Congress. We shall have to adopt new policies moneywise, and say, "This is what you are getting it for, and that is all you are going to get."

The Secretary said:

Now we spend gladly-we spend gladly about $50 billion a year in our defense budget. I don't see why we can't spend 10 percent of that, if necessary, to get the job done without war, if possible.

If ever there was a false conclusion, that is it-namely, that the foreign aid program is intended to prevent war. There is no cause-to-effect relationship between those two premises. The State Department officials like to create the impression that if we give them all the money they request for foreign aid, it will not be necessary to go to war.

It is my opinion that if Congress provided all the foreign aid that is asked for in the bill, so many tensions would be created in so many parts of the world, and so many problems would develop in so many parts of the world, that peace would not be encouraged, but more tension and more trouble would result, instead.

I do not say that reducing foreign aid will reduce the chances of war. There is no proof whatsoever that granting the Secretary of State all the money he wants for foreign aid will avoid war. Quite to the contrary. In my judgment, we would help to lessen the chances of war if we drastically cut military aid out of the foreign aid bill. I am sorry I am not getting from the Secretary of State the support that he ought to be offering with respect to foreign aid.

The military aid provisions of the bill are shocking in their amount. In my judgment, the committee did not begin to cut it enough. We ought to cut it in connection with NATO.

As I have said previously, we ought to bring home at least four of our six divisions in Germany. If Senators will talk with the chairman of the Committee on Armed Services, they will find no dispute with him about the fact that six divisions are not needed in Germany to protect Germany-and Germany knows it. Furthermore, we ought to bring those divisions home until our NATO Allies start to fulfill their commitments in respect to their NATO obligations. Not a single one of them has done so yet, including West Germany. It may be that because there is full employment in West Germany and a great deal of unemployment in the United States, there are those who do not want to bring our divisions home. But I believe that Germany has an obligation to fill her NATO ranks.

Nevertheless, she is a wonderful ally on this score, compared with France.

France, obviously, has no intention of fulfilling her NATO obligations. On the floor of the Senate the other day, I called attention to a classified document, invited Senators to examine it, and then returned it to the Committee on Foreign Relations, where I invited Senators to go to look at it. The sad fact is that most of our allies do not even want to commit themselves to fulfilling their

commitments on M-Day. It is all right for the Secretary of State to hold a news conference and engage in a series of non sequiturs with respect to foreign aid and war or no war. But I say to him, most respectfully: "You will greatly strengthen the military posture of the United States and the defense of the United States if you will cooperate with us in trying to bring about some economy in connection with the terrific military cost."

The two most dangerous forces in the world, so far as peace is concerned, are the Russian and the American military. I vote to maintain our forces, so far as our national defense budget is concerned. If the mad, insane armaments race is continued, history will repeat itself, and the result will be war. At the same time, we should bide our time and keep ourselves so strong that Russia will understand, day and night, that she, too, has everything to lose and nothing to gain by nuclear war. That is why I voted more money for defense than was recommended by any one of the four Presidents under whom I have served as a Senator. There were times when I voted more money for defense than any of those Presidents recommended, because I was literally gambling, so far as our domestic defense was concerned, on providing too much rather than too little.

But I will not waste the taxpayers' money on foreign governments which will not assume their defense obligations.

So I say to the Secretary of State: "I do not take offense at your news conference this morning. I believe you expressed your sincere, honest judgment. I have respect for it. I disagree with some of it."

What I feel bad about is that the State Department has not seen fit to face the reality of the situation that exists in this country with respect to foreign aid and to try to arrive at an adjustment of the differences that exist in this body over foreign aid, while there is still time. It could be done in the long weekend ahead. I assure the administration that Senators who are opposed to the bill are ready and willing at any time to try to adjust our differences. But that does not mean that we will ever agree to a continuation in the foreign aid bill of many of the weaknesses and evils in the present foreign aid bill, which we will seek to rectify by a series of 40 or 50 amendments.

While I am on my feet, commenting

on the differences I have with the Secretary of State, I wish to make a comment or two on some differences I have with the New York Times. Senators who are opposed to the bill do not have the media of information to support them that the proponents of the bill have. We do not have the great propaganda force of the American press, which, by and large, is functioning as a huge lobby for the administration in connection with this wasteful foreign aid bill. We must work very hard to keep up with the activities of the research staff of the Department of State, the Pentagon, and the White

House, which are constantly feeding into this Chamber their memorandums and other information that they think they can use to counter our opposition.

But when the kind of attack takes place to which the senior Senator from Oregon was subjected in the New York Times this morning, all we can do is to state, patiently, goodnaturedly, and tolerantly, what we believe to be the facts in answer.

There is an interesting editorial in the New York Times this morning. I ask unanimous consent that it be printed at this point in the RECORD.

There being no objection, the editorial was ordered to be printed in the RECORD, as follows:

SENATOR MORSE'S PERFORMANCE Senator WAYNE MORSE, of Oregon, is displaying much of his considerable talent in attacking the foreign aid bill. His knowledge of parliamentary procedure, his skill at expressing indignation, and his seemingly indefatigable ability to engage in exhaustive soliloquies-characteristics that have been employed by him so often in the past-are now being used in an all-out effort to reduce the extent of foreign military and economic aid to the developing nations.

Some of Mr. MORSE'S criticisms are justified. The rich industrialized nations of Western Europe are not contributing a fair share of the costs of NATO's defense forces; funds have been wasted in Turkey, Pakistan, and other countries; and it may well be true that "the United States pays the salaries of more generals in Chiang Kai-shek's army than the total number of generals in the entire U.S. Military Establishment."

But Mr. MORSE does not confine his wrath to obvious shortcomings. His claims that the American public is being "rooked," that aid to Latin America has "caused more harm than good" and that foreign aid is hurting the domestic economy, only help the enemies of the whole program. Mr. MORSE may protest that he is a supporter of foreign aid while exercising his critical faculties against this particular bill; but his unrestrained performance leaves the impression that he is more interested in reducing the overall amount of aid than in making sure that the program is operated more efficiently.

Mr. MORSE. Mr. President, I shall ignore the first part of the editorial, which deals with personal reference to the Senator from Oregon. Whenever I find someone starting out even with faint praise, I am on my guard. I am never taken off my guard by gloved compliments. I was pleased that the New York Times did say:

Some of Mr. MORSE's criticisms are justified. That was a refreshing admission, coming from the New York Times. The

editorial continues:

The rich industrialized nations of Western Europe are not contributing a fair share of

the cost of NATO defense forces.

I appreciated that statement, too. I hope the Senate will keep that in mind when, later today or tonight, it acts on the Morse amendment dealing with NATO, whereby I propose to end all U.S. aid to NATO countries that are selfsufficient.

I am glad the New York Times agrees that the rich industrial nations of Europe are not contributing a fair share of

the cost of maintaining NATO's defense forces. I am glad the New York Times recognizes, from the evidence we have adduced and put into this RECORD for several weeks, now, that funds have been wasted in Turkey, Pakistan, and other countries.

I thought it was interesting that the New York Times commented that:

It may well be true that "the United States pays the salaries of more generals in Chiang Kai-shek's army than the total number of generals in the entire U.S. Military Establishment."

The Times can strike from the ediThe Times can strike from the editorial the words "it may well be true," because it is true; it is true that Chiang Kai-shek's army has in it more generals than does the entire U.S. Military Establishment, and I do not understand how anyone can dispute the fact that Chiang Kai-shek's army is dependent upon the U.S. Treasury.

I read further from the New York Times editorial:

states:

And that aid to Latin America has "caused more harm than good."

Mr. President, if Senators will examine the context of the speech from which that statement is taken, they will find that I pointed out that our military aid that I pointed out that our military aid

tion of what is happening to the Ameri- program of the U.S. Army Engineers, can taxpayers. whereby military aid funds could be used The New York Times editorial also for the building of roads, dams, and other great public works developments. If such a program is called military aid, there will be no complaint from me. But military aid for the acquisition of Sherman tanks, submarines, and other heavy military equipment has no place in Latin America. On the other hand, if the military aid is confined to items necessary for internal security-to expenditures for small arms, such as pistols, machineguns, rifles, tear gas, and equipment necessary for the handling of riots and the type of coups the Communists could stage, I will not complain about aid of that kind.

to Latin America has caused more harm than good. There has been some waste in our economic aid; but my criticism about "doing more harm than good" related particularly to our military aid. Before this debate is concluded, the Senate will have to deal with amendments on that score. But the New York Times should take note of the fact that I joined the Senator from Minnesota [Mr. HUMPHREY] in trying to restore a substantial amount of the authorization that the socalled "powerhouse amendment," offered by the two leaders in the Senate and their associates, sought to take from the

Mr. President, perhaps it is wrath; but if it is, I wish to state that my adrenal glands show no evidence of being empty. However, throughout this debate, although I have spoken with deep conviction, I have spoken with more sorrow than wrath. I am rather sorrowful that we are in this plight in connection with foreign aid. I am sorrowful that this administration sent to Congress the foreign aid bill in the form in which it came to us. I am sorrowful that the administration did not take note of the criticisms of foreign aid that are set forth in the committee's report, and did not do something about them before it sent the bill to us. The administration knew that such criticisms are based on conditions which have existed for the last few years; nevertheless, the bill was handed to us again. That is why I am not moved by the suggestion that all we should do is to slap the administration on the wrist, and then say, by way of warning, "If you do not do something about reforming your foreign aid bill by next year, you will be in trouble."

So I think we should let the administration realize that it is in trouble now, and that if these criticisms are sound, the reforms should be forthcoming now. I say most respectfully to the Secretary of State that he should use the next few days to consult with the Senate Foreign Relations Committee, to determine what can be done to give assurance now about needed reforms, before the Senate proceeds next week with further consideration of the bill.

Senator from Oregon, in cooperation with the Senator from Minnesota, said, "We think you have gone too far in cutting the authorization for the Alliance for Progress program, insofar as our economic aid is concerned"; and, as chairman of the Subcommittee on Latin American Affairs, I was pleased to join the Senator from Minnesota in urging the Senate to restore $75 million to the the Senate to restore $75 million to the authorization for the Alliance for Progress program-thus increasing it to $600 million. $600 million. The Senate did so because the Senator from Minnesota was in a position to inform the Senate that although those in charge of the program did not like that cut and would prefer not to have it made, yet, when talking to him about the program, they said that although they although they would like a larger authorization, they could live with this one. Particularly in view of the lapse Particularly in view of the lapse of time, that was a fairly good rehabilitation, for we are rapidly approaching the next fiscal year, and it will not be long before the new program will be before Congress.

impression, by means of its statement ica has 'caused more harm than good,' in the editorial that "aid to Latin America has 'caused more harm than good,'' that the Senator from Oregon is opposed to the Alliance for Progress

program.

I am opposed to much of the military aid program, and shall have some suggestions to make as to how it could be modified into a program similar to the

But that does not require any such figure as the Foreign Relations Committee is recommending to the Senate. I wish to make that comment in regard to that very misleading editorial.

It states further:

And that foreign aid is hurting the domestic economy, only help the enemies of the whole program.

Mr. President, it is hurting the domestic economy. It is hurting the domestic economy in many ways, for it is resulting, in effect, in the exportation of a great deal of our economic potential. What we ought to be doing is saving whatever we can and using the money to develop our own underdeveloped areas in the United States and to meet our own unemployment problem. We should do something about our schools, our water level, money for medical care, for the aged, for arthritis research, heart research, and cancer research.

We must start paying closer attention to our domestic economy. The New York Times is absolutely right in that comment in its editorial. I say that foreign aid is hurting the domestic economy. But the editorial states that by making those arguments, all I am doing is helping the enemies of the whole program.

That is more nonsense. Now that we have been forced into the position of writing the bill on the floor of the Senate as though the Senate were a committee of the whole, we have a duty to bring out the evidence that we have been bringing out.

I will tell Senators what I believe disturbs some editors, including editors of the New York Times, the Washington Post, and others. They do not have any answer to the evidence that we have been putting into the RECORD for several weeks. I started putting that evidence into the RECORD Several months ago. I spoke almost daily for weeks on that subject until the time of the test ban treaty debate. Then I laid aside my speeches on foreign aid. I knew that the foreign aid authorization bill would be before the Senate. I could see what was going to happen in the Foreign Relations Committee. Several months ago I started to make the RECORD, and it is a factual RECORD. RECORD. I have put in factual data in speech after speech as to how foreign aid has operated in country after country. It is in the RECORD for future reference. No Senator can say that he did not have the facts available to him. If he did not

read them, that is not the fault of the Senator from Oregon.

The editor, using a typical journalistic device of downgrading, then stated:

Mr. MORSE may protest that he is a supporter of foreign aid while exercising his critical faculties against this particular bill; but his unrestrained performance

If a Senator undertakes to make the record in detail, it is alleged that he is engaging in an "unrestrained performance."

We must not take the time of the Senate to make the record. That somehow is not supposed to be in accordance with the rules of the game. But the Senate should not be operated on the basis of its being a game. I happen to think that when the Senate has before it a matter vital to the welfare of the people of our country, Senators ought to exercise their rights and have the courage to exercise their rights and to make the record, no matter whether some editor who wishes to downgrade a Senator may call it "unrestrained."

So the editorial states:

But his unrestrained performance leaves the impression that he is more interested in reducing the overall amount of aid than in making sure that the program is operating more efficiently.

How could one get a more false conclusion from the record that the Senator from Oregon has made over many weeks in the Senate? I have said before that although I wish to cut the bill in money amounts, I want a good foreign aid program, a program that will accomplish its legitimate objectives. I want an efficient foreign aid program, a foreign aid program that will help us, in this great contest between totalitarianism and freedom, in winning the minds of millions of people over to the side of freedom.

The burden of my argument has been that this program is not doing it. That kind of attempted personal downgrading on the part of the New York Times is no answer to the facts put into the RECORD. The New York Times editor ought to be devoting himself to answering the criticisms that we have made of foreign relations by answering the factual information that we have put into the RECORD.

I

I have one other comment on another facet of this general problem. The Senator from Alaska [Mr. GRUENING] has talked about an editorial that appeared in this morning's Washington Post. share every comment that he made about it. The Washington Post editor also belabors the idea that apparently we should not be discussing this subject on the floor of the Senate. We ought to let a steamroller roll over us. Senators should not exercise their rights and their duties to make the record. There is much concern because there are 50 pending amendments, but the concern is that it will take time to consider the 50 pending amendments. I wish the editor of the Post would express some concern about the fact that a bill came to us in such condition that sincere and dedicated Senators-as sincere and dedicated as those on the other side of the issue from us feel that it is necessary in the public interest to offer some 50 amend

ments. That is what ought to confront the editor of the Washington Post. He ought to give his readers an analysis of the reasons why it became necessary to offer the amendments on the floor of the Senate.

Then the editor said:

Certain men of good will can differ with some of these specific aspects of the program, but it seems to us that the process by which legislative decision is reached is capricious and irresponsible.

I ask "Why?" What is capricious and irresponsible about it? Is it capricious and irresponsible if sincere and dedicated men who disagree with the administration and the administration spokesmen in the Senate say, "We are going to make our record in opposition and let the Senate be the judge."

What the editor impliedly confesses, although he would deny it if we put the question to him, is that he does not think we ought to make the record. He does not think we ought to take the time to make the record. He does not think that this should be a great debating forum. He does not believe that we ought to protect the Senate so that we can truly say that it is the greatest parliamentary body in the world. But it will not be a parliamentary body if it is merely a meeting place for Senators to assemble in order to cast votes.

The Washington Post editor, like the New York Times editor, has, as we say, "let his slip show." He has unknowingly confessed what rankles him. What ingly confessed what rankles him. What he is really rankled about is that a thorhe is really rankled about is that a thorough debate on a foreign aid bill that he knows cannot stand a thorough dehe knows cannot stand a thorough debate without a great many of its deficiencies being shown up is taking place in

the Senate.

I say to my colleagues on my side of the issue, "Prepare for more of this. It will become more and more pointed and will become more and more pointed and bitter as the days go by." By next week bitter as the days go by." By next week they will be writing editorials on asbestos paper.

We have not heard anything yet, so far as concerns the unkind things which will be said to us if we hold our ground. will be said to us if we hold our ground.

I say to the editor of the Washington Post, "Go ahead. Fill up your bottle of invective. We can take it. We are going to talk about this bill until we think ing to talk about this bill until we think we have made the full record."

The editorial further states:

Senators frequently complain that the aid program is haphazardly run. How would they characterize their own legislative be

havior?

Is that not a nice bit of psychological escapism? They cannot meet the argument, so they make an ad hominem argument. argument. There is no reply to the charges that in many instances the foreign aid program is wasteful and ineffieign aid program is wasteful and inefficient so the question is asked, "What about the Senate of the United States?"

We can have some support from this editor, after we dispose of this problem and come to grips with some procedural changes needed in the Senate. I hope it will not give him a heart attack if he it will not give him a heart attack if he happens to find himself on the same happens to find himself on the same side of that issue with the senior Senaside of that issue with the senior Senator from Oregon.

Like a salami in a slicing machine, thick wedges of the program have been arbitrarily shaved off.

That is more nonsense. We have not reduced the bill at a single point, except upon the basis of the factual case we have made to justify a cut. In keeping with our Senate processes, a majority of the Senate agreed with us on each one of those cuts. Why does the editor not say, "I do not like it, because I do not believe the cuts should have been made." Why should he use such descriptive terminology?

First of all, the program was cut from $4.9 to $4.5 billion following General Clay's report.

That is correct. Is there any objection to that?

This figure was drastically reduced in the House, and less severely by the Senate Foreign Relations Committee.

That is true.

Now the Senate has chopped its own committee recommendations in votes based less

on information than emotion.

That is another bit of psychological escapism on the part of this editor. He did not proceed to answer the arguments we presented. He did not deal with the objective data we put into the RECORD.

Congress has called on the Executive to reform the administration of foreign aid. But who will reform the administration of Congress?

That is a nice way to meet an issue, is it not? What makes this editor believe that the administration would reform foreign aid any more this time than it has in past years, though we have patiently, from the Committee on Foreign Relations, pointed out the deficiencies in the program which should have been reformed and were not?

What this editor does not want to

face is the fact that some of us are "fed up" and we are seeking to put reforms into operation now.

I have one more comment to make in

respect to the Secretary of State. He deals with the amendment the Senator made a comment about Egypt, which from Alaska [Mr. GRUENING] and the Senator from New York [Mr. JAVITS), so ably piloted through the Senate last

night. There has been some comment

in the Senate with respect to the amendment dealing with the matter of fishing rights. The implication was that approval of that amendment is supposed to be a terrible intervention on our part in American foreign policy.

The point the Secretary of State and others are overlooking is that we are merely saying to these countries, in connection with these amendments, "It is our money. You do not have to take it. But if you are to take it you will have to take it on certain terms and conditions."

What is incorrect about that? Certainly there is nothing wrong about it, so far as the innate power of Congress is concerned.

It happens to be the right of Congress, which has charge of the purse strings of the Government, as a check upon the Executive, to say, "We are not going to allow the money, unless the recipient

countries are willing to agree to certain conditions."

That is what is sorely needed in connection with the entire foreign aid program. That is why I shall press next week for my amendment in regard to the contingency fund.

I want the President to have unlimited power to meet a national emergency overnight, but I believe we must put strings on the contingency fund with respect to permitting a President to exercise an unchecked discretion in making millions of dollars available to Argentina and Brazil for balance-of-payments problems, for budget support, for making more money available to them so that they, in turn, may use some of it to pay off American creditors. American taxpayers' money should not be used for that purpose. If used for that purpose, it ought to be done with the specific approval of Congress, rather than by an unchecked exercise of discretion on the part of a President of the United States.

That is why I believe we must adopt an amendment to place the contingency fund within some definitive limits.

The President should not be handcuffed in the slightest in his ability to act quickly in regard to an American emergency, but I shall not remain silent any longer in connection with such uses of the contingency fund. I put data in the RECORD on that subject the other day. The data show that the contingency fund has been used, not only by this President, but also other Presidents to shore up the budgets of other countries, such as Brazil.

In my judgment, Brazil has yet to act in good faith in relation to the United States in trying to do something about inflation. Brazil goes through a series of so-called token gestures, but the fact is that apparently Brazil is of the opinion that she can come back to get more money to shore up her monetary policy after each inflationary runaway. She has obtained large sums from the contingency fund, and should not be allowed to have more.

Mr. President, I have made these comments on the position of the Secretary of State, and on the two editorials. I say to the Secretary of State, "Although you and I disagree, Mr. Secretary, to the extent I have brought out in this speech, my admiration for you remains unabated. You are still one of the greatest Secretaries of State in my time, and you will go down in American history as a truly great Secretary of State. But you, too, Mr. Secretary, must be brought under the checking power of the Congress of the United States in respect to your policies. Mr. Secretary, you must not be allowed to do whatever you care to do and take the position that the Congress must give you the necessary money to do what you want to do. The purpose of the bill is to get an authorization for what you want to do."

This is an authorization bill. An authorization bill involves a review of the policy that is proposed by the administration for the expenditure of taxpayers' money. After we have taken a look at the proposals, from the standpoint of policy, we render the decision on whether

or not to authorize that policy by recommending the expenditure of taxpayers' money in sufficient amounts to carry out money in sufficient amounts to carry out the policy.

So I say, "Mr. Secretary, you and I have a difference as to the degree of congressional authority authority in in authorizing funds in relation to policy." Funds are directly related to policy. The Secretary must ask for authorization of funds for a given set of policies, and some of us find ourselves in disagreement-and in some instances the majority find themselves in disagreement, as the votes in connection with the bill show-with some of these policies. Therefore we are trying to persuade the Senate not to authorize money to carry out those policies, which means that if the Secretary does not get the money those policies must necessarily go down the drain—and that is where they belong.

I yield the floor.

Mr. GRUENING. Mr. President, the pending business is my amendment No. 232.

I suggest the absence of a quorum. Mr. HUMPHREY. Mr. President, will the Senator withhold that suggestion? Mr. GRUENING. I do, provided I do not lose the floor.

Mr. HUMPHREY. The chairman of the committee the committee [Mr. FULBRIGHT] momentarily stepped out of the Chamber. While he is away, I want to make available for the RECORD the views of the executive branch on this amendment.

I am sure my colleagues know the former President of the World Bank, Mr. Eugene Black. He wrote to the committee earlier this year in reference to this particular amendment. He wrote to the chairman of the committee and offered us some very good advice. He is a reputable banker, one who has gained for himself an outstanding reputation because of the fine services he has rendered to the World Bank. He wrote:

DEAR MR. CHAIRMAN: I understand that

proposals have been made in the Foreign Relations Committee to harden the loan terms for AID development lending to less developed countries.

Later, he stated:

The problem is that many developing countries have a need for and ability to make use of outside capital which is in excess of their ability to service conventional loans. A number of countries already are at or close to the point beyond which they cannot prudently assume increased foreign debt in view of their already heavy debt service obligations. To refuse them low interest loans with long maturities and generous grace periods for their development programs would be to frustrate their development efforts and to deny them opportunity for increased foreign exchange earnings from which to service their external debt at a later stage.

Mr. Black continued:

It is for these reasons that the International Development Association was created in September of 1960 as an affiliate of the World Bank lending on unconventional terms at a standard rate of three-fourths of 1 percent service charge with 50-year maturities and a 10-year grace period.

I want my colleagues to note that that affiliate of the World Bank has as good a record of financing as any I know.

The International Development Association provides what it calls unconventional terms at a standard rate of threefourths of 1 percent, with 50-year maturities and a 10-year grace period.

I continue to read from the letter: Similarly, when AID was established in 1961, the executive branch sought and Congress wisely authorized the extension of AID development loans on terms as low as threefourths of 1 percent over 40 years, with a 10year grace period on repayment of principal. It is for those reasons also that the World Bank, the U.S. Government, and other bodies have been encouraging foreign governments to lend on softer terms to the less-developed countries.

While I believe that AID's lending policy should be flexible enough to adjust the loan terms to the particular circumstances of the various countries and that terms should be hardened for a number of countries as AID Administrator Bell has done in recent months, I believe it would be a matter of grave consequence if AID's minimum lending terms were forced upward beyond their present level.

I ask unanimous consent that the entire text of Mr. Black's letter be printed in the RECORD, along with a copy of a letter from the Secretary of the Treasury, Mr. Douglas Dillon, addressed to Chairman FULBRIGHT, and dated September 25.

There being no objection, the letters were ordered to be printed in the RECORD, as follows: NEW YORK, N.Y., August 1, 1963. Hon. J. W. FULBRIGHT, Chairman, Committee on Foreign Relations, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: I understand that proposals have been made in the Foreign Relations Committee to harden the loan terms for AID development lending to less developed countries, setting a minimum figure as high as 2 percent for 30 years with a 2-year grace period. My deep concern over the effect of such proposals if adopted moves me, at the risk of intruding upon your deliberations, to submit this letter for your consideration and that of your distinguished colleagues.

The problem is that many developing countries have a need for and ability to make use of outside capital which is in excess of their ability to service conventional loans. A number of countries already are at or close to the point beyond which they cannot prudently assume increased foreign debt in view of their already heavy debt service obligations. To refuse the low-interest loans with long maturities and generous grace periods for their development programs would be to frustrate their development efforts and to deny them opportunity for increased foreign exchange earnings from which to service their external debt at a later stage, when

they should be much more able to bear it. To encourage countries, in effect, to borrow on hard terms is to lead them into a foreign debt service obligation they cannot bear and possible eventual default on their loans.

It is for these reasons that the International Development Association was created in September of 1960 as an affiliate of the World Bank lending on unconventional terms at a standard rate of three-fourths of 1 percent service charge with 50-year maturities and a 10-year grace period. Similarly, when AID was established in 1961, the executive branch sought and Congress wisely authorized the extension of AID development loans on terms as low as three-fourths of 1 percent over 40 years, with a 10-year grace period on repayment of principal. It is for these reasons also that the World Bank, the U.S. Government, and other bodies have been

encouraging foreign governments to lend on softer terms to the less developed countries. While I believe that AID's lending policy should be flexible enough to adjust the loan terms to the particular circumstances of the various countries and that terms should be hardened for a number of countries as AID Administrator Bell has done in recent months, I believe it would be a matter of grave consequence if AID's minimum lending terms were forced upward beyond their present level. Therefore, I strongly hope that your committee will not revise the wise decision it made with respect to AID loan terms 2 years ago.

Once again I ask your understanding for the spirit and concern in which these views are offered, and I extend to you and the members of the committee my continued esteem and best wishes.

Sincerely,

EUGENE R. BLACK.

SEPTEMBER 25, 1963.

Hon. WILLIAM J. FULBRIGHT,
Chairman, Committee on Foreign Relations,
U.S. Senate, Washington, D.C.

DEAR BILL: I am writing you because of my deep concern over any final action by the Congress which would move in the direction of requiring a general hardening of loan terms under the Foreign Assistance Act at the present time. In addition to the recent action of the House of Representatives to raise significantly minimum AID loan repayment terms, I understand that there are proposals before your committee which would have a similar effect. I wish to suggest some reasons why these moves are untimely and to express my strong support for retaining the flexibility of the present law.

The repayment terms which have generally been adopted under the present Foreign Assistance Act-a long period of repayment up to 40 years, grace periods up to 10 years, and with a three-fourths of 1 percent credit or interest charge-are no less essential now than they were only 2 years ago when your committee approved the new program. A move now to harden generally this aspect of our lending program would be contrary to the realities of the financial situation of most of the less-developed countries and would not be in the interests of international financial stability. We rightfully are relying under the new AID program more heavily on loans than grants and now require dollar rather than local currency repayment. There are some cases where loans by AID with harder repayment terms make financial sense, and I can assure you that where they do, these harder terms are required. But to require higher interest rates generally or shorter grace periods and maturities would, in my view, seriously reduce the overall contribution of the program to development. It . would also impede our efforts-which have recently shown signs of real success-to persuade other AID donors to soften their terms.

In the meantime, it would not really help the United States and it would be self-defeating to the purpose of our AID program to add to the burdens of the developing country's budget or its balance of payments by setting an increased artificial floor to the interest rate than can be charged, decreasing the grace periods or reducing the maturities in which loans are to be repaid. Such a step would, in most cases, retard progress that many of these countries might otherwise

make toward self-support and thereby prolong the time when they might be expected to rely on conventional sources of financing and the World Bank. While we seek to improve the ability of the borrowing country to service its debts through progress in development, we should take care that the burden of debt service should not be such as to impede that progress.

It is significant that studies within the past year by international institutions such

as the World Bank and the OECD show that the need is growing for the kind of terms that the United States has been providing. A recent staff study of the International Development Association concluded that the foreign debt service burden for the less developed countries has been becoming rapidly heavier in relation to export earnings, output, savings, and many other key indicators of the seriousness of their debt servicing problem. Very liberal repayment terms were found needed where determined development efforts were being progressively jeopardized by decreasing creditworthiness for loans on conventional terms.

It is to me significant that the terms used by AID are similar to those pioneered by the World Bank for lending by the International Development Association. These were adopted by the IDA after long and thorough international discussion under the leadership of Eugene Black. Recent actions by representatives of both the developed and less developed countries on the future of the IDA confirm their confidence in this organization and in its sound lending policies.

I should also point out that the loans made by AID are tied to U.S. procurement and represent the supplying of U.S. goods and services rather than dollars. In this way, any adverse impact of our foreign assistance pro

grams on the U.S. balance of payments is

kept to the minimum, and, in fact, loans so given add to output and jobs at home.

While I hesitate to intrude upon the proceedings of your committee, I thought it might be of some help to give you my views on the importance of retaining the present flexibility in AID repayment terms. With best wishes.

Sincerely,

DOUGLAS DILLON.

Mr. HUMPHREY. Mr. President, as Senators know, the committee responded to the demand for improved, or harder, terms on loan policy. As I recall, we shortened the term of the loan from 40 to 35 years. The amendment the committee adopted reads as follows:

In the case of loans under part I (the administrator) shall establish terms which shall include (A) interest at a rate not lower than three-fourths of 1 per centum per annum during the 5-year period following the date on which the funds are initially made available under the loan, and not lower than 2 per centum per annum thereafter and (B) repayment on an amortized basis, beginning not later than 5 years after the date any funds are initially made available under the loan, and ending not later than 30 years following the end of such 5-year period.

In layman's language, it means that during the grace period of 5 years the rate of interest shall be three-quarters of 1 percent, and for the next 30 years the interest rate shall be at not less than 2 percent.

This contrasts with what was the policy, and what is the policy today, of three-quarters of 1 percent for 40 years.

So we have toughened the loan policy, and terms and interest rates. The Senator from Ohio, the Senator from South Dakota, the Senator from Iowa, and the Senator from Tennessee, as well as other Senators, made a very strong recommendation for tighter and stronger loan mendation for tighter and stronger loan terms. The committee adopted the recommendations, and has incorporated the new terms into the bill, and we have what we think is a sound proposal.

With due regard and respect for my colleagues, when it comes to banking and financing, the position of Mr.

Eugene Eugene Black might well be given thoughtful consideration. Mr. Black has been heralded in this body for his unusual qualities and qualifications as an international finance expert. Mr. Black has advised the committee to maintain a reasonable, soft loan policy. He has hesitated even to advocate the firmer terms or more stringent terms that we are suggesting or asking for as an amendment in the bill before the Sen

ate.

I think we ought to recognize, also, that the loans, under the foreign aid bill, are not designed to make money for the U.S. Treasury. They are intended to serve our foreign policy interests. The difference between the interest rate charged under the bill as reported by the committee and the cost of the money should be looked upon as a security or foreign policy expenditure or cost.

If we are to engage in a moneymaking business, we have a bank called the Export-Import Bank, which has earned rather substantial profits. This program is directly related to commerce. It finances U.S. exports. It has rates of interest and terms of maturity that reflect the money market. But the Development Loan Fund was not put in the foreign aid bill to take away business from the commercial banks or from the World Bank. It is an addition to those normal, conventional types of financing, and it is, in a very real sense, a foreign policy program and a national security program, and not a banking or moneymaking enterprise. We should keep that in mind.

The low interest rates we are recommending are higher than before, and repayment is provided in dollars. It is a much sounder program than we had for many, many years, before we began the loan program with repayment in dollars.

I conclude by saying that rates of interest of the type proposed in the amendment offered by the Senator from Alaska are actually higher than those in many European countries. They are higher than many of the British loans, higher than many of the recent German loans, and higher than French assistance, which is largely grants.

What we are attempting to do is to persuade countries to bring down their rates of interest. Many of the underdeveloped countries that are obtaining these loans are able to use this soft type of loan as a means of buttressing their economy so as to be able to maintain a credit structure at the World Bank and with private commercial banks, and at the same time have a rising standard of living.

We should understand clearly that the development loans are a part of our foreign policy. It is designed to strengthen our security. We have continued this program on the basis of low rates of interest, but this year we are recommending a sizable increase in the interest rate, from three-quarters of 1 percent to a minimum of 2 percent. Senators should note that this is a minimum, and that the administrator can and does make higher interest terms applicable. Senators should also note that the maximum period is 35 years. The term can be