Mr. McGHEE. They owe the International Bank $48,000,000 which may be extended to $85,000,000 and they owe us $190,000,000. With some other items counted in, their total external debt is about $300,000,000.

Senator FULBRIGHT. That is a very small amount for a country with 350,000,000 people, isn't it? As a matter of fact, they have balances in London far greater than that now, do they not? Are you sure that on balance they are a debtor country?

Mr. McGHEE. If you include all of their assets, many of which are required for a currency base

Seiator FULBRIGHT. Are they?

Mr. McGHEE. On balance they are not.

Senator FULBRIGHT. And then you say they can't support any further external debt? I just don't believe that. I think there is a question of the time when they can pay it, but I can't accept that idea that they are never going to be in a position to service any external debt.

Mr. McGHEE. Here is their situation, Senator Fulbright, that for a very long time to come they will need not only their present resources and what they can borrow from all existing sources, but a great deal more if they are to make a dent in their development.

Senator FULBRIGHT. How long a time do you think it will be before they will have achieved a balance of international payments? Mr. McGHEE. The question of a balance of international payments is not the real issue. They are roughly in balance now.

Senator FULBRIGHT. I thought you said it was the real issue so far as making a loan. It seems it is a very important element when it comes to making loans as between countries.

Mr. McGHEE. India is in a position on current account of being roughly in balance, but having very large investment requirements. If they are to even hold their present standard of living the problem isn't so much the balance of payments as to get additional capital

to invest.

Senator FULBRIGHT. I don't make myself clear. I might be perfectly willing to go along with this in capital investment if it is on the basis of a loan. I see no reason to give it to them on this type of project. If they are not debtors, if their current payments are in balance, or even if not in balance if there is a prospect of it being in balance in the reasonable future, I don't see why it is not subject to negotiation on the basis of a loan.

The CHAIRMAN. Mr. McGhee, you will have to hurry through now. Senator LODGE. I have a question I would like to ask Mr. McGhee.

INDIA'S CAPACITY TO REPAY LOANS IN DOLLARS

You said it would strain Indias' credit. Why can't a matter like a fertilizer factory be taken by itself and stand on its own bottom; to the extent of which they make money out of the fertilizer it is plowed back in order to amortize the loan, like the self-liquidating projects we have in the west? Why does it have to strain the whole of India's credit? Why can't you set up these things, each one separately, and amortize whatever you can over whatever length of time it may take? Why can't you do that?

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Mr. McGHEE. Conceivably you could.

Senator LODGE. All right. That is your first answer.

My next question is, why don't you?

Mr. McGHEE. If you consider that we are interested in the payment of dollars, India's over-all dollar obligations

Senator LODGE. Not necessarily dollars; repayment in anything. Mr. McGHEE. We will be in a sense repaid with counterpart

rupees.

Senator LODGE. Whatever they may be able to get. We may be able to work it out in monazite sands.

Mr. McGHEE. All of the monazite sands they can produce they can sell, and that is calculated in their balance of payments.

Senator LODGE. Something else, then.

Mr. McGHEE. That is true of manganese, mica, and burlap. Those are the only things they derive dollars from, and all that is calculated in their balance of payments. They just don't have anything else we want.

Now, if you consider that they have a total dollar obligation of some $300,000,000 with almost no prospect of repayment, because I would say the prospect of repayment is very low, what advantage is gained if you go in and take this one isolated plant of $12,000,000 and say that you are going to repay this directly in dollars, and let the rest of the $270,000,000 go in default? If this plant saves dollars, and it will save dollars only by making it unnecessary to import dollar food, because the immediate return is going to be increased food production in India

Senator LODGE. There must be things we want them to do. Why can't those things we want them to do be credited against the things we do for them? Put it very broadly, just in the interest of their own self-respect.

Mr. McGHEE. You can search the economy of India and I don't think you can find anything they can do for us or give us except these raw materials.

Senator LODGE. We want them to raise their standard of living. We achieve that. There will be a counterpart engendered by the investment in the fertilizer plant. That counterpart will be spent as a part of this program. In a sense we have achieved what you want to achieve in India.

The CHAIRMAN. Is that all?

Mr. McGHEE. I would like to pass to Ambassador Pawley.

The CHAIRMAN. Ambassador Pawley, you will have to make it pretty brief.

Mr. McGHEE. May we have some little time on Iran?

(Deleted.)

The CHAIRMAN. Get on to Iran now, and make it brief. We have spent enough time on Iran to buy the place.

PROGRAM FOR IRAN

Mr. McGHEE. I appreciate your interest, and why I come back is to clarify a couple of points that have been raised, particularly by Senator Fulbright. I might say that I don't wish to make a great point of the inclusion of the capital items in question in this program.

The CHAIRMAN. You are talking about those big combines. I think that is all foolishness. I am not going to vote to give a nickel to buying combines for Iran.

Mr. McGHEE. All right, Senator. I would like to tell you why they are included in the program, but all of us who are connected with this program feel that the program itself is more important than the inclusion of a million and a half dollars for these combines. Since we are offering Iran a loan in any event, and since combines were included originally as matters subject to this loan, we would much. prefer transferring these to the loan, rather than incur the displeasure of your committee over their inclusion in this grant program.

I would like to state just briefly the importance that we attach to this Iranian program, because I am afraid that was not emphasized before.

The CHAIRMAN. Iran is going to get all this money out of the oil royalties. Why should we go out and subsidize it?

Mr. McGHEE. Senator, we hope it does. There is no assurance yet that it will. When it does, and it does not need any assistance, we won't give it to them and we will save these funds.

The CHAIRMAN. I am not sure you won't give it to them. This is the "gimme" crowd that is up here today, on this whole program.

Mr. McGHEE. Yes, sir. We have been criticized for not having done enough for Iran. Senator McMahon read from the Life editorial which criticized us for not going in there before with grant aid. The CHAIRMAN. Life is not running the Congress. Mr. McGHEE. Nor the State Department.

We did feel a year ago however that we needed to do something for Iran. We first of all authorized a $25,000,000 Export-Import Bank loan, which I think is in accordance with the sentiments of your committee, who believe you should approach these problems first from the standpoint of a loan before seeking a grant. We tried to do that, but nothing has come of that for the reason that the Iranians have not accepted the loan, and even if they did I question whether it could get into operation fast enough to meet the immediate problem that is faced there.

When Ambassador Grady went out he took with him seven technicians who looked into the projects which could qualify for the loan, who subsequently, because they felt the situation in Iran was so difficult and you needed a short-term evidence of success in the development field in order to crystallize sentiment in the country in favor of the Government, recommended the grant program of assistance which we now present to you. Mr. Leslie Wheeler, who was formerly in charge of the Office of Foreign Agricultural Relations and who was in charge of the Agricultural Section of this mission, is here, and I would like for him to tell you

The CHAIRMAN. How much is the grant you propose?

Mr. McGHEE. $24,000,000.

The CHAIRMAN. To give to Iran, to hand out to them?

Mr. McGHEE. That is correct, with the usual application of counterpart funds to be derived for a development program.

I would like for Mr. Wheeler to tell you in very brief words the basic elements of this program we recommend. As you recall, we mentioned the program of village improvement, the Agricultural Institute, and a program of water development.

The CHAIRMAN. He will have to wait until we get through with Mr. Hickerson, Assistant Secretary of State, who has been here for 2 or 3 days. Now you are running another man in on us. What is his name?

Mr. McGHEE. Mr. Leslie Wheeler.

The CHAIRMAN. Come around, Mr. Hickerson, and make your statement. This is Iran?

Mr. HICKERSON. No; this is Korea.

Senator GREEN. I have a few questions about Iran myself.
The CHAIRMAN. We will get back to Iran.

STATEMENT OF HON. JOHN D. HICKERSON, ASSISTANT SECRETARY OF STATE

Mr. HICKERSON. Mr. Chairman and members of the committee, my name is John D. Hickerson. I am Assistant Secretary of State for United Nations Affairs. I want to say just a few words about section 303 of this proposed bill, which authorizes an appropriation for Korean reconstruction. I will leave the statement, sir, for the record. The CHAIRMAN. Have you a written statement?

Mr. HICKERSON. I have put it in written form.
The CHAIRMAN. We will be glad to have that.
(The statement referred to is as follows:)

STATEMENT OF MR. HICKERSON

Section 303 of the Draft Mutual Security Act authorizes the appropriation of not more than $112.5 million for the United States contribution to the United Nations Korean Reconstruction Agency which was established by the resolution of the General Assembly of the United Nations of December 1, 1950. In addition, section 303 makes available for contribution to the Korean agency unexpended funds previously appropriated for expenditure in Korea by the Economic Cooperation Administration, which are approximately $50 million. The total United States contribution to UNKRA in the fiscal year 1952 would thus not exceed $162.5 million.

The draft legislation also provides that in computing the amount of such contributions by the United States there shall be included the value of goods and services made available to Korea by any department or agency of the United States for relief and economic assistance after the assumption of responsibility for such operations by UNKRA. The value of such pipeline supplies cannot be known at this time. The amount of the United States contribution will, in no event, be larger than $162.5 million, however, and this provision with respect to pipeline supplies would accordingly operate to reduce the appropriation which will actually be sought under the authorization of section 303a.

This legislation is requested on the assumption that the situation in Korea is going to be stabilized within this fiscal year sufficiently for the rehabilitation task to be undertaken. If that expectation does not come true, funds will not be turned over to the UNKRA in any major amount and will not be spent.

The members of this committee are, of course, aware of the two major policies upon which this Korean program is based: First, that aid must be given to the people of Korea to enable them to survive the ravages of this most destructive war, else the war itself will have been in vain; second, that the responsibility for such assistance rests upon the United Nations.

The rehabilitation operation will be undertaken as soon as the military situation permits. The United Nations Military Command will determine when that time has come. In the meantime, there can be no divided logistical responsibility, and the United Nations Command must continue its responsibility for relief and economic assistance. However, an UNKRA staff is already at work in Korea, cooperating with the command in the latter's relief activities, planning UNKRA's posthostilities operations, rendering indispensable assistance to the Korean Government in the solution of internal economic problems, undertaking all other rehabilitation activities which the command agrees are feasible

at this time, and preparing to expand into full-scale operation of relief and rehabilitation as soon as the military situation permits.

During this interim period before UNKRA can take over the responsibility and operations, relief goods will continue to be financed by the United States through Defense Department appropriations, with contributions from other members of the United Nations and nongovernmental organizations. It is not planned that UNKRA funds will be expended in any large amount for relief supplies until UNKRA can assume the full responsibility for relief operations, the reasons being, first, that the control of UNKRA expenditures required by the United Nations resolution is incompatible with the responsibility of the military; and second, that the magnitude of the rehabilitation task which is still to come makes it desirable that the resources of UNKRA be conserved for this effort and not be expended during the military phase. During the military phase the relief mission is inextricably related to, and is in fact a part of, the military mission in Korea. However, an agreement has already been entered into by the Unified Command and the Agent General for UNKRA, which provides that UNKRA will undertake complete operation of relief and rehabilitation just as soon as the military situation permits.

So much for the military conditions under which UNKRA will be able to operate. The political conditions of UNKRA operations will be determined by the political decisions of the United Nations. The General Assembly's resolution establishing UNKRA excludes any possibility that UNKRA will enter into relations with, or engage in activities in, an area controlled by any authorities in Korea which are not recognized by the United Nations.

UNKRA, as established by the resolution of the United Nations General Assembly of December 1 is an independent organization of the United Nations headed by an Agent General, who reports to the General Assembly through the Secretary-General. The Agent General is an American, Mr. J. Donald Kingsley, who was formerly Deputy Executive Director of the War Manpower Commission, Deputy Executive Director of the Office of War Mobilization and Reconversion, and Assistant Administrator of the Federal Security Administration, and who is now Director General of the International Refugee Organization, where he has done an excellent job. He has as his principal deputy and head of the present Korean staff, Sir Arthur Rucker, a British national, who has served ably with him in the International Refugee Organization. The United States is a member of the Advisory Committee to the Agent General of UNKRA, which committee was established by the United Nations resolution and has as its other members the United Kingdom, Canada, Uruguay and India.

We have submitted to your committee's staff the tentative program of UNKRA for its first full year of operations. Any program which can be drawn up at this time is of course tentative and subject to considerable revision as the actual needs in Korea are examined on the ground in the light of the developing situation. The planned program is based, however, largely on information which has been supplied by the United States Army and by the ECA, which has of course had a very extensive experience in Korea, and the program is believed to be realistic in its general concept. It provides for a breakdown of the $250 million fixed by the United Nations as the initial UNKRA program, into three parts of approximately equal magnitude: relief, imports necessary to sustain the Korean economy and help the Koreans make the maximum contribution for their own support, and rehabilitation items. It is obvious, I think, and experience both in war-devastated countries and in countries seeking to develop their industrial resources has demonstrated, that the rehabilitation of an economy is a laborious process in which external aid can supply only one component. The major rehabilitation effort in Korea will have to be that of the Koreans themselves, and it is necessary in developing a program of external aid to give primary consideration to the strengthening of the internal economy to enable it to make its own basic contribution. Accordingly, the supplying, for the initial period, of relief goods and of basic commodities required by the Korean economy is a prerequisite to the rehabilitation of the devastated homes, hospitals, facilities, and industries of the country. This is particularly true because the Korean economy, as the direct result of the war activities, is now threatened by serious inflation; therefore, the economy of Korea must be stabilized before major rehabilitation efforts can be achieved.

The initial program for Korea is designed to sustain the lives of its people. An additional program will be required in the future to achieve even a continuing survival basis. To meet fully the most urgent needs of the Korean people would require an initial program much larger than the program now proposed;