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enough to permit them to cover their administrative expenses and make a profit.

Mr. BROWN. Now of course in this country lots of businessmen are paying factors 1 percent a month for capital. That goes on in Europe, Asia, Africa, and everywhere else around the world-sometimes higher than that.

Mr. MENAPACE. Yes; we know that.

Mr. BROWN. So these people are going to make some money. I am not saying there is anything wrong with it. I am saying that you have no fear but what they will be able to repay this money.

Mr. MENAPACE. We are interested in the rate at which development banks relend. In some of our loans we have even fixed the margin above our rate which they may charge.

Mr. PERRY. One of the reasons the foreign lending rate is so high is that their money is depreciating in value so the lender has to protect himself. If the lender has to repay in dollars, he has to lend at a higher rate because of the depreciation.

Mr. BROWN. Now as these development banks get the repayments from the borrowers do they retain that as a revolving fund under arrangement?

Mr. MENAPACE. Under our loan agreement they have a repayment schedule with us.

It is up to them to lend in such a way that the flow-back of the money will correspond to their repayments to us, but I imagine it would be sometimes difficult for them to tie the two together, so it is conceivable that they might make a loan, collect it at maturity, relend the money, and get it back again, and so on, but their concern with us is to meet our maturities on the repayment schedules we have in the loan agreement.

Mr. BROWN. But in the long-range operation of the program the repayment in local currency will result in an accumulation of local currencies which will form a revolving fund. Correct?

Mr. MENAPACE. That is right.

Mr. BROWN. Is that the way it works?

Mr. MENAPACE. That is right. We will have local currencies to lend locally and we can use some of those funds to lend to those banks or to other borrowers in the country; yes, sir.

Mr. BROWN. Do you anticipate expanding the industrial development bank idea around the world?

Mr. MENAPACE. Yes, sir; we do. We like the development bank idea precisely because it enables us to channel money to small borrowers with whom direct contact and direct lending would be extremely impractical because of the small size.

Mr. BROWN. Wouldn't it ease your problem of administration too if more went into that channel and then you just said, "You've got to repay us so many dollars every year"-that is, "so much in equivalent of dollars, and you administer it in the best way you know how, so everybody gets a fair shake, but we don't want to come in and investigate anything; we don't want to look at any problems you have; you just pay us."

Doesn't that ease your administrative problem?

Mr. MENAPACE. It eases our administrative burden and it does a second thing from a banking point of view because it gives a second name. There is the ultimate borrower who is obligated to pay back

the loan and we have in addition the development bank itself with its other assets protecting us.

But we don't go quite to the point of saying, "You go ahead and lend and we won't worry about it."

We do worry about what they are doing. They must report to us what they do on these loans and if a loan is above certain size, they must get our approval in advance.

Mr. BROWN. It places you in the position of a corresponding bank and your men then become bank examiners rather than loan investigators, isn't that right?

Mr. MENAPACE. In a sense that is correct; yes, sir.

Mr. BROWN. This program now has $800 million and you anticipate another $800 million in fiscal year 1960?

Mr. MENAPACE. That, of course, depends on the appropriations committees. As you know, the Senate has authorized $750 million and the House $700 million and there will be a conference we expect today or tomorrow to arrive at a

Mr. BROWN. So theoretically it will be around $700 million.

Is there any reason why you cannot gain access to local currencies generated by Public Law 480?

Mr. MENAPACE. Is there any reason why we shouldn't do it? We don't do it. We are not doing it because the Export-Import Bank has the charge of making these loans.

Mr. PERRY. The Export-Import Bank gets the local currency under the Cooley amendment, but the ones made available under 104(g) we can have access to them though now.

Mr. BROWN. You do have access to them?

Mr. PERRY. Under the recent Executive order just put out.

Mr. BROWN. Was that just introduced? It seems to me that would have been an almost automatic thing, where we got into making loans in local currency. And you are just now getting access to them?

Mr. PERRY. When I say just now, it was the Executive order that was published after the last reenactment of Public Law 480, so it has been a month or two. So far this has not been a real problem to us and we haven't had any real need for it.

Mr. BROWN. There is quite a bit of money there, isn't there?

Mr. MENAPACE. In cases where the loan was to be made in local currency, which, of course, is in a very minor number of cases, we have a few times tried to get some Public Law 480 local currency, for example, in Brazil.

We found it was not available. It was already allocated. We have had in mind trying to get it on occasion when it would be useful for

us.

Mr. BROWN. How much local currency has been generated by Public Law 480? I mean that is still lying around somewhere? Does anybody know?

Mr. MENAPACE. I have seen the figures in the papers, I believe, at over $1 billion. I may be away off the track.

Mr. BROWN. Under the Cooley amendment how much is available for the Export-Import Bank?

Mr. PERRY. The Cooley amendment was enacted sometime after the original Public Law 480 so I am not aware of the amount of money now covered under the Cooley amendment.

Mr. BROWN. It wasn't retroactive?

Mr. PERRY. No.

Mr. BROWN. Just since that amendment was

Mr. PERRY. It would apply only to Public Law 480 agreements entered into after the enactment of that legislation.

Mr. BROWN. Now that you have access to that, isn't that just as good currency as what you are getting in repayment?

Mr. MENAPACE. It is as good as what we get in repayment, but for the purposes of making our loan, sir, the borrower comes to us for dollars which he needs to buy abroad and those currencies, of course, wouldn't serve that purpose.

Mr. BROWN. Then what you are saying to us is that as these local currencies are paid in, the revolving fund that is thereby created in a given country in the form of local currency for the future will always have to have dollars in addition to the local currencies to be effective in this program?

Mr. MENAPACE. That is conceivable although we expect that there will be local demand for some of those currencies purely as local internal loans. In the same way that some American firms abroad, and I presume other firms, would like to borrow Cooley funds today, purely for local uses, local purchases, local requirements.

Mr. PERRY. But I think it is fair to say in general that the currencies will require additional dollars for procurement outside that country.

Mr. BROWN. If you now have access to Public Law 480 funds under that Executive order, the Cooley amendment is not as meaningful as it was prior to that time, is it?

Mr. MENAPACE. The Public Law 480 funds, as I understand it, are generated in a limited number of countries. I haven't got them all in my mind now, but it would be only a small number of countries that we operate in. Our loans have been made in 40 different countries.

Mr. BROWN. But in a less developed country where there is Public Law 480 counterpart funds-that is, local currency-and where you generate some local currency, it can all be loaned to private industry, can't it?

Mr. MENAPACE. Yes.

Mr. BROWN. So that was a temporary stopgap that has now been replaced by Executive order, and it is a good thing, I think.

Mr. PERRY. I think our currencies under Public Law 480 may not be used for the identical purposes of the Cooley amendment and so I don't think that it actually can replace the Cooley amendment. When we get into a position where we need Public Law 480 currencies under the Executive order, we can obtain them but under Cooley there is an automatic set-aside available for relending largely for U.S. private business purposes so we don't really replace it.

To the extent we get money back in repayment on our loans in countries where the Cooley funds are present, then our repayments do tend to make the Cooley moneys less valuable.

Mr. YATES. Thank you, Mr. Perry. Thank you, Mr. Menapace. Mr. PERRY. You asked us one question about the set-aside for funds. We didn't really go into any of the administrative difficulties that this might pose and while I wouldn't want to say they are insurmounta

ment on it. All of us know that small business isn't participating. May we be permitted to submit a statement on that?

Mr. YATES. I would like very much to have you submit a statement on it. All of us know that small business isn't participating in this foreign trade program to the extent we would like to see it participate. There is a very serious question as to how we can expand their participation.

I must confess that I see the cogency of your argument about the fact that yours is a financing operation and that you provide funds for outsiders to come in and let them do their buying as they wish.

The facts remains, however, that you do express a preference that they purchase their engineering services in the United States. I don't know how you do this in the light of your previous conclusion that you have no control over it. You do express a preference, according to the statement you made today.

I wonder whether you couldn't similarly express a preference in making the purchasing in the United States that they give consideràtion to what is declared to be U.S. congressional policy, that small business be consulted in connection with these programs.

Mr. PERRY. We can present additional ways in which it might be done and we hope to show specifically more of the administrative problems.

Mr. YATES. Well, we will welcome that. Thank you very much. (The information referred to is as follows:)

The Development Loan Fund does not believe that a requirement to set aside for small business a certain share of procurement financed under DLF loans is advisable. A requirement to this effect would create very difficult administrative problems and would entail a revision in the concept of the Development Loan Fund as a lending institution that follows normal banking and commercial practices.

As an essentially banking institution, the Development Loan Fund, like other such institutions as the International Bank for Reconstruction and Development and the Export-Import Bank, places the responsibility for carrying out its loan agreement on the borrower, who of course bears the responsibility for making repayment. The borrower, be it a government or a private party, is responsible for all aspects of getting the project underway-marshaling its resources, hiring personnel, obtaining permits, completing the engineering and all of the other aspects, including the purchase of equipment. DLF loan proceeds are used largely for the latter purpose for a wide range of individual items. The borrower, within conditions prescribed in the loan agreement, has a free choice in making his purchases anywhere in the free world inasmuch as this method assures the lowest cost for the development project and does not impose extraneous burdens. The DLF does not interfere, so long as the borrower goes about his procurement in a businesslike manner and makes reasonable judgments. The DLF does require, however, that in making his purchases, the borrower gives a fair opportunity to American businessmen to provide the goods and services needed for the project. The manner of doing this is essentially through the ICA small business circular and Commerce Department field offices.

In order to administer a set-aside requirement, the DLF would have to specify in each loan agreement that a certain share of purchases made in the United States be from American small business firms. This would mean that if a borrower chose to make purchases in the United States, he would have to do this under conditions not required when he makes purchases abroad. To see that such a provision could be carried out, the DLF staff would have to examine each proposal in the minutest detail to analyze in advance the whole range of equipment and supply items which might be procured under the loan as well as the potential sources of supply and the market prices of the various times. This would require an inordinately large staff. Only by going into great detail could the DLF determine when a certain portion of that procurement might

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be directed to U.S. small business. Even then it might be impossible to administer a set-aside requirement without the DLF's taking over the responsibility for actually placing procurement orders. This function would be inappropriate for a lending institution and would be in conflict with section 413(a) of the Mutual Security Act of 1954, as amended, which states that it is the policy of the United States to utilize "private trade channels to the maximum extent practicable in carrying out such programs."

If the DLF were to become engaged in administering a set-aside requirement, it would have to devote a major share of its time and energy to procurement and concentrate on the latter, rather than on the economic development of the less developed countries. This would not be consistent with the primary objectives and purposes established by the Congress for the DLF.

The present procedures encourage the participation of small business in DLF lending activity. A great deal of effort is made to assure that advance information is received and distributed to interested small business firms with respect to sales opportunities. These efforts help small business obtain a share of DLF financed purchases and encourages small business participation without the offsetting disadvantages of a compulsory system. Loan operations to date indicate that American business, including small business firms, are participating in DLF loans as suppliers of goods, suppliers of services, and as investors in development projects.

Mr. YATES. Mr. Barnes, we will be happy to hear from you now. On behalf of the committee, we welcome you in connection with our survey of small business in international trade. We would very much like to hear your views on the subject. You may proceed, Mr. Barnes. TESTIMONY OF WENDELL B. BARNES, ADMINISTRATOR, SMALL BUSINESS ADMINISTRATION

Mr. BARNES. I welcome this opportunity to discuss the measures presently employed by the Government to facilitate and increase the participation of small business in foreign trade and aid.

As this committee knows, one of the basic aims of our national foreign policy is to encourage private industry to invest abroad. Many of our American companies are successfully engaged in some aspect of foreign trade.

Insofar as the smaller enterprises are concerned, it is clear that a large, if not overwhelming, majority of them are employed in activities which do not lend themselves to foreign investment. There remain, however, a small but significant group of small firms which are presently either actively engaged in trade abroad or would directly benefit by expanding their operations in this direction. To encourage and assist these firms to invest abroad would not only promote our national foreign policy, but also would materially strengthen the ability of these enterprises to compete in our domestic market.

The Small Business Act makes it clear that the primary responsibility of the Small Business Administration is to promote the welfare of the small business community in domestic commerce. Nevertheless, we have recognized that to increase the markets available to small businesses by encouraging them to engage in international trade will strengthen these companies and increase their ability to compete. The best interests of the Nation require that every feasible effort be made to enable smaller firms to make the fullest possible contribution to international trade.

For this purpose SBA issued, in November of 1956, a pamphlet calling the attention of small business concerns to the opportunities offered them in the fields of foreign trade and aid and outlining the

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