country, but I say primarily the United States because we are talking about our pledge, would it then be under a pledge or duty to contribute to make up any deficit to its 40 percent? Secretary KENNEDY. No, the answer is that our contribution would stand alone and that it-it would not be affected by the other countries. Senator COOPER. I think that is all I have at this time. CONCENTRATION OF IDA'S FUNDS The CHAIRMAN. Mr. Secretary, 1 want to comment on two or three aspects. I know in the cumulative total of IDA loans through June 30, 1968, which is the latest public report we have had, that four countries out of 126 or so that belong to the United Nations, account for well over half. Out of $1,788 million loaned by IDA $1,333 million has gone to four countries. In fact, well over half has gone to two countries, that is India and Pakistan. This high concentration of IDA's funds has given rise to the most vigorous opposition on the committee. Can you both comment on that bringing in not only the past but anything about the future as to what you think the prospects are with regard to future loans by IDA? Secretary KENNEDY. What you say is precisely right, Mr. Chairman, that the preponderance of the loans have gone to four countries and particularly to India and Pakistan. The CHAIRMAN. Those two, more than half. Secretary KENNEDY. Yes. Of course that is where the concentration of poverty is in terms of population and in terms of lack of income and need. And there has been criticism of the amounts, percentages, totals going to those two countries. I understand that the amount is being diminished in those countries relative to other countries, is that right, Mr. Oliver? The CHAIRMAN. Is that a correct statement? Mr. OLIVER. Mr. Chairman, and Mr. Secretary, that is correct. The portion of IDA loan funds going to India and Pakistan has been the subject of frank discussion between the Executive Directors of the International Development Association and there is common understanding the loan ratios will change in the future. I even expect, as do some of my colleagues on the board, to see a substantial amount of additional lending to Latin American countries, for example. The CHAIRMAN. They have received rather meagerly in the past, but you think that there will be an increase in that area. Will you make a clearer justification for the past concentration of funds, Mr. Secretary, just for the record? I am sure those who do oppose this will raise the question. I think the record should have as clear an answer as possible to a criticism based on that point. CONSORTIUM AND BANK'S LOANS TO INDIA AND PAKISTAN Senator COOPER. Will the Chairman yield on that point, on the same point? The CHAIRMAN. Oh, yes. Senator COOPER. Is this contribution in addition to the contribution that the United States makes with other countries through a consortium. Secretary KENNEDY. That is right, it is, yes. Senator COOPER. They are in about the same amounts aren't they, from both, the same amount from IDA and the same amount from the consortium? Secretary KENNEDY. I am informed here that IDA is much smaller and the consortium is much larger than this. Senator COOPER. Together they constitute- Senator COOPER. A large sum. Can you tell us what the total is of both the consortium and the loans through IDA? That includes the - World Bank, too. The CHAIRMAN. The loans from the Bank to these same countries, you know, are very high. I was going to come to this question of whether or not IDA has been used to back up regular loans of the Bank or not. Is this a coordinated effort which would make your loans better than you make in the first instance through the Bank? TOTAL AID TO INDIA AND PAKISTAN Senator COOPER. I think it would be helpful if you would give us, talking about India and Pakistan, they are getting a tremendous percentage of all these funds, to give us the amount which has been made available through IDA, the amounts which were made available through the consortium, and the amounts which are made available through the World Bank; there may be others, I don't know. Secretary KENNEDY. We can furnish that to you for the record. I have here a table before me on consortium nonproject aid to India which shows in 1966-67, U.S. pledges amounting to $382 million to $304 million from the other countries in the consortium, and from IBRD/IDA, $215 million. In 1967-68 it was $295 millionSenator CoOPER. Is that total? Secretary KENNEDY. Total nonproject aid from the United States. Secretary KENNEDY. That is the United States only. If you add in the other countries in 1967-68, there would be an additional $248 million; that is $295 million from the United States, $248 million from other countries. The U.S. proportion of the total in 1967-68 was 54 percent. In 1968-69, U.S. aid was $237 million, and from other countries. $153 million, which is approximately 60-40. The IBRD/IDA share was $125 million, including the IBRD/IDA contribution. The U.S. share in 1968-69 was 40 percent. Senator CASE. Does that include food for peace? Senator COOPER. I may be wrong but I don't think-it is a separate charge. Secretary KENNEDY. It does not include Public Law 480. I think we had better furnish you, for the record, those figures. Senator COOPER. They are tremendous sums from all these lending institutions and from our own aid program to only two countries. (The information referred to follows:) United States. Other countries. AID TO INDIA BY CONSORTIUM MEMBERS (INCLUDING NONPROJECT AID, 1 Indian fiscal year April-March. Senator SYMINGTON. Mr. Chairman, I would like to go back to the Armed Services Committee where we have the Air Force up the first thing this morning; therefore if the Chair will yield I would appreciate it. The CHAIRMAN. Before I do, I apologize for the meagerness of the sums we are dealing with here compared to those for the Air Force. The funds we are now considering wouldn't run the Air Force a week. but go ahead. Senator SYMINGTON. Mr. Secretary, first, may I say it is a privilege again to see you. As you know, this committee had a reasonably thorough public hearing on this same proposal last year during the month of May. SYMINGTON AMENDMENT TO IDA BILL In addition, we discussed the question of U. S. contributions to the International Development Association during no less than nine sessions of the committee before ordering the bill reported favorably last October 3, with an amendment I proposed and which was accepted by the committee. You are no doubt aware that this amendment made the U.S. contribution to the International Development Association contingent upon matching contributions to the Association by its parent body, the World Bank, from the latter's net earnings. As part of the process in developing this amendment, I had a lengthy question and answer session with your predecessor, Secretary Fowler. Today, however, I will dispense with any questioning, and instead summarize my views about the IDA and the bill we are considering. After these comments, kindly respond as you wish, either verbally, or in writing. U.S. BALANCE OF PAYMENTS PROBLEMS I believe that I have been concerned as much, and for as long, as any member of the Senate about these dangerous continuing deficits in the U.S. balance of payments. Time and time again I have worked for policies and programs designed to maintain our international monetary position against attacks of both an external and domestic character. At the same time, I have never recommended turning our minds or our backs on the need for the industrialized countries to provide assistance to the less developed nations of the world. In supporting measures toward this latter goal I have been a firm believer in the merits of the World Bank approach to financing international development. Moreover, I was an early supporter of the Asian Development Bank, on the premise that the new institution would maintain the same sound banking principles as had its prototype the World Bank. My support for such multination financial institutions has been because of their use of conventional banking practices, practices which automatically induce financially responsible practices on the part of both borrowers and lenders. Especially because of our current unprecedented fiscal and monetary problems, however, I now have grave doubts about the wisdom of any major continuation of this so-called soft lending. These loans are often disguised gifts, and are likely to be employed so as to help less developed countries repay their obligations under hard-lending terms; therefore, in effect, grants which encourage a sense of financial irresponsibility in the international community. IDA, with its 50 loans at no interest and no repayment of principal for 10 years, surely represents the softest of all soft-lending operations. Against this background, I mention two matters of concern. PERCENTAGE OF IDA CREDITS TO INDIA AND PAKISTAN First, many of us have objected to the past heavy concentration of IDA lending to the two countries periodically at war with each other-India and Pakistan. Roughly 70 percent of all IDA credits in the past have gone to those two Asian countries. Last year we were assured that the Executive Directors of the World Bank, who are the ex officio Directors of IDA, had adopted a policy of reducing the percentage of loans going to these two countries; but in January of this year, and even though we were also told that funds available to IDA had dwindled to $41 million at the end of the fiscal year 1968-thereby bringing IDA to a virtual standstill in terms of new loan commitments-a new credit of $125 million had been approved for India. It would appear, therefore, that the resources which IDA has acquired over the last 6 months or more have been devoted in large part, if not in entirety, to India; and I believe an explanation for this apparent paradoxical action on the part of IDA management should be given this committee. WORLD BANK TRANSFERS TO IDA Secondly, or more important, I return to one of the major premises behind the amendment which I proposed, and which this committee approved, last year. If soft lending is considered essential, then no doubt the World Bank is the most efficient administrator of such lending as well as being the natural source of a respectable portion of the financing itself. The World Bank is an outstandingly successful institution with earnings of nearly $170 million annually; but one notes with concern that the Bank has not been putting the bulk of this income to work in IDA. On pages 7 and 8 of the report of the Committee on Foreign Relations on the 1DA bill of last year is full discussion, and justification, of the committee amendment in question. I will not go into all the details at this time, but would note that even though almost everyone seemed to agree with the objective of the amendment, including former Secretary of the Treasury Fowler, we continue to wait for certain members of the international financial community to make a decision. 28-208-69-3 CREDIT STANDING OF WORLD BANK One of the arguments advanced by some of these international financiers is that transference of additional funds from the World Bank's earnings to the IDA would jeopardize the "credit standing" of the World Bank. It would seem, however, that the assets of the World Bank are more than adequate for this great Bank to continue to maintain the confidence of those who deal in the money markets of the world. I say this for the four following reasons: First, all lending by the World Bank is either to a member government, or to an institution within a country which guarantees repay ment. Second, over almost a quarter of a century of its existence the World Bank has never had a loan defaulted. Third, should there be major defaults, the World Bank would not collapse. No private investor in the Bank would lose a dime of his investment; because, in the event of even a single loan being defaulted, the following financial backing is available to the Bank: (1) The property in question would be foreclosed; (2) There are special reserves in the amount of $291 million at the end of the fiscal year 1968; and considerably more now; (3) There are supplemental reserves amounting to $963 million as of February 28, 1969; and (4) The uncalled capital subscriptions of member countries total $20.7 billion. And finally as noted, the Bank is adding about $170 million a year of net income for distribution. WORLD BANK'S SUPPLEMENTAL RESERVE Over the past 5 years, no doubt partially due to our mounting apprehension, some 40 percent of these net annual earnings have been turned over to IDA. (However, in 1967, less than 6 percent.) The remainder has been placed in the supplemental reserve. Surely under present conditions the World Bank could and should do better in allotting a relatively high fixed percentage of its annual profits to IDA. The resentment of our citizens to constantly increasing taxation is beginning to be expressed practically. It would appear that the real roadblock in the minds of certain members of the international financial community is the fact that the supplemental reserve is not a reserve, rather, in effect, a revolving fund for additional hard lending by the World Bank, particularly when the bond markets are in relatively tight condition. By means of bond issues and use of the supplemental reserve, however, the World Bank has been able to lend an average of approximately $880 million annually over the past 5 years; and even talks about a higher lending rate; but at the same time it produces startling figures which prove that the less developed countries of the world just cannot cope with the repayment requirements of further hard lending. As noted above, the supplemental reserve is not required in order to maintain the highest possible rating for World Bank bond flotations; in fact these bonds had triple A rating long before funds began to burgeon in the so-called supplemental reserve. |