INTERNATIONAL DEVELOPMENT ASSOCIATION WEDNESDAY, APRIL 16, 1969 UNITED STATES SENATE, COMMITTEE ON FOREIGN RELATIONS, Washington, D.C. The committee met, pursuant to call, at 10 a.m., in room 4221, New Senate Office Building, Senator J. W. Fulbright (chairman) presiding. Present: Senators Fulbright, Gore, Symington, Aiken, Mundt, Case, and Cooper. The CHAIRMAN. The committee will come to order. The Committee on Foreign Relations today is holding a public hearing on H.R. 33, a bill to provide for increased participation by the United States in the International Development Association. This measure was approved by the House of Representatives on March 12 and referred to the Senate and to this committee on the following day. The bill is the same as the proposal which I introduced at the request of the administration in April of 1968. It calls for the United States to contribute a total of $480 million to the IDA divided into three annual installments of $160 million each. The plan authorized by this bill would become effective whenever this country deposited its notification of commitment, since the necessary action has been taken by the other contributing industralized member countries of the Association. This committee last October approved the proposal, as S. 3378, with an amendment, but too late in the session for the Senate to take action. Mr. Reporter, I have a letter from Secretary of State Rogers and other letters recommending passage of this bill which I will put into the record. (The letter from the Secretary of State follows. The others appear on p. 55.) Hon. J. WILLIAM FULBRIGHT, THE SECRETARY OF STATE, DEAR MR. CHAIRMAN: I wish to express my support for United States participation in the second replenishment of the International Development Association (IDA). The case for IDA is forthright. This is the organization which provides a substantial and increasing part of present assistance to the poorest of developing countries, on terms designed to meet their special needs. Without IDA the odds for successful development in these countries would be much poorer. IDA's impact, however, extends beyond that of its own lending program. IDA and the World Bank Group have helped poor countries to use their own-much larger resources more effectively. This expanding role of the World Bank and IDA in self-help is especially valuable since it gets a part of this important work done largely without political backlash to aid givers. IDA has also been a key par of the now largely successful effort to get other rich countries to carry increased responsibility for aid giving. Most of these other rich countries have shown that IDA matters to them by going ahead with their contributions to the second replenishment even thoug: the agreement does not obligate them to do so until the U.S. acts. Twelve courtries Australia, Austria, Belgium, Canada, Denmark, Finland, Germany, Italy. the Netherlands, Norway, Sweden and the United Kingdom-have now received or requested parliamentary approval to make contributions totaling $282 millica to IDA in advance of the effective date of the replenishment. I believe United States participation in the second IDA replenishment shock not be delayed further. Thanks to advance commitments, IDA is now able t continue its loan activities in the immediate future. However, it will not be able to continue for long if the United States does not act soon to contribute, or ⠀ the United States forces a renegotiation of the replenishment agreement b contributing less than its full share or contributing on terms that do not jibe with the agreement. The problem of providing hope for the underprivileged is one we face both abroad and at home. We cannot create greater stability and hope for the American people, including the underprivileged, by turning our backs to a program erities. to the orderly development of peoples abroad. In the long run we can expect a more stable, peaceful world community if the poor countries succeed in their efforts to overcome the constraints that have for centuries impoverished their peoples and are offered now greater hope through concrete expression of our concern that they do succeed. President Nixon, like Presidents Eisenhower, Kennedy and Johnson before him, has given IDA his full approval and support. I hope that the Committee and the Congress will be able to act favorably or this important bill at an early date. Sincerely yours, WILLIAM P. ROGERS. The CHAIRMAN. Our witness today, speaking on behalf of the new administration, is Secretary of the Treasury David M. Kennedy. Mr. Secretary, we are very pleased to have you today. You have a prepared statement, I presume. STATEMENT OF HON. DAVID M. KENNEDY, SECRETARY OF THE TREASURY; ACCOMPANIED BY COVEY OLIVER, U.S. EXECUTIVE DIRECTOR OF THE WORLD BANK/IDA; EMMET RICE, ALTERNATE U.S. EXECUTIVE DIRECTOR; AND, RALPH HIRSCHTRITI, DEPUTY TO THE ASSISTANT SECRETARY FOR INTERNATIONAL FINANCIAL AND ECONOMIC AFFAIRS, DEPARTMENT OF THE TREASURY Secretary KENNEDY. Mr. Chairman, I am delighted to be here in this matter and I do have a prepared statement which, with your permission, I would like to read, for the record. The CHAIRMAN. For the record, Mr. Secretary, would you give the reporter the names of your associates. Secretary KENNEDY. Mr. Covey Oliver is here, and Mr. Hirschtritt and Mr. Rice. I appreciate this opportunity to participate and urge that the United States participate in replenishing the funds of the International Development Association. The bill before you today-H.R. 33-which would authorize a U.S. contribution of $480 million to IDA, is extremely important to the welfare of the developing nations. It is important as well to the more advanced countries which are contributing through this insti tution to growth and progress in the developing areas. We have come to realize that economic progress alone does not insure world peace. But it does enable men everywhere to better realize their personal hopes and aspirations. Economic progress thus helps to blunt the despair and frustration which too often lead to wasteful and sometimes dangerous conflicts among men and nations. The U.S. contribution would be made over a 3-year period. I urge you to act favorably on this measure, and to recommend its prompt passage by the Senate. As you know, the bill was favorably reported by the House Banking and Currency Committee, and was passed by the House of Representatives on March 12. In both instances, it was approved by a large bipartisan majority. This is not surprising. IDA stemmed from an American idea and has received bipartisan support of four Presidents, Members of Congress, and many other leaders in American national life. IDA was created primarily at congressional initiative. Senate Resolution 264 of 1958 originally suggested establishment of the Association as an affiliate of the World Bank. President Eisenhower strongly recommended the formation of IDA-pointing out that, "The well-being of the free world is vitally affected by the progress of the nations in the less developed areas. Presidents Kennedy and Johnson encouraged and approved the subsequent expansion of IDA's operations. President Nixon is firmly convinced that IDA helps meet an essential need of the development countries, and that continued support for it is in our own national interest. As the President has said: "America's basic self-interest in world development stems from the brutal fact that there can be no sanctuary for the rich in a world of the starving." COMMITMENTS OF OTHER NATIONS The establishment of IDA in 1960, and the agreement to provide it with additional and larger resources in 1964, were, in effect, commitments by other nations to a more equitable sharing of the burden. Today, we ask a second replenishment that would represent additional progress in that direction. In the first 5 years of IDA, the economically advanced nations contributed a total of some $150 million a year for its operations. In the following 3 years, they increased the amount to $250 million a year and, under the proposal I am supporting today, they would contribute $400 million a year. I think it important to note that the United States-which provided more than 43 percent of the funds from the developed nations when IDA was established-would contribute 40 percent of the new replenishment. In the 8 years since IDA began operations, several of the developing countries have made truly impressive progress. Yet many other countries are advancing only slowly. The lives of their people are blighted by hunger, sickness and ignorance. These nations-the poorest of the developing world-urgently require the assistance that IDA provides. If they are to progress, they must have access to credit on terms they can meet specifically, to credits that can be repaid on easier terms over a longer period of time. Development financing on harder terms would be self-defeating, because mounting debt-servicing costs would drain away the funds provided, and required, for economic growth. IDA draws on the experience and skill of the World Bank, but lends on terms that would not be possible for the Bank itself. Thus, it plays a unique and vital role in the concerted effort by industrialized nations to assist the developing countries. We want to encourage other economically advanced nations to increase their assistance to the "have-not" countries. As other donor nations grow financially stronger, we would like them to assume a greater share of the burden of providing development finance-and indeed, under this proposal, they would do just that. They are shouldering their burden in IDA-and I believe that is another compelling argument for continuing our participation in the agency. WORLD BANK AFFILIATION Other countries put up three dollars for every two the United States provides the IDA. This does not include money they give in addition to their pledges, nor does it include funds which the World Bank transfers to IDA out of its yearly net earnings. The Bank transferred $75 million out of fiscal 1968 net earnings, compared with only $10 million the previous year. I am very pleased that the Bank has increased its contribution to IDA. I do not foresee a decline in such transfers. On the contrary, should conditions permit, transfers from net earnings over the 1968 level would be in order. I am assured by the President of the World Bank that he will support this objective before his governing board. In addition to burden sharing in amounts of financing, IDA assures burden sharing in terms of financing. Because of IDA's uniform repayment terms, all donor nations assist on the same concessionary terms. As a multilateral agency, IDA offers other important advantages that are well recognized by your committee: The objectivity of an international institution; The broad and collective experience of its member nations; and The opportunity to exercise leadership in the development effort. IDA is also strengthened by its direct affiliation with the World Bank. Because it is directed by the same President, guided by the same Board of Directors and Governors, and utilizes the same expert management and staff, we can be certain that its funds will be expended prudently. Applications for IDA credits must meet the same strict standards set for requests for World Bank loans, and are given the same careful appraisal. Moreover, IDA credits, like the Bank's loans, must be amortized in hard currency. The only essential difference is that IDA provides funds in cases where the borrowers need more favorable foreign currency repayment terms than the Bank can provide. EFFECT ON U.S. BALANCE OF PAYMENTS I am fully satisfied that the terms of the proposed replenishment will protect our balance of payments. Under the agreement, if our current payments imbalance persists, we will provide in cash until fiscal 1972 only that part of our contribution which is expended for IDA-financed purchasing in the United States. Furthermore, this arrangement would continue after that until |