2

1 beginning in fiscal year 1970. (Such contribution is herein

2 after referred to as the 'United States Special Resources.')

3

"(b) The United States Special Resources shall be 4 made available to the Bank pursuant to the provisions of this 5 Act and article 19 of the Articles of Agreement of the Bank, 6 and in a manner consistent with the Bank's special funds 7 rules and regulations.

8

"SEC. 13. (a) The United States Special Resources shall 9 be used to finance specific high priority development projects 10 and programs in developing member countries of the Bank 11 with emphasis on such projects and programs in the Southeast Asia region.

12

13

"(b) The United States Special Resources shall be used

14 by the Bank only for

15

16

17

18

19

20

"(1) making development loans on terms which may be more flexible and bear less heavily on the bal

ance of payments than those established by the Bank for its ordinary operations; and

"(ii) providing technical assistance credits on a reimbursable basis.

21. "(c) (i) The United States Special Resources shall be 22 expended by the Bank for procurement in the United States 23 of goods produced in, or services supplied from, the United 24 States: Provided, however, That the United States Governor, 25 in consultation with the National Advisory Council on Inter

3

1 national Monetary and Financial Policies, may allow eligi2 bility for procurement in other member countries from the 3 United States Special Resources if he determines that such 4 procurement eligibility would materially improve the ability 5 of the Bank to carry out the objectives of its special funds

6

resources and would be compatible with the international 7 financial position of the United States.

8 "(ii) The United States Special Resources may be used

9

to pay for administrative expenses arising from the use of 10 the United States Special Resources, but only to the extent

11 such expenses are not covered from the Bank's service fee or income from use of United States Special Resources.

12

13

"(d) All financing of programs and projects by the 14 Bank from the United States Special Resources shall be 15 repayable to the Bank by the borrowers in United States 16 dollars.

17

"SEC. 14. (a) The letters of credit provided for in 18 section 15 shall be issued to the Bank only to the extent

19

that at the time of issuance the cumulative amount of the 20 United States Special Resources provided to the Bank (i) 21 constitute a minority of all special funds contributions to the

Bank, and (ii) are no greater than the largest cumulative

contribution of any other single country contributing to the

special funds of the Bank.

"(b) The United States Governor of the Bank shall

4

1 give due regard to the principles of (i) utilizing all special 2 funds resources on an equitable basis, and (ii) significantly 3 shared participation by other contributors in each special 4 fund to which United States Special Resources are provided. "SEC. 15. The United States Special Resources shall be

5

6 provided to the Bank in the form of a nonnegotiable, non7 interest bearing, letter of credit which shall be payable to 8 the Bank at par value on demand to meet the cost of eligible 9 goods and services, and administrative costs authorized pur10 suant to section 13 (c) of this Act.

11

"SEC. 16. The United States shall have the right to with12 draw all or part of the United States Special Resources and 13 any accrued resources derived therefrom under the proce14 dures provided for in section 8.03 of the Special Funds Rules 15 and Regulations of the Bank.

16

"SEC. 17. For the purpose of providing United States 17 Special Resources to the Bank there is hereby authorized to 18 be appropriated $25,000,000 for fiscal year 1970, $35,19 000,000 for fiscal year 1971, and $40,000,000 for fiscal 20 year 1972, all of which shall remain available until ex21 pended."

The CHAIRMAN. It is our understanding that the Banking and Currency Committee of the House of Representatives has recently approved a bill, H.R. 16891, which consolidates in one bill the two measures which are under consideration by the committee today. In the process the House committee added certain amendments which we gather are not entirely acceptable to the Department of the Treasury. This committee has not as yet made any judgment on whether to proceed on the same basis as the House, but it is hearing testimony on the two bills together so that such a course may be adopted if members of the committee so desire.

Our witness this morning is Secretary of the Treasury David M. Kennedy, who acts as U.S. Governor of the international financial institutions under consideration and also serves as chairman of the U.S. National Advisory Council on International Monetary and Financial Policies, commonly referred to as the NAC.

Secretary Kennedy, we are very pleased indeed to have you this morning.

You have a prepared statement I believe.

STATEMENT OF HON. DAVID M. KENNEDY, SECRETARY OF THE TREASURY, ACCOMPANIED BY: JOHN R. PETTY, ASSISTANT SECRETARY FOR INTERNATIONAL AFFAIRS; BERNARD ZAGORIN, U.S. EXECUTIVE DIRECTOR, ASIAN DEVELOPMENT BANK; WILLIAM B. DALE, U.S. EXECUTIVE DIRECTOR, INTERNATIONAL MONETARY FUND; AND ROBERT E. WIECZOROWSKI, U.S. EXECUTIVE DIRECTOR, INTERNATIONAL BANK FOR RECONSTRUCTION. AND DEVELOPMENT

Secretary KENNEDY. Yes, I have, Mr. Chairman, and I appreciate this opportunity of appearing before this committee on behalf of S. 3628 and S. 3543 which authorize the United States: First, to accept an increase in its quota in the International Monetary Fund; second, to provide for a related adjustment in the capital subscription of the United States to the International Bank for Reconstruction and Development; and, third, to contribute to the Asian Development Bank Special Funds.

The International Monetary Fund has recently assumed additional responsibilities in administering the new special drawing rights and is steadily growing in influence and importance as the primary institution for multilateral cooperation and action in international monetary matters. The World Bank fulfills a similar role in multilateral financing of economic development.

On the regional level, it is timely for the United States to join with other countries in strengthening the ability of the Asian Bank to meet a wider range of Asian development needs than it can satisfy from its ordinary lending window.

Approval of legislation necessary to carry out these purposes will permit the United States to maintain a role within these multilateral financial institutions that is in keeping with its economic and financial position among the nations of the free world.

PROVISIONS OF PROPOSED LEGISLATION

S. 3628 would amend the Bretton Woods Agreements Act of 1945 essentially in two respects:

First, it would authorize the U.S. Governor of the Fund to consent to an increase of $1,540 million in the U.S. quota in the International Monetary Fund and authorize an appropriation for that purpose.

Second, it would authorize the U.S. Governor of the Bank to vote for a $3 billion increase in the capital stock of the Bank; subscribe to 2,461 additional shares of the Bank's capital; and authorize an appropriation of $246.1 million for this purpose.

In addition, the Special Drawing Rights Act would be amended to provide authority for the U.S. Governor of the Fund to vote for allocations of Special Drawing Rights to the United States in any future basic period in an amount equal to the U.S. quota in the International Monetary Fund.

Finally, under S. 3543, the Asian Development Bank Act would be amended by authorizing the United States to enter into an agreement with the Bank providing for a U.S. contribution of $100 million to the special funds of the Bank over a 3-year period.

INCREASE IN INTERNATIONAL MONETARY FUND QUOTAS

This is the third occasion on which a proposal to increase the quotas in the Fund has been put before the member governments. The agreement entered into force in December 1945, with total quotas of approximately $7.2 billion. Although the articles of agreement provide for a general review of the adequacy of quotas every 5 years, there was no general increase in quotas of the Fund until 1958-59. At that time, there was a general upward revision of quotas by 50 percent. Special quota adjustments were also made for a small number of countries at that time. In 1965-66, a second decision was taken to revise all quotas upward by 25 percent and to provide additional selective increases for 16 member countries.

In both the first and second enlargements of the Fund, the United States accepted its share of the general increases of 50 percent and 25 percent respectively. On this third occasion, the proposed legislation recommends that the United States accept an increase of $1,540 million, raising the U.S. quota to $6,700 million. In this instance, the United States would participate not only in the general increase, but also in the additional increases being provided for a number of countries in order to establish a better alinement between IMF quotas and the relative economic and financial positions of the respective member countries.

If all countries were to accept the quotas proposed for them, the total increase in the Fund's resources would be $7,577 million, raising the aggregate size of the Fund to $28.9 billion. This represents an enlargement of about 35 percent in the Fund's medium-term credit facilities.