B. PROPOSED USE OF FUNDS

6. AMOUNT REQUESTED AND HOW IT IS TO BE USED

The following table sets forth the amounts requested by ECA estimates on which the request for the 1950-51 authorization is based.

The sum of $2,925,000,000 for country aid was arrived at by an analysis of the probable dollar needs over the next year. This analysis took into account substantial estimates of probable dollar earnings and dollar savings, which will require strenuous efforts and heavy sacrifices of western Europe. In comparison with the estimated cost of this year's program this requested amount represents a decrease of 26 percent, or $1,028.2 in the country aid program. The committee noted particularly Mr. Hoffman's remark:

I wish to repeat again

*

*

*

*

*

*

that we are laying before you our best carefully screened estimates as to the requirements for the fiscal year. This is the minimum we think we shall need but, if we can save any of it without wrecking the recovery program, I again pledge you my word we shall do so.

The chart which follows indicates that the amounts authorized for ECA aid have decreased substantially year after year.

This progressive reduction in the size of the ECA program is consistent with the original Marshall plan which contemplated that after heavy initial expenditures it would be possible to taper off assistance until the end of the program in 1952. The committee was glad to note that the ECA has consistently taken the initiative in reducing the amounts requested.

*ECA funds for 15 months shown at annual rate for comparability with other fiscal years,
the GARIOA (Government and Relief in Occupied Areas) figure for Germany is for the
fiscal year 1948-1949.

Total of $2,950 million requested appropriation, plus anticipated carry-over of $149 million.

BILLIONS OF DOLLARS 6

-4

-2

0

7. NEW BASIS FOR AID DISTRIBUTION

During the first 2 years of the recovery program the OEEC had responsibility for recommending to the ECA the proportion in which aid was to be divided among the recipient countries. A great deal of time and effort went into this task. As a result a division of funds was agreed upon which was designed to achieve the general objectives of European recovery. Accordingly, ECA and OEEC have agreed to use this division as the basis of country allotments during the balance of the program.

For fiscal 1951 there are two exceptions. Greece, emerging from civil war, will be given a larger proportionate share of the total for its reconstruction needs. Belgium, on the other hand, will receive a substantially smaller proportion than in 1949-50.

The committee believes that, with the division established in advance, the participating countries and OEEC can now concentrate on the liberalization of trade, methods of expanding their hardcurrency earnings, and other broad problems of recovery.

The following table indicates the way in which country aid is to be apportioned in 1950-51:

8. TYPES OF COMMODITIES TO BE PURCHASED

Considerable interest has been evinced in the types of commodity and industrial items which, it is expected, the participating countries will purchase during the next fiscal year with ECA aid. It is estimated that 83 percent of the purchases in 1950-51 will be made directly in this country. In the process of multilateral trade all ECA dollars will come back and be spent in the United States. Sugar and certain nonferrous metals will make up the bulk of purchases outside this country. The following table indicates the estimated purchases of all commodities, both inside the United States and elsewhere, to be financed with ECA funds.

Dairy products_

4.7

503.5

474.7

8.3

NOTE. The difference between the total estimated ECA-financed imports ($2,689.2 billion) and the direct country aid figure ($2,925 billion) is made up by

freight costs.

9. SUPPLEMENTARY AID FOR GREECE

The estimated aid for Greece in 1950-51 is 148.8 million dollars to enable that country to accelerate its reconstruction program. In addition, $36,000,000 has been requested to pay for certain items which will be used by the military forces such as oil and lubricants, shoes, clothing, tires, and medical supplies. These items are normally used by the civilian economy and by the military forces. If ECA purchases them for military as well as civilian use, substantial savings will result because purchase orders will be lumped and deliveries consolidated. In the past these items, when for military use, have been carried under the Greek-Turkish military-aid program. Addition of this $36,000,000 to the ECA appropriation will mean a decrease of a like amount in the size of the military-aid appropriation for Greece.

10. FUNDS RESERVED FOR TRADE LIBERALIZATION AND OTHER SPECIAL

PURPOSES

The ECA expects during 1950-51 to withhold from the country aid programs certain funds which will be used to encourage projects designated to promote intra-European trade and increase the ability of the participating countries to earn, or save, dollars. The amount to be withheld is $600,000,000, which will be used (a) to encourage the creation of an European Payments Union and (b) to promote specific projects on a country-by-country basis for the reduction or removal of trade barriers.

In addition it is planned to set up a special fund of $85,000,000 which will be used (c) to promote the construction of international power projects, and (b) to encourage the establishment of overseas developments which will enable western European countries to earn, or save, hard currencies.

(a) Proposed European Payments Union

In order to stimulate intra-European trade, and thereby to reduce dollar-aid requirements as much as possible, the ECA in 1948 encouraged the establishment of the intra-European payments plan. It is now proposed to take a further important step in this direction by replacing the payments plan with a European Payments Union. The existing payments plan is a method of distributing part of the dollar aid to creditor participating countries upon the condition that these creditor countries in turn make grants in their own currency (drawing rights) to debtor participating countries. This plan encourages bilateral trade between the creditor countries receiving ECA "conditional aid" and the debtor countries which receive "drawing rights" on specific creditor states. Its principal shortcomings are that the plan encourages bilateral rather than multilateral trade and makes it necessary for debtor states to buy in those creditor states upon which they hold drawing rights even though the product needed may be obtained more cheaply in some other participating country.

The proposed Payments Union will not change either the amount of aid needed or the purpose for which ECA dollars are ultimately used. But some of these dollars will come to creditor states through the new Payments Union, which is essentially a typical clearinghouse operation participated in by the central banks of each country. This will encourage the financing of trade deficits on a multilateral basis. A debtor country will have the right to draw upon the Payments Union for any European currency it needs, up to a predetermined limit. A creditor country will provide its own currency to the clearinghouse as needed, up to a predetermined limit. A considerable part of the ECA funds required for financing trade deficits will be granted as aid to the Payments Union, and, in effect, earned from the Union by the creditor countries. However, trade deficits will be paid only partly with ECA aid to the Union. The debtor countries must finance part of their trade deficits out of their own dollar resources, and the creditor countries must loan funds to the Union in amounts not directly dependent upon ECA aid. Thus, a bilateral-trading system is progressively superseded by multilteral trading. Trade deficits will be financed by three different sources of funds: (1) ECA dollars transferred to the Union; (2) gold and dollar resources of the debtor countries; and (3) loans extended by the creditor countries.

In order to give the Payments Union the needed start, the bill reported by the committee authorizes the Administrator to transfer funds directly to the Payments Union or any similar institution or to a participating country in connection with the operation of such an institution. The amendment restricts such transfers of funds to a total of $600,000,000. They are in fact likely to fall considerably below that figure.

(b) Assistance to individual countries

As noted in the preceding section, it is not expected that the total reserve of $600,000,000 to be withheld from country allotments for trade liberalization and similar purposes will be used for direct transfer of funds in support of a payments union or other central institution. The balance will be made available as needed to individual countries, under regular program procedures for financing goods and services, to