in its report (No. 86), constitute an essential part of our worldwide defenses. The applications to which prior year funds have been put are listed in an attached table for your ready reference. It will be noted from this table that United States aid has fallen off sharply since 1953, which was the last year in which major shipments of food were provided from appropriated funds. During the period 1947 through 1949 most of the supplies furnished were distributed to the population on a relief basis. Beginning in 1950, however, commodity imports were sold for local currency (B yen) which was used to help maintain essential government functions, to finance public-development projects and to establish a loan fund to assist private business. In fiscal year 1955 commodity aid was terminated and since that time appropriated funds have been utilized directly for support of the economy. This is accomplished by grants to the local government (Government of the Ryukyu Islands), which expends them under the supervision of the United States Civil Administration.

Notwithstanding the degree of recovery thus far achieved, the economy is still far from self-sufficient. The Civil Administration of the Ryukyus has realistically charted its course toward self-sufficiency by an economic plan encompassing the years 1956 through 1960. During this period the Civil Administration hopes to increase the gross national product of the Ryukyus from the 1955 level of $131.7 million to a 1960 level of $187.3 million.

Although the major portion of the cost of the above plan is being financed from Ryukyuan sources, private and governmental, some United States assistance will still be required. The largest item of the proposed United States fiscal year 1958 aid, excluding the cost of power facilities, will be used to augment the revolving loan fund, mentioned earlier, which is serving such a useful purpose in providing necessary long-term credit for financing self-liquidating projects. It is also proposed that we continue grants to the local government which, in effect, reimburse it for the added costs of public health and safety services which stem from the presence of the large number of United States Forces personnel in the islands. There are also included certain grants-in-aid for financing governmental programs and projects which are not self-liquidating but which are of particular importance in advancing United States objectives.

The foregoing requirements are incorporated in the request entitled "Administration, Ryukyu Islands" which totals $3,875,000. In a separate presentation entitled "Construction of power systems, Ryukyu Islands, Army," we are also asking the Congress at this time for $9,200,000 to expand the land-based power generating capacity in the Ryukyus.

If the committee will refer to page 8 of the justification labeled "Administration, Ryukyu Islands" it will observe that the request is divided into three major sections, in accordance with the standard form of presentation used in the past. The $3,875,000 requested is an increase of $1,525,000 over the amount approved by the Congress in fiscal year 1957. The major part of this increase is accounted for under the activity section, "Aid to the Ryukyuan economy," by the $1 million needed for loans to accelerate the growth of private enterprise to which I have previously referred. More specifically the cur

rent request in this section is related to the amount approved for fiscal year 1957 as follows:

1. Transportation of commodities: The reduction of $30,000 unde this project is made possible by a decrease in the requirements for funds to finance ocean-transportation costs of donated relief commodities. Transportation costs of surplus agricultural commodities made available under the provisions of title 3 of Public Law 480 and formerly financed under this appropriation, are now being financed from funds also provided under Public Law 480.

2. Support of Government services and projects: Funds for this purpose in fiscal year 1958 are proposed to be employed in two general

areas:

(1) The same amount as this year ($500,000) is proposed for reimbursement to the Government of the Ryukyus for increased costs in the GRI's expenditures for services in the fields of public safety and immigration and public health and sanitation, necessitated by the presence of United States forces. This $500,000 is approximately 15 percent of the estimated total cost of these services during fiscal year 1958. (2) Support of the GRI public buildings construction program is needed in the amount of $500,000. There is a proposed decrease of $135,000 in the contribution to the public-school construction program. This decrease is possible as a result of the greater responsibility assumed by the local government which, it is estimated, will build 600 public-school classrooms from its own funds in fiscal year 1958. The United States contribution of $115,000 will replace 46 wooden classrooms built under emergency conditions just after the war. Increases include contributions for the construction of a general classroom building and a dispensary for the University of Ryukyus of $67,500 and $10,000, respectively; $150,000 toward construction of a 100-bed hospital on the southern island of Miyako, the total cost of which is $250,000; a health center in Naha costing $75,000; and a contribution of $82,500 for a combination police-immigration building and Naha district police station building. The total cost of the latter is $175,000.

3. The $1 million for economic development financing, to which we attach so much importance, is a new item in the fiscal year 1958 program. In the Ryukyus, as in most of the Orient, long-term credit has been difficult to obtain. Prior to the establishment of the Ryukyu Reconstruction Finance Fund (RRFF) by the United States Civil Administration, the maximum term which could be obtained on a loan in the Ryukyus was 5 years. The RRFF, operated by the Bank of the Ryukyus as trustee, remains the only source in the Ryukyus of longterm credit for industrial, commercial, agricultural, and transportation expansion. Resources of this fund in the past have accrued from yearly contributions of counterpart and net earnings of business-type operations, but are insufficient for fiscal year 1958 requirements. Counterpart funds are no longer available and repayments to the fund do not yet equal the requirements for servicing sound new loans. The attainment of the goals in the economic plan is dependent upon the continuing availability of a long-term credit supply of approximately $5.0 million annually. Loan repayments and interest earnings are currently running at about $3.5 million per year. Action being taken in connection with lump-sum payment for land is also expected to increase funds available for long-term credit.

4. The item designated "Technical cooperation" is to continue the contract with the Michigan State University for technical assistance to the University of the Ryukyus. A similar amount was approved for this purpose for the current fiscal year.

The next section, "Civil information and education," totaling $210,000 compares with $200,000 approved for fiscal year 1957. The increase in this project is necessary to cover increased costs for travel and maintenance, and for the resident training of 4 Ryukyuan doctors for 6-month periods each at the Ryukyu Army Hospital.

The third section, "Administration," proposes a net increase of $295,000 in the administrative limitation. The decrease of $71,000 in item (a) results from shifting the pay of indigenous employees previously included under "Information and education materials and services" to "Pay of civilian employees" for fiscal year 1958. Accordingly, the $334,000 increase for "Pay of civilian employees," in item (b) includes this $71,000 addition making the actual increase for payment of personnel $263,000. This net increase is to provide an additional 39 graded positions and 25 additional Ryukyuan employees. The additional requirements are for: (1) the establishment of United States staffed courts in the judicial system; (2) improvement of labor relations activities; (3) efficient administration of the land acquisition and resettlement program; (4) monitoring the enforcement of tax and revenue laws; and (5) an expanded public-information program. There is also $59,410 included to cover the United States Government contribution to the civil service retirement fund, which was not provided for in the fiscal year 1957 program.

An increase both in the number for whom travel must be provided and in individual travel costs requires the addition of $9,000 for "Travel of civilians." In spite of maximum economy, incidental operating expenses are expected to be $23,000 more than the current year. This is inevitable in view of the establishment of the United States staffed courts, increased labor-relations responsibilities, land-acquisition problems and the need for a more effective information program.

As I previously stated, a request for funds in the amount of $9.2 million for "Construction of power systems, Ryukyu Islands" also has been submitted for your consideration. This proposal is to provide for increasing the electrical generating capacity for the island power system. It is planned to construct a petroleum fueled steam plant of 22.000-kilowatt capacity with space for installation of a second 22,000 unit. The justification involves information of a classified nature. I have with me, today, representatives from the Office of the Chief of Engineers and a member of my staff, Mr. Henry Wohl, who are prepared to present such information on this subject as the committee desires.

I am most appreciative of this opportunity to present this introductory statement. At your disposal for further discussions on the basic budget problems are representatives of the Far East Command and of the Office of Civil Affairs and Military Government whose names appear on the attached sheet.

If it meets with the pleasure of the committee, sir, I will have Mr. Meier, who handles the budget, start with the detailed estimates. Mr. PASSMAN. I think there will be some questions at this time. Thank you, General, for your statement.

Referring to the attached sheet on the funds appropriated for the Ryukyu Islands, beginning in 1947 it appears there was a continued increase through 1950 and then it begins to drop considerably. In 1954 it was down to $2,845,000. It was up again in 1955. Then it dropped in 1956 and it dropped in 1957.

Now, there is a very substantial increase in your request for fiscal year 1958. I am sure that is disappointing to the members of the committee and will be to the Congress because the American people have made up their minds that either we are going to effect some economy in government, or our successors will. That is the way I see it according to the correspondence I receive. To see this item so greatly increased causes me some alarm.

AMOUNT OF DIRECT AID TO RYUKYUAN ECONOMY

I wonder if you would state for the record at this time how much of the total amount requested is for direct aid to the Ryukyu economy? General GAILEY. $2,090,000. That is the direct aid.

Mr. PASSMAN. How does that compare with the amount for the present fiscal year?

General GAILEY. $870,000 was for the present fiscal year. That $500,000 was given to the government; $320,000 in public health and $180,000 for the police for the administration.

Mr. PASSMAN. In other words, you are requesting $1,220,000 more for that particular item for fiscal 1958 than was made available for the present fiscal year?

General GAILEY. That is right.

Mr. PASSMAN. Do you have an increase of $250,000 for support of government services and projects?

General GAILEY. Yes.

Mr. PASSMAN. Over the present fiscal year?

General GAILEY. Yes.

ECONOMIC DEVELOPMENT FINANCING

Mr. PASSMAN. This $1 million for economic development financing is a new item?

General GAILEY. Yes.

Mr. PASSMAN. Why is it necessary to start a new program for the islands?

General GAILEY. That was made as a result of a study that has been going on in the Ryukyu Islands, which we mentioned last year, of an economic plan through 1960. They want to set up this fund to help local industry to make loans on a long-term basis. It is thought by them and by us this new money we give them will help bolster up the economy and carry on this economic-aid plan they have gotten up. Mr. PASSMAN. From whom will they be borrowing the money-our Government, or the Ryukyu reconstruction finance fund?

General GAILEY. This Ryukyuan reconstruction finance is under the direction of the civil administration out there, but it is administered by the bank of the Ryukyuans.

Mr. PASSMAN. This is a contribution to the Ryukyuan government and none of its is repaid to the Government of the United States? General GAILEY. That is right.

Mr. PASSMAN. So far as we are concerned, it is an outright grant? General GAILEY. Yes.

ECONOMY OF THE RYUKYUAN ISLANDS

Mr. PASSMAN. What is the economy of the Ryukyuans compared to previous years? Do you have a chart showing the per capita increase in income?

General GAILEY. No, we do not have a chart showing that, but we have a chart showing the Ryukyuan budget.

Mr. PASSMAN. I think we are more interested at this time with the individual rather than the banks. How about the general economy? General GAILEY. We have some very interesting figures here I would like for Mr. Baron to give to the committee.

Incidentally, these figures are taken from a speech made to the Ryukyuan Legislature on the date it convened by the deputy military governor out there, General Moore.

PER CAPITA INCOME

Mr. BARON. This is an analysis of 1956 compared to 1955. We have increased the national income from 14 billion yen up to about 15 billion yen; 120 yen is equal to $1. That translates roughly the per capita income into dollars, going up from $157 to $181 in 1956 to 1957, and $149 to $157 from 1955 to 1956.

Mr. PASSMAN. Percentagewise, that is above our own country.

Mr. BARON. Yes, it is. It is higher than we have here, and it is a relatively high figure. However, the per capita national income is relatively low.

BASIS FOR INCREASE IN PER CAPITA INCOME

It is primarily due to tremendous increases in activities in connection with the support items of the military forces and military operations. There is a great deal of work done by the Ryukyuans in connection with that program. Also, it represents increases in our own agricultural production of sugar. It represents increased activities in the milling of the sugar. It represents increased activities in the supply of fresh poultry and eggs and vegetables to the military. It represents increased production in rice, for example, by reason of our previous land rehabilitation and irrigation scheme.

So, all in all, the economy is progressing at a regular rate out there and has shown a considerable increase from 1955 to 1956, and currently it is expected to show an increase in 1957.

COUNTERPART FUNDS

Mr. PASSMAN. You have been able to do that with the appropriations that we have made in the past?

Mr. BARON. Yes. However, the effect of the previous appropriations the high appropriations back in 1950 through 1953-was that those areas at that time developed a considerable counterpart fund which was then reused. However, we have not been developing the counterpart fund since about 1954 and the source of the counterpart