Senator FULBRIGHT. Why would that no produce counterpart? Mr. GRIFFIN. It does. That is what that is for, to serve two purposes. One is to maintain essential supply and the other is to supply counterpart. Senator FULBRIGHT. What do you mean by essential supply? Mr. GRIFFIN. Sometimes, but not always, sir. Here is a report from our mission in Saigon submitted July 23 which lists their commercial sector import program which is the maintenance of essential supply program. For instance, raw cotton was $2,600,000. There were industrial chemicals in the program. There were medical and pharmaceutical products for sale. There were paper products to the extent of $10,000 and $1,000,000 worth of petroleum products. There were generators and motors, marine engine parts. Senator FULBRIGHT. Do they not have oil in Indochina? Mr. GRIFFIN. No, sir. They have coal, but the main deposits are in the fighting area. Part of the maintenance of supply consisted of construction, mining and conveying equipment, which again was a help to their productivity, but they paid for it in local currency. [Deleted.] Senator GEORGE. Well, I consider it better than nothing. CHANGING THE NATURE OF THE PROGRAM AND THE BURDEN ON THE UNITED STATES I have had the opinion from the very first, but it seemed to be too simple, that the east did not offer enough opportunity for expansion in organization; that this country should have set up simply a revolving fund in Europe and should have supplied that revolving fund for those things that were essentially the subject of grant only, or gift only, to the European countries. Let the European countries keep that revolving fund as long as they wanted to. Let them keep paying their own money in and using it back. Counterpart is better than nothing, I will grant you that, but I cannot see how we are to proceed very much further, now, without saying that there must be some reimbursement where we are furnishing capital goods or where we are furnishing something that really has permanent value in these various areas. I do not see any end to this program unless we do say that those countries shall pay us back something for the money that we are putting out. Mr. GRIFFIN. Sir, in the stronger countries that is being done. Senator GEORGE. I doubt very much if it is being done very much. I have not got the latest figures on it. In the beginning we said that there would be loans. That is, the ECA would largely make loans, but that there would be some places where it would be necessary to make grants. Gradually, I think the grant part of it has taken possession of the whole program and has become the principal portion of it rather than the minor portion as we conceived in this committee at the beginning. That was the original view that we had, that the grant would not be made where it was feasible or practicable to make a loan-to get some promise to repay. Now I heard here yesterday and the day before all about arms for South America and Central America and Latin-American countries. However, it is not on a reimbursable basis at all but just on the basis of pure grants. That sort of a program is bound to break any country on this globe over the long run, and it will not be such a long run. There is not any way out of it. We are here now talking about giving away $8.5 billion in this committee. Over here in another committee, of which the chairman of this committee and I are members, we are struggling to impose six or seven or eight billion dollars more taxes on the American people. It is a lot easier to give it away than it is to impose that additional tax on an already heavily burdened tax-paying people. I always thought we made a great mistake in not saying that we would set up a revolving fund and having nothing to do with it beyond replenishing that fund and keeping it up to a working level. We recognize that you have to make some grants. That was not agreeable and was not acceptable, so we devised this scheme of the counterpart funds. In the European countries we had a screening process as between countries themselves, the recipient states themselves, through their own organization, who would say what ought to be given and what ought not to be given, and what ought to be allocated to the particular countries. Over here, however, you are probably not doing it on that basis because it is not feasible. You are approaching each government directly and those governments are making up their requirements, so to speak. I have no doubt that all that you are asking here is a most insignificant minimum of what they can use. Certainly that is true. However, what I am trying to say is, and I think the State Department and I think every department in this Government ought to be able to see it, is that there are two sides to this coin as certainly as you live, and one side is getting the money to do it. You get it only out of your American taxpayer. The total taxes now run to about $63 billion or $64 billion a year. If you add 6 or 7 or 8 or 10 billions as the Secretary says—and that is right if all these programs are carried out-on top of that, you begin to see what it all means. And yet we are proposing straight-out grants to Latin-American countries, some of which undoubtedly are able to pay their way. They are unquestionably able to pay for the arms that we are going to give them. If it is advisable to give them arms at all, which is a serious question to my mind I have lived down there just across a relatively narrow strip of water from some of them, and I know some of them can pay just as well as the American taxpayer can pay. If they have an adequate system of taxation and collect their taxes, in those countries they can pay just as well as hundreds of thousands of American taxpayers. That will not apply in this far eastern area, I am aware of that. I assume it would not. 87360-51-39 The only protection we have is to have these recipient countries themselves do something. That operates as some brake on their requirement. As it is, there is no brake. It is just what they can get by with. The CHAIRMAN. That all, Senator? Senator GEORGE. Yes. The CHAIRMAN. You may proceed, Mr. Griffin. LOANS AND GRANTS TO INDONESIA Mr. GRIFFIN. Mr. Chairman, I would like to speak for a moment on this matter of loans. The CHAIRMAN. Well, most of them will never be paid back, will they? Mr. GRIFFIN. Yes, sir; I think they will be paid back. If we are at all successful in that part of the world, they can very well pay them back. In the first place, we already have a combination of grant and loan programs in two of the countries. Indonesia, for instance, is not a country which is asking us for large quantities of aid. Our program in Indonesia is an extension of what now is almost entirely a heavily implemented technical assistance program. But Indonesia has a credit of $100 million with the Export-Import Bank, of which about $52 million, as I recall it, has been drawn on to date. The Export-Import Bank is sending several people out there who will work with the Indonesian Government and the ECA mission in the program planning of the balance of that loan. Furthermore, in our conversations with the Export-Import Bank, they have indicated their readiness to study the possibility of further loans that the Government of Indonesia may require. That Government, although it has taken over a rich empire from the Dutch, one that supported Holland for approximately 300 years, is a government that is facing the most extreme difficulties in trying to maintain law and order and trying to restore the institutions that were all but wiped out during both the war and the insurrection. (Additional information was supplied the committee, as follows:) DETERMINATION OF LOAN AND GRANT ASSISTANCE TO SOUTHEAST ASIA AND OTHER UNDERDEVELOPED AREAS A question has been raised as to why assistance on a loan basis does not constitute a greater share of the aid extended to southeast Asia, i. e., Burma, Thailand, Philippines, Indonesia, and Indochina. Before discussion of this question it may be useful to review the distribution of aid, actual and contemplated, as between grants and loans to this area in the post-war years through June 1951. The figures refer to assistance made available under programs of the ECA, Export-Import Bank, and International Bank for Reconstruction and Development.1 Period ending June 30, 1951: Grant assistance__ [Millions of dollars] 148 142 Loans extended amount to about 50 percent of total assistance in the postwar period ending June 30, 1951. Additionally, it is anticipated that loan extensions 1 Inclusion of loans by the latter institution is appropriate because of two factors: (a) The need for grant assistance was decided upon after consideration of other major external assistance available; and (b) the extension of such loans affects the continued capacity of a country to service additional loans. in fiscal year 1952 by the Export-Import Bank in Indonesia and the Philippines in 1952 may be around $40 million, and additional loans by the IBRD may also be forthcoming, particularly in Thailand. Thus, in 1952 loan assistance to SEA may continue as an important adjunct to grant assistance. It is the policy of the Administration with respect to the countries of southeast Asia, as well as with respect to all underdeveloped areas, to place assistance on a loan basis insofar as there is reasonable prospect of repayment and the programs are of such a character as may reasonably be financed on a loan basis. It is also the policy of the Administration that the lending operations for development of the underdeveloped areas should be undertaken by the established lending institutions, namely, the Export-Import Bank and the International Bank. It would be fundamentally unwise to place a greater portion of foreign assistance on a loan basis than could be justified reasonably through an analysis of capacity to repay. To saddle countries with an external debt structure which they cannot handle over the longer term will place barriers against the flow of private investment to such areas, which we are most interested in encouraging, and lead to trade and exchange restrictions which are inimical to the private enterprise system of world trade. In addition, the making of loans which we and the rest of the world know at the outset have little chance of repayment will discredit the entire lending process and is likely to lead to widespread repudiation of debt. With specific reference to the southeast Asia area, these countries have in general very low standards of living and will need substantial foreign capital over an extended period of time if their peoples are to have any real prospect of escaping their present poverty. A substantial portion of this assistance cau be placed on a loan basis through the International Bank and the Export-Imporc Bank. If, however, we are to meet the threat of communism in this area we will need to push development more rapidly than could reasonably be expected to be financed by loans. It is for that reason, plus the fact that these areas need substantial technical assistance which is not suitable to be placed on a loan basis, that there is a significant grant component in programs for these areas. But it should be noted that such grant elements will be but a small part of the total investment programs being planned by these countries. Another factor to be considered is that the uncertain political and military situation in SEA, together with the internal defense effort in these areas, tends to limit loan opportunities. This is particularly true in areas marked by civil strife and warfare as are Burma and Indochina. Too heavy an extension of loans in unstable areas would tend to depreciate the traditionally high loan standards maintained by the Export-Import Bank and the IBRD. In the case of the latter, this would have particularly unfortunate reactions on the willingness of the private financial community to direct its funds through the bank into overseas development. It goes without saying that the economic aid requests submitted to the Congress reflect the estimates of what is required after the probabilities of loan assistance have been taken into account fully. In the Philippines, for example, it is judged that the situation permits further loan extension in the present fiscal year of perhaps as much as $25 million. The figure requested of $35.4 million is what is the estimated needs after taking into account the possibility of $25 million loan financing. Similar examples are available in other countries. In Thailand, the Thais also have nothing more than a modest approach. The CHAIRMAN. Before you leave Indonesia, do you conceive it to be our duty to preserve internal order and straighten out the Government? Mr. GRIFFIN. I think it is a matter of the most vital importance to the United States that we do everything that is within our power and reasonable means to help that Government to succeed, yes, sir. The CHAIRMAN.. How much would you appropriate for that purpose? Mr. GRIFFIN. We have set up in our grant program $8 million for fiscal 1952, and it will probably be less for fiscal year 1953-certainly not more. It is chiefly for institutional development within that country. STRATEGIC RESOURCES IN INDONESIA Senator LODGE. What are they committing themselves to do, Mr. Griffin? Mr. GRIFFIN. They have not committed themselves to do anything in return for the aid. Senator LODGE. Should they not make some undertaking, some commitment of some sort? Mr. GRIFFIN. If it were a political commitment, I should say they would refuse to make it. Senator LODGE. I am not asking that. Of course, we are dealing with independent countries, and we cannot expect to do that. Mr. GRIFFIN. They are committed in our bilateral agreement to expedite procurement of basic materials that we require. Senator LODGE. Strategic materials? Mr. GRIFFIN. Yes, sir. What is more, no impediment of any type has at any time been put by the Government of Indonesia before our agents who desired to purchase any type of materials out of that country. Senator SALTONSTALL. Are the Dutch doing anything out in Indonesia? Mr. GRIFFIN. Quite a few Dutch are there. Senator SALTONSTALL. Is the Government of the Netherlands putting any cash into Indonesia as we are? As a matter of fact, the Government of Indonesia owes a very large external debt to the Government of Holland. Mr. GRIFFIN. Not that I am aware of. Senator SALTONSTALL. From that point of view, from the point of view of new money coming in, it is money coming in from the United States and not from the Netherlands Government. Mr. GRIFFIN. Yes, sir, but ours is very small. Our grant aid is only a fraction of 1 percent of their export-import trade. It is a very minor item. It happens to be a critical item in the way in which it is being used. Senator KNOWLAND. What are their principal strategic materials. Mr. GRIFFIN. Rubber. The production of rubber in Indonesia has risen to over 680,000 metric tons a year. It is equal to Malaya. It is a great tin producer. They are second only to Malaya in tin production. Senator FULBRIGHT. Petroleum, they produce. Mr. GRIFFIN. Yes, sir. They are the only big producer today from Iran to as far as the coast of the United States. Stanvac and Shell are the big operators there. I think Standard of New Jersey is going to bring in a new field there. And then, in addtion to the Philippines, Indonesia supplies our needs in copra and coconut oil products; between the two of them, it comes to 100 percent of our imports of those products. Senator KNOWLAND. Would you say that the passage of Indonesia into the Communist orbit would give them great strategic resources which they need for their war-making potential; and on the reverse of that, if Indonesia can be kept outside of the Communist orbit and tied with the west, it gives the west tremendous strategic resources which we need under world conditions as they stand? Mr. GRIFFIN. Unquestionably. The world would go into an imbalance if southeast Asia, including Indonesia, were lost. |