TREASURY DEPARTMENT RESPONSE TO EXCERPT FROM JACK ANDERSON COLUMN IN WASHINGTON POST, JULY 9, 1970 The passage quoted above by Senator Sparkman from the Jack Anderson column of July 9, 1970, is the full text of the material referring to the InterAmerican Development Bank in that article. The "investigation by two House Subcommittees" apparently refers to (a) hearings before the Subcommittee on Inter-American Affairs of the House Foreign Affairs Committee on May 7 and June 4, 1970, entitled "Foreign Policy implications of U.S. participation in the Inter-American Development Bank," described by the Subcommittee chairman as intended to "assess the role of the Inter-American Development Bank in promoting social and economic change in this hemisphere," and (b) hearings before the House Committee on Banking and Currency on June 30 and July 1, 1970, entitled "To provide additional funds for the Inter-American Development Bank," from which was reported H.R. 18306 favorably recommending U.S. participation in a replenishment of the Bank's resources. In the course of both these hearings, committee members posed questions based on the contents of earlier Jack Anderson articles, and administration witnesses provided extensive responses that appear in the printed record of the respective hearings. The House Resolution to which the Jack Anderson column refers is Section 603 of the Second Supplemental Appropriations Act of 1970 (PL 91-305), which was offered as an amendment during House floor consideration of the Bill. The text of the Section and the construction to be placed upon it are set forth in the following colloquy between Senators Fong and McGee, as excerpted from the Congressional Record for June 22, 1970: [From the Congressional Record, Monday, June 22, 1970] INTER-AMERICAN DEVELOPMENT BANK STAFF LOANS AMENDMENT Mr. FONG. Mr. President, I should like to propound a question to the distinguished Senator from Wyoming (Mr. McGEE), who is chairman of the Subcommittee on Foreign Aid Appropriations. Is it true that section 603 of the bill which provides that "None of the funds contained in this Act available to the Inter-American Development Bank shall be used directly or indirectly as grants or loans to officers or members of the staff of the Inter-American Development Bank" would require the United States to qualify its subscription to the callable capital of that Bank? Mr. MCGEE. Mr. President, let me say to my colleague from Hawaii, who is the ranking minority member of the subcommittee, that it is now the judgment of the expert consultants on the language of the bill that it would not. Since the issue at stake was the proposal in the amendment to regulate loans to staff members in the Inter-American Bank, if this does not affect the U.S. operations within the Bank, and does not call into question its ability to back up the subscriptions in the Bank, our judgment is that we can, indeed, go along with and support the committee's amendment that is already written into the pending legislation. The purpose of section 603 is to bring to the attention of the executive branch and the Bank our concern about the Inter-American Development Bank staff loan program. While the Appropriations Committee believes that this program should be re-examined in the context of the Executive Board of the Bank with a view toward making changes in it, section 603 would not require the United States to qualify its subscription to the Bank. There are two reasons for this: First, the appropriation is for the purpose of allowing the United States to subscribe to the Bank's callable capital and involves no expenditure of funds. The callable capital stands behind the Bank's borrowings in capital markets and it is highly unlikely that the capital subscription will ever be called and result in actual use of the appropriated funds. Second, under article II, section 4(a) (ii) of the Bank's charter, the callable capital of the Bank is subject to call only when required to meet the obligations of the Bank to its bondholders and holders of Bank guarantees. There is no other purpose for which the loans to the staff and no qualification of our subscription is necessary. Thus, the Bank's charter assures complete compliance with the requirements of section 603 that the funds appropriated not be used directly or indirectly for loans to the staff and no qualification of our subscription is necessary. REPAYMENT OF IDB LOANS Senator SPARKMAN. Let me ask you this general question. I think I know the answer, but it would be well to have it in the record. As these loans are made, specific terms are set up. Do the repayments from the country go to the Bank and become a part of the revolving fund? Secretary KENNEDY. Yes, they do, Mr. Chairman. As payments are received they go into the fund from which they came and are still a part of the funds of the Bank. Senator SPARKMAN. Has the repayment record to date been satisfactory? Secretary KENNEDY. I think the repayment record to date has been excellent. There have been only two default situations, as you recall, out of the almost 600 loans made. These have been reported to the Congress. The defaults total about $10 million, and some collection on that amount will take place as they move through the liquidation process. But those were unfortunate experiences early in the Bank's Îife. In total it is a very small amount compared with total operations. Senator SPARKMAN. As a whole, you say it has been excellent. Secretary KENNEDY. In looking over the Bank's record from the beginning, it looks to me like an excellent record of accomplishment. Now we have to bear in mind many of the loans extend beyond this period and what happens beyond this is something to take a look at, but for the period up to date the record looks pretty good. Would you like to add to that, Mr. Costanzo. Mr. COSTANZO. I might just give a few figures. The total loan repayments as of the end of May in all funds of the Bank total $290 million. That is against total loans approved of $32 billion, and total loan disbursements of about $1.9 billion. So there has already been a fairly substantial record of repayment of loans. Senator SPARKMAN. When was the Bank first established? Senator SPARKMAN. That is what I was thinking. About when did they start making the loans? Secretary KENNEDY. In 1961. It took a little time to get going. Senator SPARKMAN. In other words, they have had only a short time in which to operate. Secretary KENNEDY. That is right. It is not a long period. That was the point I was making. Senator SPARKMAN. Yes. Secretary KENNEDY. But in the record up to date it has been excel lent. Senator SPARKMAN. I wonder if you could have prepared for the record and placed in the record a statement or table that will show the loans that have been made, the disbursements that have taken place, any other terms and provisions relating to the loans, and the repayments that have been made. I am told by the staff that that has already been made available to us. Secretary KENNEDY. The IDB's annual report has a chart that covers that quite well, Senator, page 2 of this report, which will be part of the record. 47-889 0-70 Senator AIKEN. I suggest, Mr. Chairman, that they have the staff prepare a summary from that report. Secretary KENNEDY. We can do that. Senator AIKEN. A short summary which will be understandable to those people who do read our hearings. Secretary KENNEDY. We can prepare a summary from that report as well as from the special report of the National Advisory Council where we have summarized that. Senator SPARKMAN. Yes, I think it would be well to do that. I think it would be well for us to have that in the record in order that when the measure comes up on the Senate floor the individual Members will have something available in the form of a table or a statement that will not be too long. STATUS OF IDB LOANS Senator AIKEN. I think we ought to have a record of where these loans are made, in which countries, how they are meeting their obligations at the present time, and how much they may be in arrears. Secretary KENNEDY. That we can easily supply. Senator AIKEN. That is about all I understand anyway. [Laughter.] Secretary KENNEDY. We will do that. (The information referred to follows.) SUMMARY INFORMATION ON LOAN OPERATIONS-LOANS APPROVED A. APPROVED LOANS, LESS CANCELLATIONS, BY COUNTRIES AND BY FUNDS (CUMULATIVE 1 Total repaid to Bank. In addition, $25,700,000 has been repaid to purchasers of participations Ordinary Capital B. LOAN TERMS Interest rate 8% (for lending in dollars); 82% including 2% service charge (other hard currencies).12 Maturities-normally 15 to 20 years. Commitment fees-14% (dollars); 2% (other hard currencies). Repayment in currencies lent. Fund for Special Operations Interest rates-3% or 4% (including 4% service charge), depending on the nature of the project. Maturities-normally 15 to 30 years. Commitment fee-2% or 4%, depending on nature of project. C. REPAYMENT EXPERIENCE Of the Bank's nearly 600 loans, only one borrower, a private enterprise in Brazil, is currently in default. The total amount owing on the borrower's two loans as of the date of default, June 15, 1966, was $8.4 million. The Bank has been taking legal action to collect on this default. It is expected that either sale of the property mortgaged to secure the debt or settlement with the borrower will take place within the next 3-4 months. Another borrower, a private enterprise in Argentina, also defaulted in 1966 on two loans totaling $2.8 million, but these loans have been written off. During 1968 the Bank recovered $954,122 through the sale of mortgaged property and charged the balance of $1,845,149 against its General Reserve. All other loans are current. D. APPROVED LOANS A complete listing of approved loans from Ordinary Capital and the Fund for Special Operations follows. (Additional material supplied by the Treasury Department on this subject is on file with the committee.) BENEFITS FROM IDB ACTIVITIES IN LATIN AMERICA Senator SPARKMAN. I gather from your statement you feel they have been productive of good in the Latin American countries? Secretary KENNEDY. I am convinced that they have done good in the Latin countries. I have been traveling through Latin America for the last 15 years, and I have seen what has happened in the last 5 or 6 years as a result of their operations along with other groups. They still have a long way to go and there are lots of problems but many of these projects are showing results and making a contribution to the economies of the countries. You can see that in traveling through the countries and seeing the growth there. Senator SPARKMAN. Latin America is one of our best customers, as a whole; isn't it? Secretary KENNEDY. Yes; we have major exports to Latin America. HOUSE OMNIBUS BILL FOR MULTILATERAL FINANCIAL INSTITUTIONS Senator SPARKMAN. The House Banking and Currency Committee has just ordered reported a single omnibus bill with which, I presume, you are familiar. Secretary KENNEDY. Yes. 1 A small volume of export credit is extended, bearing an interest rate of 6% % and a normal maximum term of 5 years. Latin American currencies also bear 8% rate. Senator SPARKMAN. It incorporates a pendingn request by the Administration for increases in the International Monetary Fund, the World Bank, the Asian Bank and the Inter-American Bank. The total sums involved would be about $3,700 million. Can you comment on how the Administration feels toward this action by the House committee? Secretary KENNEDY. Yes; I will be glad to, Mr. Chairman. We recommended the legislation and they have reported it. It was in three parts as far as the Administration is concerned. We had the World Bank and the IMF legislation, and the Asian Bank bill, and then, recently, we appeared before the committtee on the InterAmerican Development Bank bill. As a way of handling it through the House, they decided to combine the whole package. I think it does show the current recommendations of the Administration for the multi-lateral agencies. It is a large figure, but it is also very important legislation. Do you want to just run through some figures? We had a table prepared. Mr. PETTY. It might be useful, Mr. Chairman. The total figure of $3.7 billion for these multilateral financial institutions can be broken down into several categories-contingent liabilities, expenditures, and monetary transactions. The contingent liability or guaranty authority. which is the callable capital amounts to $895 million. The second division is the proposed expenditures amounting to $1.27 billion. Our subscription payments would commence in fiscal 1971 and the related expenditures would take place gradually over subsequent years. The third item-monetary transactions involves an increase in our International Monetary Fund quota. This is strictly an exchange of assets of $1,540 million. The budget expenditure estimate that we can anticipate now for the next 3 years for this total package will be as follows: For fiscal 1971, $40 million; for fiscal 1972, about $68 million; and for fiscal 1973, about $155 million. (The following table was subsequently supplied.) FINANCIAL COMMITMENTS TO INTERNATIONAL FINANCIAL INSTITUTIONS [In millions of dollars] I. Contingent liability in form of callable “guarantee" capital |