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Mr. Chairman, the reason for calling these witnesses is to support that provision of the bill which relates to the Overseas Private Investment Corp. which, as everyone knows, is a very important and interesting innovation this year in the foreign aid bill.

It is a matter in which I have had a long standing and very deep interest, in which I have done a great deal of work, including this amendment, and I believe that it begins a process which is very likely to change the way in which we administer our foreign aid very much for the better.

DECREASE IN PUBLIC CAPITAL

In that connection, Mr. Chairman, I wish to point out that the Development Assistance Committee of the OECD released figures on Wednesday that indicated that, while the flow of funds for aid from public sources to the developing countries declined in 1969, private investment had taken up the slack, particularly from other countries, not our own, West Germany, Italy, and Japan. Total government aid of the 17 major donor countries decreased from about $7.08 billion to about $6.9 billion, while private capital increased from about $4.2 to about $5.9 billion. Thus it will be noted more than taking up, making up, the difference and coming very close to equalling the aid from public funds.

The decrease in public capital is very heavily attributable to the fact that foreign aid funds were cut very materially, including the foreign

aid from the United States.

The Overseas Private Investment Corp., Mr. Chairman, will have as its purpose to mobilize and facilitate the participation of the U.S. private capital and skills in the economic and social progress of less-developed countries and areas, thereby complementing development assistance objectives of the United States.

I wish to emphasis that this corporation will be self-financing. A majority of its directors will be drawn from private life, including its chairman and president, and will have as a minority, representatives of the major government departments.

There are some parts of the bill as presented by the administration that may need some changes. One, I think, is the problem of 25 percent of the total financing of any project being unguaranteed capital may be a question we ought to deal with, and also the possibility of giving the corporation a little bit more latitude in respect of equity financing.

ROLE OF PRIVATE INVESTMENT SHOULD BE ENCOURAGED

I would like to close this statement by pointing out, Mr. Chairman, that from this report of the Development Assistance Committee that the 1 percent of gross national product standard, which has been set as kind of a universal expression of the concern of the developed countries for the developing countries, has not yet been met. It is not met by us in the United States, and it is not met by all the countries collectively. Political problems are such that it may not be met. Hence, all the more reason for encouraging in every way operations of the private enterprise system as it may fit into the overall plan of aid for these countries.

In addition, I would like to pick up from what Mr. Weaver said, through private investment you do get a rather interesting and important coordination between aid and trade because private investment is heavily premised upon trade, and I agree thoroughly that this should more and more take up the aspects of the foreign aid program which are much more effectively handled that way. I express that belief as part of the evidence here on the Overseas Private Investment Corp., that if we go forward with that corporation, it is very likely that private investment will overtake public funds as the source of foreign aid within a year or two.

I think this is so enterprising. We are not the first to do it. Germany and Britain have already done it. I think when the genius of the United States in the business field can take hold in a now proven operation it would be very valuable.

Thank you, Mr. Chairman, for the privilege of making that

statement.

I would like to express my appreciation to the witnesses, and respectfully I suggest that their statements be filed, as happened with the other witnesses, and they be asked to make some brief comments and summary of them and then they be available for questions.

Senator SYMINGTON. Mr. Maffry, would you be first, and comment on Senator Javits statement, or give any thoughts of your own?

STATEMENT OF AUGUST MAFFRY, SENIOR CONSULTANT, BANK OF AMERICA

Mr. MAFFRY. Yes; if you please, Mr. Chairman.

I appear here in my private capacity, but I mention that I was a member of the working panel that helped to develop the concept of the proposed Overseas Private Investment Corp. And Mr. Dennison, on my left, was also a member of that panel.

We, and I speak now, for the Bank of America, and I think for the banking community, strongly support the proposed Overseas Private Investment Corp.

ADVANTAGES OF CORPORATE FORM OF ORGANIZATION

The essence of the matter, as we see it, is that this would cast into corporate_form certain functions of the present Agency for International Development that involve the private sector, and that are essentially of a business nature. This has to do with specific risk insurance, it has to do with extended risk guarantees, and it has to do with direct loans and, I hope, along with Senator Javits, also direct equity investment, minority investment.

We think the corporate form of organization has several clear advantages, and I speak now in terms of the committee print in front of you. It is provided that this corporation, as proposed, would draw on to its board and on to its staff qualified persons from the private sector with business backgrounds. We conceive that they would join with their Government colleagues also on the board to deal in a business manner with these functions that are of a business nature and, as I shall indicate later in a few moments, it is often large scale businesses involved.

We think this arrangement would bring flexibility and efficiency to this whole operation. I am not suggesting that AID has not done a good job of managing these functions. I think they have within the limits permitted to AID. But we think the corporate form of organization will do it more efficiently and more flexibly.

These are easy words, Mr. Chairman, but we think they go to the very heart of the matter.

Further, the corporation, as a continuing legal entity, would greatly facilitate contractual relationships between U.S. corporations and other legal persons both here and in the developing countries. The continuity of corporate life and management, we think, is a very important aspect of the proposal.

Perhaps most important of all, a corporation has accountability, it has its own balance sheet, its own profit-and-loss statement, and in periodic reviews by Congress of its operations the whole business will be put into an objective context of a business corporation.

In our view, and we have studied the possibilities very carefully, we think that this corporation set up generally, as proposed in the administration bill, should impose no burden whatsoever on the Public Treasury. It should operate not, we think, at any substantial profit, but with a good chance of operating without any loss and, hence, no burden on the Public Treasury.

For these reasons, Mr. Chairman, we strongly support the proposal,

PROJECTS OF DEVELOPING COUNTRIES

Now, as concrete evidence of the effectiveness of the present program, which would be carried forward by the proposed Overseas Private Investment Corp., I have prepared, and I offer for the record if you want it, a list of projects of developing countries that have been assisted by investment insurance and investment guarantees under the present system.

Senator AIKEN. Is it a long list? I would like to hear it.

Mr. MAFFRY. It is not a long list but it adds up to some very substantial figures.

Senator SYMINGTON. Will you read it at the suggestion of the Senator from Vermont?

Mr. MAFFRY. There are 10 projects on this list. Four of them are in India, one in Pakistan, one in Chile, one in Korea, one in Indonesia, one in Thailand, and one in Kenya. The total project cost runs from a small project less than $2 million to a large project of $119 million. Senator AIKEN. I have the list now.

Mr. MAFFRY. You have it there?

I would like to emphasize, Mr. Chairman, that only a part of this total investment was assisted by the U.S. Government through the AID insurance and guarantee programs.

(The statement of Mr. Maffry together with the list referred to follows:)

STATEMENT ON PROPOSED OVERSEAS PRIVATE INVESTMENT CORP., BY AUGUST MAFFRY, SENIOR CONSULTANT, BANK OF AMERICA

My name is August Maffry. I am Senior Consultant to the Bank of America, New York, and was a member of the working panel which helped develop the concept of the Overseas Private Investment Corporation as proposed in the Foreign Assistant Act of 1969.

The essence of the proposal is to cast into corporate form certain functions of the present Agency for International Development involving the private sector. There are a number of clear advantages to a corporate form of organization for these purposes. These can be summarized as follows:

A corporation, in this instance a government corporation, has the advantage of being able to draw into management and onto its board of directors persons from the private sector with business backgrounds. These persons can join with the directors from the government sector in dealing in a business like manner with matters that are of a business nature. These include investment surveys and project identification, insurance and guaranties of private investment, and loans for the account of the corporation itself. Specifically, a corporation would be relatively free from the more cumbersome procedures to which a government bureau is inevitably subject and in particular from the slow and clumsy system of decision-making through departmental and interdepartmental committees. Also, it could hire and fire senior personnel on the basis of competence and performance.

A corporation, as a continuing legal entity, would greatly facilitate contractual relationships with U.S. corporations and other legal persons in the U.S. and in developing countries. The continuity of corporate life and management, accompanied by freedom from annual appropriations and authorizations by Congress should enable a corporation to operate flexibility with a view to accomplishing its purposes in the best and most expeditious way and efficiently with a view to keeping overhead and other expenses within its revenues so that it can operate, if not at a profit, at least without loss. A corporation would thus have accountability as evidenced by its balance sheet and profit and loss statement. Its financial accounting would make it possible for the Congress and the public to appraise its operations in terms of the market place, as well as in terms of its effectiveness in achieving its statutory mandate. The periodic reporting to Congress by the corporation and the periodic review by Congress of its operations will in this way be given an objective context.

Finally, perhaps the greatest advantage of a corporate form of organization lies in the basic fact that private corporations, the human and material resources of which are sought by the Government in the development of the private sector in developing countries, have a strong preference for dealing with a corporate entity as opposed to a government bureau. The same is true of privatesector entities in developing countries.

Accordingly, I urge that the proposed Overseas Private Investment Corporation be approved.

Mr. Chairman, as concrete evidence of the effectiveness of the present investment guaranty program to be carried forward by the proposed Overseas Private Investment Corporation, I have prepared, and offer for the record if you wish to have it, a list of projects in developing countries the financing of which has been made possible by extended risk guaranties and specific risk guaranties issued to investors by AID. The Bank of America has participated in all of these projects for its own account and risk.

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GUARANTEE AGAINST LOSSES

Senator SYMINGTON. Let me ask this question. Suppose one of these investments fails. Wouldn't the American taxpayer have to put the money through the Government?

Mr. MAFFRY. That is correct. However, the corporation would have a guarantee reserve that could be drawn upon to meet ordinary losses. Senator SYMINGTON. I was in a country some years ago where there was a $90 million investment. It happened to have been in a business that I had been connected with before I came into government. I did not think it looked very promising and so discussed the details with the people involved in this faraway country. Finally one of them said, "Well, after all, you know, we have no real heavy risk, because it is guaranteed by the Federal Government." This made an impression.

I am wondering what your comment would be on that.

Mr. MAFFRY. Mr. Chairman, mistakes will be made undoubtedly both by business and by government, by the two in combination. But I would like to emphasize that the sponsors of these projects are all at risk with their own money. The Bank of America is at risk in every one of these projects.

EFFECT OF INCREASED OVERSEAS INVESTMENTS ON BALANCE OF PAYMENTS Senator SYMINGTON. What effect will increased overseas investments have on our balance of payments, in your opinion?

Mr. MAFFRY. I think no adverse effect whatsoever. These are productive investments. They will yield a good return. They will promote U.S. exports to the developing countries. I would say no burden whatsoever.

Senator SYMINGTON. Incidentally, I read a statement by Mr. Lundborg who, I believe, is the head of your organization.

Mr. MAFFRY. That is correct.

Senator SYMINGTON. And I thought it one of the best statements with respect to some of the financial problems the United States faces today. I put in the Congressional Record, and wish, when you see him, you would respectfully commend him.

Mr. MAFFRY. I know he would be gratified.

Senator SYMINGTON. It was a constructive statement.

In view of recent expropriations of American property in foreign countries, do you think this is a good time to promote overseas investments?

Mr. MAFFRY. I do. This is a type of political risk that we have to face and cope with. I think it will be sporadic. I do not think it should be an obstacle to the program.

AMOUNT OF GUARANTEE ON BANK OF AMERICA PROJECTS

Senator SYMINGTON. On how many of these projects does the Bank of America have a hundred percent guarantee on the money it has loaned?

Mr. MAFFRY. None. We are at risk in all of these projects.

Senator AIKEN. Is it 75 percent, 90 percent, or what is the guarantee?

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