bilities and our stake in the orderly economic development around the world.

I think we tend to sell ourselves very short, and we pay a very high price for doing so. But I hope that this direction that we all are searching out will get us back on the track again.

I gathered, Senator, you wanted to put your questions to both Mr. Dennison and Mr. Ritchie.

Senator JAVITS. I would want to put them to the whole panel.
Let's hear Mr. Ritchie.

Senator MCGEE. Mr. Ritchie, please proceed?

STATEMENT OF LYELL H. RITCHIE, VICE PRESIDENT, PORTER INTERNATIONAL CO., WASHINGTON, D.C.

Mr. RITCHIE. The view of the Overseas Private Investment Corp., that I would like to offer is from the other end of the telescope, from the vantage point of at least the developing countries that I have worked in.

FILLING VOID BETWEEN "HAVES" AND "HAVE-NOTS"

From there the issue seems to be the economic and political and social stability that can only come by filling the void between the "haves," whether the haves are oligarchs or whether they are bureaucrats, and the "have-nots."

For the past 20 years or so we spent significant sums and efforts in providing the less developed countries with highway systems, irrigation systems, health programs and so on in an effort to attain stability.

Experience strongly suggests that such activities have had relatively little effect on the country's ability to solve its own economic problems but rather the evidence to date indicates that it is the industrial and commercial and agricultural projects, those in which the Overseas Private Investment Corp. would be involved, that are the principal nurturing grounds for the entrepreneurial, managerial and technical skills which are vital to true long-term progress.

ROLE OF DEVELOPMENT BANKS

During those same decades this task has been increasingly borne by the development banking communities. Development banks have undertaken the assignments that the "haves" would not and the "have-nots" could not.

In many countries, without a middle class or with a middle class that is alien to the balance of society, development banks have been the only national source of needed entrepreneurial, managerial, and technical skill.

The Overseas Private Investment Corp. in focusing on private enterprise can, I believe, greatly enhance the effectiveness of development banking which, in turn, I feel has been making the most significant contribution in this period to economic development.

PRESSING NEEDS OF DEVELOPING ECONOMIES

Today as the development banks have matured and as the economies in which they operate have developed, other requirements and opportunities are emerging that are at least as pressing. Two are particularly relevant to the operations of OPIC. First of all, in many developing countries what are called the first generation industries brewing, textiles, basic construction industries and so on, are now relatively fully developed. The emphasis is on the more sophisticated second generation industries. This is an area for private enterprise not for the traditional aid donors.

The second pressing need is for increasing portfolio liquidity in the development banks themselves. In many countries there are no buyers, let alone mechanisms, for the sale of even the most seasoned portfolio securities.

The Overseas Private Investment Corp. should have available the insurance, the guarantees and the other assistance that U.S. private enterprise needs to participate effectively in these agricultural and industrial ventures. And OPIC should also work with the development banks in marketing their portfolio securities, in establishing unit trusts and helping mutual funds, in helping to create other money market instruments even in the beginnings of share trading.

As I said at the beginning, this is one view from the other end of the telescope. I have not supported earlier efforts in the general direction of OPIC, including Senator Javits' own Peace by Investment Corp. But I do believe that following on the accomplishments of the past two decades that OPIC itself is urgently needed to deal with today's problems, new problems and opportunities.

(The full statement of Mr. Ritchie follows:)

STATEMENT BY LYELL H. RITCHIE, VICE PRESIDENT, PORTER INTERNATIONAL COMPANY

Mr. Chairman and Members of the Committee.

I would like to offer a view of the Overseas Private Investment Corporation from the other end of the telescope. Or, at least, from the vantage point of the developing countries I have worked in.

From there, the issue is more complex than simply fostering private enterprise as OPIC proposes to do. In essence, the issue is the economic, political and social stability that can only come by filling the void between the "haves" (whether oligarchs or bureaucrats) and the "have nots".

In the past 20 years we have spent significant sums and effort in providing the less developed countries with highways, irrigation systems, health programs and other similar projects in an effort to help them attain this stability. Experience strongly suggests, however, that such activities may have had little direct effect on a country's ability to solve its own economic problems. Rather, evidence to date indicates that it is the industrial and commercial agricultural projects, those in which the Overseas Private Investment Corporation would be involved, which are the principal nurturing grounds for the entrepreneurial, managerial and technical skills vital to true long term progress.

During the past two decades, this task has increasingly been borne by the development banking community. Development banks in the less developed countries have undertaken the assignments that the "haves" would not and the "have nots" could not. In the many countries without a middle class, or a middle class that is alien to the balance of the society, development banks have been the only national source of needed entrepreneurial, managerial and technical skills.

The Overseas Private Investment Corporation, in focusing on private enterprise, can greatly enhance the effectiveness of development banking, which, I

sincerely believe, has been making the most significant contribution, conceptually and pragmatically, to economic development.

Let me say further that there is no effective alternative to on-site project identification, formulation and management, such as is performed by the development banks, and that is vital to OPIC's success I do not believe that a man sitting in Washington-or London or Paris-can effectively develop or manage projects in the less developed countries. I believe that the experience of the International Finance Corporation, Commonwealth Development Corporation Deutsche Entwicklungs-Gesellschaft and others bears me out.

While the accomplishments of the development banks are on record, their needs and opportunities are not static. And this is one area where I believe the Overseas Private Investment Corporation can play a vital role. In years past, the principal needs of development banks were organizational assistance and financing. These needs have, historically, been provided by the host governments, by institutions such as the World Bank group, AID and its predecessors, the Commonwealth Development Corporation and by some members of the U.S. and European financial communities. Today, as the development banks have matured and as the economies in which they operate have developed, other requirements and opportunities are emerging that are at least as pressing.

Two are particularly relevant to the operations of the Overseas Private Investment Corporation. First of all, in most developing countries what are often called the "first generation" industries-textiles, brewing, basic construction materials and so on-are now relatively fully developed. The emphasis is on more sophisticated "second generation" industries. This is an area for private enterprise, not the traditional aid donors. These projects are not necessarily any more costly and they are definitely not necessarily more profitable. They often involve processing of local raw materials for highly competitive export markets. It is noteworthy that some sophisticated U.S. companies refuse to accept, even in relatively highly advanced countries, any local partner other than the development bank.

The second pressing need is increasing portfolio liquidity of the development banks themselves. In many countries there are no buyers, let alone mechanisms, for the sale of even the most seasoned portfolio participations. (A curious side effect of such portfolio illiquidity is that we continue to provide concessional loans to established development banks whose own shareholders have for years been receiving annual dividends of ten percent and up.)

The Overseas Private Investment Corporation should be responsive to both these areas. The Corporation should have available the insurance, guarantees, and such other assistance as U.S. private enterprise needs to participate effectively in these industrial and agricultural projects. And the Overseas Private Investment Corporation should work with the development banks in marketing their portfolio securities, in establishing unit trusts or mutual funds, in helping create other money market instruments, and in the beginnings of share trading. As I said at the beginning, this is one view from the other end of the telescope. I would not be here today if the Overseas Private Investment Corporation's sole function were to take over existing AID programs. I have not supported earlier efforts in this general direction, including Senator Javits' Peace by Investment Corporation. But I am convinced, following on the accomplishments of the last two decades, that an entity such as the Overseas Private Investment Corporation is urgently needed to deal with today's new problems and opportunities.

Senator MCGEE. Thank you, Mr. Ritchie.

Senator Javits?

Senator JAVITS. I just have a question or two because I appreciate very much the time element and the willingness of these witnesses

to come.

JOINT VENTURES

Gentlemen, is it contemplated that the United States will make any change from existing policy to endeavor to have joint ventures in each of these countries with local participation preponderating? Mr. MAFFRY. So far as I am aware, no change in policy.

Senator JAVITS. The same with you, Mr. Dennison, and Mr. Ritchie?

DEVELOPMENT BANKING

I notice, Mr. Ritchie, your emphasis on the development banking. That, of course, is a local agency. That is equivalent to local participation, is it not?

Mr. RITCHIE. Yes, Senator.

Senator JAVITS. Ánd because it is, generally speaking, a local lending agency, does it have any equity and any ability to acquire equity participation as well?

Mr. RITCHIE. Well, there are over 300 development banks around the world today and they vary greatly in terms of their opportunities to invest. Some are fully public sector instrumentalities, and only help develop public sector instruments. Many do have the ability to buy equity participations, but in so many of these countries there is no market, no medium, for an exchange of equity, that there is a real hazard in developing a very substantial portfolio of equities that you

can never sell.

Senator JAVITS. And, therefore, how do you think that the Overseas Private Investment Corp., can help get them

Mr. RITCHIE. What I would like to see OPIC do is take the leadership in creating a climate, if you will, where there are other instrumentalities within the country that will be in a position to buy out of the portfolios of the development banks. Hopefully in time and under different money conditions that exist today you might even be able to develop new trusts that primarily overseas investors, primarily insurance companies and banks, might buy participation in a diversified superportfolio taken again out of the portfolios of a number of development banks to give you a geographic diversification, but the first is to work in the countries themselves.

Senator JAVITS. So we have an idea of what you consider a development bank, would you say there are many analogies between the Small Business Administration and the small business investment corporation complex, and the development bank idea?

Mr. RITCHIE. This is really about the only valid analogy I know.
Senator JAVITS. Within our country?

Mr. RITCHIE, Yes.

LINK BETWEEN U.S. INVESTMENTS AND EXPORTS

Senator JAVITS. One last comment about the link between this type of investment and U.S. overseas exports.

Mr. DENNISON. I will talk to that, sir, at the start. I think our experience has shown that where enterprise from the United States moves abroad and has a successful going investment this invariably has led to increasing exports from the United States. Not only does that company draw on the parent for components but as it grows it calls for an array of products and, I believe, that this will serve to increase exports from the United States as it has classically.

Mr. MAFFRY. May I add just one small point? A careful study by the Department of Commerce has shown. I believe, that no less than 25 percent of U.S. exports are related to U.S. investments abroad, and attributable to U.S. investments abroad, directly or indirectly. Senator JAVITS. Mr. Ritchie.

Mr. RITCHIE. I know of no company that we have worked that has not seen its exports increase as a result of its investment activities abroad.

UNSUCCESSFUL INVESTMENTS

Senator JAVITS. Now, one last question of Mr. Maffry: Senator Symington referred to the possibility of these investments going sour. What has been your experience?

Mr. MAFFRY. In our experience so far, speaking of investments that have been assisted by AID guarantees, one has gone sour.

Senator JAVITS. What is it in relation to the overall volume involved? Mr. MAFFRY. Very small indeed.

Senator JAVITS. Well, how much, what percentage?

Mr. MAFFRY. On the order of 1 or 2 percent, I should think.

Senator JAVITS. Is that easily absorbable by the premium which is obtained from the guarantee?

Mr. MAFFRY. I think that the reserve which is envisaged for OPIC should be quite enough to meet all ordinary losses which, as I say, I think will be sporadic.

Senator JAVITS. Do any of the other members of the panel desire to comment?

Mr. DENNISON. I would like to comment, too, Senator. Failure in a project is a pretty serious thing for a corporation. It affects the careers of the management, it affects its competitive position, it affects its standing in the financial community. Most companies really break their backs to avoid failure. I mean that is now why they are in business. They fight to make it work.

Now, occasionally there are mistakes. It happens, but wherever you have a responsible company, I think you will see that the chances of having it are maximum for a whole succession of reasons other than the insurance.

Senator JAVITS. Mr. Ritchie.

Mr. RITCHIE. I can only endorse that.

Senator JAVITS. Thank you very much, gentlemen, for being willing to testify. We greatly appreciate it.

Senator MCGEE. I want to thank the panel for their contribution to the committee's hearing this morning. I regret I was trying to save the Post Office Department in another committee meeting the first hour and a half this morning and could not indulge the first part of your testimony. I have no more questions.

General Draper.

STATEMENT OF WILLIAM H. DRAPER, JR., NATIONAL CHAIRMAN OF THE POPULATION CRISIS COMMITTEE AND SPECIAL REPRESENTATIVE OF THE INTERNATIONAL PLANNED PARENTHOOD FEDERATION

Mr. DRAPER. Thank you, Mr. Chairman.

First I would like to apologize for being late, there was an announcement of a message to Congress on population control and I had been invited to attend.