President Nixon is the fifth consecutive president to propose a foreign aid program as a basic element in our relations with other countries. We ask this Committee to reaffirm our nation's willingness to support the efforts of the less developed nations by acting favorably on the President's legislative proposals.

Through foreign economic aid the American people express their humanity toward their fellow men and, at the same time, support friendly countries in their drive for development. Our foreign aid programs have been a good investment.

RECENT SUCCESSES

There have been some dramatic successes. For example, U.S. assistance programs played a major role in bringing Israel, Taiwan, Iran, and Greece to selfsustaining growth. Korea and Turkey should join their ranks soon.

The "Green Revolution" now sweeping South and East Asia stems in large part from the fertilizer, pesticides and high-yielding seeds that A.I.D. Development Loans have put in the hands of the Asian farmers.

A.I.D. technical assistance to agricultural extension services, research, agricultural universities and other educational programs is paying dividends in the rapid adoption of the new farm practices.

Despite the less developed countries' more effective use of development assistance and the successes that have been achieved, development assistance today is not available in the amounts required to seize the opportunities for more rapid progress.

EFFECT OF FY 1969 CUTS

In FY 1969, $765 million for Development Loans was requested. Only $300 million was appropriated. Some of the principal effects were these:

Our India loan program was cut in half-a reduction of over $200 million. This followed a deep cut the preceding year and was compounded by the shortage of I.D.A. loan funds. The Indian Government was forced to restrict imports and cut back on its investment program, thereby limiting industrial production and employment. We also were unable to make in FY 1969 a loan to help finance a joint Indian-American Cooperative fertilizer plant.

A.I.D. Development Loans for Pakistan were cut from $177 million to $71 million. Potential project loans of $37 million were eliminated. Here also, the government imposed rationing on industrial goods imports and cut back its investment budget braking Pakistan's economic progress.

Development Loans for Korea were cut from $40 million to $20 million. While the Korean Government agrees to the termination of Supporting Assistance in FY 1970, the reduction of Development Loans has placed a substantial burden on the Koreans. Our reduction is in the face of the outstanding development performance by the Koreans and their support in Vietnam, and comes at a time when they face increasing pressure from the north. Reduction of worldwide Technical Assistance funds from a request of $235 million to the appropriation of $167 million required further postponement of many of the new projects proposed in agriculture, education and health.

The cut in International Organizations grant funds from the request of $142 million to the appropriation of $126 million reduced the U.S. contribution to the UNDP to $71 million, $5 million less than our contribution in 1968 and well below our 40% share. Fortunately, the pledges of other donors continued to increaseat least for 1969.

Of the $515 million requested for Alliance for Progress Development Loans, only $255 million was appropriated. The unexpected elimination of the proposed $200 million Brazil loan program and $30 million in loans for Peru and high copper export income in Chile made it possible to avoid severe difficulty in other Alliance programs.

The funds requested by President Nixon will not prevent a decline in expenditures in FY 1970. The budget expenditure estimate is $1.87 billion in FY 1970— a drop of $180 million from FY 1969. Substantial cuts in this year's request will result in a continuation of this decline in expenditures into FY 1971. This downtrend is reducing U.S. official economic aid, counting all forms, including P.L. 480 and contributions to international banks, as well as Export-Import Bank hard term loans, to about four-tenths of one percent of our GNP-among the lowest economic aid efforts of the western nations. Even if all forms of private investment are also counted, the United States now is devoting less than two-thirds of one percent of our GNP to economic aid, while other countries are moving toward

compliance with the one percent of GNP goal set by the United Nations and the OECD.

This $2.2 billion request for economic assistance is $829 million above the amount appropriated for FY 1969, when the request was cut almost in half, and $314 million more than the appropriation for FY 1968. But it is only $67 million above the actual appropriation for FY 1967 and is $253 million less than the FY 1966 appropriation. The $2.4 billion program it would support has already been pruned in the process of preparing the Budget from a total requirement of $2.9 billion identified by our field missions and central staff offices. It is barely sufficient to meet the most essential requirements in our programs. Appropriation cuts in FY 1969 have already imposed severe strains on our programs in many key developing countries. A second year of such cuts could mean substantial risks in our relations with the developing world.

MISCONCEPTIONS ABOUT AID

Many misconceptions exist about foreign aid.

Some people expected the task of development to be quick and easy like the recovery of Europe. Instead it has proved to be long and arduous, and many are frustrated with the apparent slowness of progress.

Many people do not know that A.I.D. loans are repaid with interest-all in dollars.

Few people realize that over 98% of the commodities financed by A.I.D. this fiscal year will be purchased in the United States thus providing jobs and additional income for American businesses and labor, and market development for our exporters.

Many believe the aid program hurts our balance of payments, whereas the very limited spending of aid dollars abroad is more than offset by repayments to the United States on earlier aid loans.

We often hear that aid is scattered too thin all around the world. In fact, 90% of A.I.D.'s FY 1970 country programs is proposed for only 15 countries.

Questions are often asked why the United States aids people in far-off lands who sometimes do not seem to appreciate our assistance or are not cooperative in matters of concern to the United States. We and others have learned that we cannot buy international friendships. Our goal is to help develop a community of free, independent and dynamic nations in the belief that through that route there can be greater assurance of a peaceful world.

IMPROVED MANAGEMENT

Reports of waste and mismanagement has not increased enthusiasm for foreign assistance. Wide publicity of incidents involving isolated cases often long since corrected has encouraged critics to believe that the program is riddled with irregularities. For the most part, these have been minor ineptitudies, largely resulting from our efforts to place on the developing nations the responsibility for managing the projects and imports we finance. A.I.D. should not be excused from valid criticism, and there will always be room for improvement. But any impression of widespread mismanagement is not justified.

We must all be concerned with how well the Agency fulfills its present responsibilities. To ensure that we receive a full return on every dollar spent, we are intensifying A.I.D.'s efforts to improve the efficiency and effectiveness of all the Agency's operations. A new office for audit, inspection, investigation, security, and operations appraisal has been established, under an Auditor General reporting directly to the Administrator. And the use of advanced management systems and techniques in formulating, implementing and evaluating operational programs is being given high priority.

PROPOSALS FOR THE FUTURE

The question we now face is what basic role America should play in development assistance in the years ahead. The President and many of us began to confront this question earlier this year through an intensive review of our aid programs. That review led to certain conclusions about the direction in which we would like to move.

In his Foreign Aid Message the President stated his intention to appoint a Task Force representing a broad cross section of American leadership. This group, including both supporters and critics of foreign aid as well as those who have taken no position, will be charged with the responsibility of recommending to

the President in time for consideration by Congress early next year what this country's foreign aid policy should be in the decade beginning 18 months hence. In the meantime this Administration has reached some conclusions on what is clearly necessary to do now to improve essential aspects of the economic assistance program. The resulting emphasis are reflected in the proposed authorizing legislation now before the Congress.

THE PRIORITIES

President Nixon stated in his Foreign Aid Message that

We must enlist the energies of private enterprise;

We must emphasize innovative technical assistance;

We must encourage other economically advanced nations to increase their contribution to this common cause;

We must build on recent successes in furthering food production and family planning.

Private enterprise

NEW APPROACHES

First, we plan to give priority to helping the developing nations release the productive capacities and initiative of their people. The mobilization of private resources helps ensure active popular participation in the development effort. Without such participation outside assistance is of limited value and development progress suffers.

Technical assistance builds the institutions, provides the skills and knowledge necessary for greater individual contribution to development, and enables a country to make effective use of its natural resources.

Development Loans help to provide capital not sufficiently available in the developing nations to supply the goods required for agricultural and industrial production and to finance the roads, power and other infrastructure needed by private enterprise. At the same time, these loans enable governments to undertake major policy changes which support private enterprise, such as liberalizing import controls, freeing up foreign exchange, expanding domestic credit for investment and encouraging incentive prices for farmers.

American private firms investing in poor countries can also play a crucial role in the development process. In addition to capital, the investor brings modern technology, improved management practices, new employment opportunities, marketing systems and knowledge of potential markets abroad.

To encourage productive American private investment in the developing countries, the President has proposed establishment of an Overseas Private Investment Corporation (OPIC) as a new instrument of foreign aid.

The Corporation will

(1) provide more effective management of present investment incentives, such as insurance and guaranties,

(2) have a small supplemental direct lending program for private developmental projects,

(3) carry out investment survey and investment promotion activities, and (4) undertake for A.I.D. some of the technical assistance required to strengthen private enterprise abroad.

We are requesting appropriation of $75 million to supplement existing appropriated and accumulated insurance and guaranty reserves which now total ap proximately $100 million. This increase in reserves is necessary to build private investor confidence in OPIC programs, but no obligations or expenditures are planned from the requested appropriation.

Technical assistance

Second, we propose to expand and emphasize Technical Assistance to bring American technical and professional expertise to bear on the problems of the developing countries. Such assistance provides training in the United States or third countries for promising individuals from developing countries. It builds lasting human institutions which help create and accelerate the momentum of development. And it provides professional advice on economic policy and priorities in the selection and testing of development investments. Over one-fifth of the FY 1970 authorization request is for Technical Assistance.

Much has been learned about how to carry out the business of development. We know that modern industrial and agricultural technology will be of little use to the developing nations unless assistance-technical and capital-is provided in the proper balance to meet their requirements. Technical and managerial

skills are essential to the prudent and efficient use of capital goods. But investment in upgrading skills will have only a meager payoff unless capital resourcesare readily available to utilize the skills required. A farmer trained in the ways of modern agriculture will be unable to use his training unless he is able to buy the fertilizer, the seeds, the pesticides and the equipment that modern farming requires. At the same time, these agricultural inputs are useless in the hands of a farmer who does not know what to do with them.

To support our Technical Assistance effort we plan to use the best American talent possible to help the people of the developing nations keep pace with today's needs and the changing demands created by rapid advances in science and technology.

The A.I.D. effort in Technical Assistance will be strengthened through the establishment within A.I.D. of a Technical Assistance Bureau designed to consolidate under single management the central staff functions now carried out in several parts of the Agency. It will offer opportunities which should attract outstanding experts to full or part-time service with A.I.D.

The legislation before you brings together in one place the various Technical Assistance categories and provides two-year authorization in order to emphasize the need for long-range planning of Technical Assistance activities. Multilateral assistance

Third, the President has called for greater effort to encourage the sharing of the development task among all the economically advanced nations. Most of the rich nations are now expanding and improving their aid to the developing nations. Multilateral programs have increased the total amount of assistance while reducing the proportion contributed by the United States. In contrast to the mid-1950's, when the United States was shouldering most of the assistance burden, other free-world nations are now contributing more than half of the financial resources going to the less developed countries.

Multilateral assistance is largely concerned with capital flows, but significant multilateral technical assistance programs also exist, mostly under U.N. auspices. The primary multilateral organization providing technical assistance is the U.N. Development Program directed by Paul Hoffman for which we are requesting $100 million in fiscal year 1970-an increase of 41 percent over the amount contributed in fiscal year 1969.

In addition to financial resources, multilateral assistance brings to bear skills, experience and influence from many sources on the problems of development. Over 90% of A.I.D.'s worldwide Development Loans are provided in the multilateral framework of consortia, consultative groups or other aid coordination groups. Alliance for Progress loans are furnished under the multilateral review and consultative machinery of the Inter-American Committee on the Alliance for Progress (CIAP). Such coordination of assistance helps make the assistance provided by each donor more effective.

Food and population

Fourth, our highest priority will continue to be to help correct the critical imbalance in too many developing countries between food production and population growth. We shall continue to invest as much as can be wisely and effectively used in the solution of these associated problems.

The developing nations require far greater capital investment for fertilizer, pesticides, water resources, and other essential agricultural inputs. One of the determining factors in the success of their efforts may well be the adequacy of U.S. aid, particularly Development Loans.

Development Loan negotiations help persuade recipient countries to emphasize and expand their agricultural programs, improve marketing systems, provide for better storage facilities, increase farm credit and undertake other steps needed for agricultural growth. The economic situation of many developing countries makes such policy changes impossible without inputs financed by Development Loans.

Technical Assistance must go hand-in-hand with capital assistance. A.I.D. technical advisors provide on-the-spot training for extension workers, credit, marketing and other specialists-all vital parts of a modern agricultural system.

An adequate nutritional level requires more than full stomachs. Adequate diets are not only essential for good health, but are basic to the success of voluntary family planning programs. In addition to nutrition programs, development and support for maternal and child health clinics are important. We are becoming

increasingly convinced that only when the poor farmer or urban laborer and his wife are assured that their children will survive in good health will they accept the need for family planning.

In FY 1965, about $2 million was obligated for population and family planning and related activities. In FY 1969 we reached $45 million. In addition some $30 million of foreign currency owned or controlled by the United States were used. We expect to increase obligations of dollars and local currencies in FY 1970. We will continue to do all we can to help meet the population crisis. But we believe legislative earmarking could result in unsound projects, an unwise increase in funds in excess of needs or an inability to spend these funds wisely.

FUNDING REQUESTS

The adoption by the Congress of these initial proposals will begin to turn our foreign aid efforts in new directions. But new directions are not enough. We need the funds to support them.

This is a time of necessary fiscal and budgetary restraint. As a result, the President's $2.2 billion authorization request for the A.I.D. program is the lowest economic assistance request in ten years.

Technical assistance

For Technical Assistance we are requesting $463 million for FY 1970-$224 million for Africa and Asia, $116 million for the Alliance for Progress and $123 million for Multilateral Organizations and Programs.

A.I.D.'s Technical Assistance projects and the U.N. Technical Assistance activities to which we contribute are normally funded for a year at a time, even though they may run for many years. The bulk of this request, therefore, is needed simply to enable us to continue during this fiscal year our support for ongoing projects. But we must do better than just continue projects already begun. We must find ways-and funds-to put Technical Assistance to creative new uses. Of the $50 million proposed for population programs in FY 1970, nearly $47 million is Technical Assistance, $99 million of Technical Assistance is proposed for agriculture and $90 million for education. Central research and U.S. institutional grants are planned at $10 million apiece in FY 1970. Almost $97 million is proposed for regional Technical Assistance programs benefitting more than one country.

The bulk of the Multilateral Technical Assistance-$100 million out of $122.8 million-is for the U.N. Development Program. Most of the rest-$13 millionis for UNICEF.

For FY 1971 we are requesting a 15% increase in the Technical Assistance authorization to enable us to continue the expansion of the Technical Assistance program which we propose to begin in this coming fiscal year. Development loans

Dollar-repayable Development Loans fianance the American commodities and technical services necessary for such facilities as schools, clinics, irrigation works and roads. They finance the imports of fertilizer, farm and industrial equipment, raw materials and spare parts from the United States needed for agricultural and industrial development. In addition, they are A.I.D.'s primary means of encouraging borrowing countries to take the self-help steps needed for their own development.

The authorization request for worldwide Development Loans is $676 million. This amount, together with such items as repayments on past loans, would make $764 million available for lending in FY 1970. Of this total $665 million is proposed for five countries-India, Pakistan, Indonesia, Turkey and Korea-with a combined population of 850 million people.

India will require $200 million and Pakistan $35 million to continue their food production gains of the past two years. In addition India will need $185 million, Pakistan $100 and Turkey $40 million for imports of machine tools, spare parts and raw materials from the United States to support increased levels of private industrial production and to foster more efficient use of existing plant capacity. A total of about $15 million for project loans is also proposed for Turkey and Pakistan.

Following the striking success of Indonesia's efforts to stabilize her severely dislocated economy, Development Loans totalling $60 million will finance projects in agriculture, transportation and electric power. Korea will require $30 million in Development Loans to continue her consistent dramatic progress in both agriculture and industry.