going to be a gap for the remaining 2 years also. But, I could not say it is going to be $200 million for each of those 2 years.

Mr. MERROW. Would that whole figure, including TCA, be charged to this deficit?

Mr. LOFTUS. It will go to plans which will reduce the deficit. Mr. MERROW. It appears to me we will be asked for $200 million a year in the future, or for the next 2 years, anyhow, after this one.

Mr. LOFTUS. I would like to make one other point clear, too, Mr. Merrow. What I have argued in my testimony yesterday and again just now is that it seems to me in our interests to do what we can to help see that there will not be a major short fall, a major failure. That does not mean necessarily that every detail and every project in the plan must be absolutely completed on schedule. In other words, there is some slack there, too, and therefore this raises the question of future judgments, really, as to what would be a reasonable contribution for us to make in each of those next 2 years when we see what sort of progress has been made, and also how the internal political situation is developing.

Mr. MERROW. That is all, Mr. Chairman.

Chairman CHIPERFIELD. Mr. Wood, do you have another witness? Mr. WOOD. Yes, sir.

May I just point out, Mr. Chairman, that we have now covered the special economic assistance in the 2 countries in the South Asia area concerned.

There are small technical programs and development programs in 2 other countries in this area, Afghanistan and Indonesia. I think the record will be complete if we may insert from these blue books something on those programs. The Afghanistan program involves a request of $1.48 million, and that for Indonesia, of $4 million. I think the committee would not wish to have any extended discussion of these programs. I am at your service, if you do wish such a discussion. Chairman CHIPERFIELD. Will you make up a statement explaining those programs?

Mr. WOOD. We will be glad to do so.

(The information requested is as follows:)

Afghanistan's economy is predominantly agricultural and pastoral, wheat being the principal crop for home consumption and karakul (black lamb) skins the chief product for export. Very little mining development has occurred. Failure to exploit even such mineral deposits as are available has resulted in

an almost complete lack of indigenous fuel; nor has the hydroelectric potential, which could provide the power base for rudimentary industry, been developed. Much of Afghanistan's arable land is barely adequate to support its cultivators as a result of disuse and deterioration of the ancient irrigation systems. The country itself is broken into fragments by the mountains of the Hindu Kush. This range, which divides the northern half, bordering the Soviet Union, from the southern half seriously aggravates the problem of establishing adequate communications and transportation.

Human

Ninety percent of Afghanistan's 12 million people till the soil or raise stock. One-fourth of Afghanistan's population is nomadic, and most of these escape the rigorous winters by migrating southward to warmer areas, including Pakistan. If political stability is to be assured, the Government of Afghanistan must make provision for permanently settling the almost 3 million nomads who make these annual migrations.

Capital

Afghanistan's foreign exchange earnings are tied directly to its earnings from karakul exports. In this field, which itself is heavily affected by changes in style, Afghanistan competes directly with the Soviet Union and has steadily been losing ground. Governmental revenues derive principally from import and export duties, and fluctuate with changes in the karakul market. Since Afghanistan's import needs for minimum amounts of cotton piece goods, sugar, tea, and petroleum products are relatively inflexible, the resources available for economic development fluctuate even more erratically from year to year.

II. GENERAL SITUATION

In order to build a stable economy Afghanistan must:

(a) Expand its irrigated acreage sufficiently to offset the effects of recurrent droughts, such as the one which led this year to a request for a $1,500,000 wheat loan from the United States.

(b) Settle its nomadic peoples.

(c) Develop processing industries for its agricultural products.

(d) Establish adequate communications and transportation facilities linking the outlying provinces with the capital city.

(e) Develop its mineral resources, and

(f) Diversify its export trade.

Development in the north of Afghanistan has been carried on almost entirely by private enterprise. But when the Government, following a U. N. technical-assistance survey of mineral deposits in the north, negotiated with western firms for test drilling of oil, Soviet Russia protested vigorously and applied strong pressure to prevent such firms from operating in that area.

The major development effort of the Government itself has been the Helmand Valley project in the southwest. Using $17 million of its own resources and a loan of $21 million from the United States Export-Import Bank, it has launched a large-scale project to develop irrigation and power in the Helmand Valley and to make available large tracts of new lands for the settlement of nomadic tribes. A United States firm, Morrison-Knudsen, was employed to carry out this project. Progress on construction is ahead of schedule and irrigation water is now becoming available. The Afghan Government is now faced with the difficult problems of land settlement and land use; of demonstration and extension to show newly settled nomads the use of effective irrigation agriculture techniques; and of establishing health, education, processing, marketing, and other facilities in the newly settled areas. Yet the Afghan Government has only a handful of trained personnel to cope with these problems. United States technical assistance is essential for backing up their efforts. Inevitably, since financing and construction of the Helmand Valley project come principally from United States sources, the United States will be identified by the Afghans with its failure or success. Success of the Helmand Valley project will not only affect Afghanistan but will demonstrate both to it and its neighbors the fruits of our partnership which is based on mutual confidence. On the other hand, failure to solve the problems associated with this development could result in political chaos and loss of the bulk of the resources invested in the project.

Objectives

III. THE PROGRAM

1. Provide technical assistance needed to help solve the problems of land settlement and agriculture of the Helmand Valley project.

2. Build a core of trained Afghan technical and administrative personnel.

Chronology and agreements

A basic technical cooperation agreement was signed on February 7, 1951, and amended in January 1952, as required under the Mutual Security Act. Since April 1951 exchanges of notes at the diplomatic level have formalized the various projects under the technical-assistance program.

Financing

The United States contribution to the joint program was $253,700 in fiscal year 1952 and $641,000 in fiscal year 1953. The Afghanistan Government has undertaken to meet local currency costs of United States technicians working on the cooperative program. It has also invested large quantities of its own resources in the mining, education, and Helmand Valley projects in which the United States is cooperating. Its total contribution for all of these purposes in the fiscal year 1953 and fiscal year 1954 program is estimated at the equivalent of $5 million each year.

? In addition, there are 5 contract employees in the field who come under fiscal year 1952 funds.

Agriculture, forestry and fisheries

Total United States cost....

Number of United States technicians.
Number of training awards______

$870,200 31

36

Objectives: To provide trained agricultural extension workers, especially in the Helmand Valley, and to assist the Afghan Helmand Valley Authority in planning and carrying out a land development and land settlement program in newly irrigated areas.

MAJOR ACTIVITIES IN FISCAL YEAR 1954

Agricultural education, $290,000

Continue support of vocational training, in agriculture and assist in expanding present training facilities. Under a contract with the University of Wyoming, instituted in fiscal year 1953, the United States will continue to provide instructors, teaching and laboratory materials for a vocational agriculture school in Kabul and will establish subsidiary agricultural training centers in the Helmand and other areas. Training of Afghans at the University of Wyoming will be continued.