AUGUST 10, 1961

PAGE 15434

DEBATE ON S.1983, THE FOREIGN ASSISTANCE ACT OF 1961

The Senate resumed the consideration of the bill (S. 1983) to promote the foreign policy, security, and general welfare of the United States by assisting peoples of the world in their efforts toward economic and social development and internal and external security, and for other purposes.

Mr. MUSKIE. Mr. President, I rise today in support of the provision for long-term financing of the development loan program contained in the Foreign Assistance Act of 1961 as reported out by the committee.

Last Friday, August 4, the distinguished chairman of the Foreign Relations Committee [Mr. FULBRIGHT] made out an impressive case for this provision. His presentation was articulate, hardheaded commonsense. He met objections and answered questions with understanding and precision. One need not agree with his views in order to admire his sincerity, honesty, and intelligence. To any who have questions as to the basis for this provision of the bill there is really no need for further exposition of the case. The case was made last Friday. Certainly I cannot improve upon it. I only hope that I do not detract from it.

I speak because I believe in it. I speak because it is easier to be against it than for it. I speak because foreign aid has no constituency in this country and that, as a consequence, there are political risks in giving it support. The courageous position taken by the distinguished Senator from Arkansas ought to have the support of those of us who agree with him.

And so I rise, Mr. President, to state my reasons for supporting this provision of the AID bill in my own way.

I support this section of the bill because I believe it will improve the effectiveness of our aid program, it will reduce waste and inefficiency, and it will apply a sound financing principle in our international lending operations. It is a sound technique which has worked with great success in a number of domestic lending programs.

The objective of development lending is similar to commercial bank lending to private business. It is designed to produce prosperous clients. The difference is that, in the case of the foreign aid program, the clients we want to prosper are the independent nations of the free world. Like a commercial bank, our new foreign aid program will require its clients to demonstrate that they have a plan for the future, that it is a reasonably good plan, and that they are working toward its fulfillment. They will also have to show that their proposed use of our loans is consistent with their plan.

If we are to expect the underdeveloped countries to act like bank clients and to engage in planning, we ourselves must act as any bank must and assure them that when they have their affairs in order and can qualify for loans, there will still be cash in the vault. This can only be done by providing long-term development financing authority.

The only meaningful type of long-term authority is authority to borrow from the Treasury. This can be done without loss of congressional control. Such control under the bill would be exercised in four ways.

First, by limiting the authorized annual rate of borrowing;

Second, by the enactment of lending standards into law;

Third, by the power of Congress to amend the authorizing legislation at any time; and

Fourth, by the necessity for Congress to approve each year's proposed development lending budget in accordance with the provisions of the Government Corporation Control Act.

Yesterday, the distinguished chairman of the committee proposed another check. This amendment would provide for a 30-day advance notice and congressional review by the Senate Appropriations and Foreign Relations Committees and House Appropriations and Foreign Affairs Committees of any proposed loan exceeding $10 million. The loan could not be made until 30 days after a complete report on the purposes and terms of the proposed loan had been submitted to Congress. The amendment would further strengthen the reporting and congressional oversight provisions of the bill.

While, in the face of these controls, any long-term commitments made to other countries by the aid agency would be of a contingent nature, under multi year borrowing authority there is a presumption that funds will be available in the long run unless Congress takes action to curtail or terminate the program. Recipient countries will recognize the possibility that Congress will change its mind. But they will also recognize that the Congress is not a capricious or arbitrary body, and that it will not take such action unless it finds good cause.

There are four principal reasons why the President has deemed it essential that the Congress commit itself unequivocally to a long-term foreign aid program for the United States, and why he feels that long-term borrowing authority is an indispensable part of such a commitment.

Mr. GRUENING. Mr. President, will the Senator yield for a question, or would he prefer to complete his address?

Mr. MUSKIE I am happy to yield to the Senator from Alaska.

Mr. GRUENING. I have listened with great interest to the presentation of my good friend from Maine. I believe that all of us, who believe that a foreign aid program of some kind should be enacted, whatever has been its past errors, and view with sympathy the idea that long-range planning is necessary, would like to approach this plan with hopefulness, but we have certain questions which naturally arise if the program is to be carried out as the administration visualizes it, and if it is to produce the reforms necessary for its success.

This morning I noticed an article in the New York Times, a dispatch from Punta del Este, where the meeting with Secretary of the Treasury Dillon is taking place. The article is rather alarming because it indicates that the United States has already, even in this preliminary stage, weakened on what to me is the very essence of the success of the program so far as Latin America is concerned: The Alliance for Progress; namely, the assurance that in exchange for the $20 billion which we are offering over a 10-year program, we will see land reform, equitable taxation, and riddance of the longstanding abuses which we know exists, which have established a political and financial upper class of a few while the great mass of the people live in misery. The whole Alliance for Progress, according to this administration, is predicated on reform in these Latin American countries. Obviously it is not going to be easy to ask an entrenched aristocracy to get rid of its feudal structure and reduce its privileged status. Yet, instead of being firm, our representatives have already yielded. What chance of success is there under these circumstances? If we do not get these reforms, the result may well be communism in Latin America, which we -- and presumably the Latin American governments -- are trying to forestall.

I should like to quote briefly from the article because it is pertinent:

LATIN PLAN LACKS REFORM DETAILS

While calling for land and tax reform in participating Latin countries to insure that benefits of the 10-year program are enjoyed by persons at all social levels, the draft does not list specific goals in those areas.

U.S. sources gave this rough breakdown on how they expected the $20 billion economic and social development program to be financed annually at the rate of $2 billion a year: From U.S. Government lending agencies, about $1,100 million; from the International Bank for Reconstruction and Development, the Inter-American, Development Bank, and other international lending agencies, about $300 million; from U.S. private capital sources, about $300 million, and from European public and private sources about $300 million.

The five-nation charter draft eliminates entirely an earlier recommendation for a seven-man special multinational committee of experts, which was to evaluate development plans submitted by participating nations. The United States had favored the seven-man committee, but in the interest of maintaining harmony with the participating nations abandoned the idea without a real struggle.

The substitute plan agreed to by the United States calls for development plans and projects to be submitted to Inter-American Development Bank, which would appoint experts to evaluate them. Under the substitute plan, participating nations may submit plans to these experts but are not forced to do so.

Some sources were describing the change in draft as a defeat for the United States. On the other hand, top U.S. delegates were making it clear that their main interest was in getting the alliance for progress program off the ground.

Mr. President, in other words, in the very preliminary stages, when we are supposed to be getting down to brass tacks and to justify these long-range commitments, the United States has already weakened; has already conceded. Nothing is specific as to what the Latin American governments will commit themselves to do in exchange for our billions.

Consider what has happened in one Latin American country --Guatemala. An article on Guatemala, written by Edwin A. Lahey, was published in the Washington Post a week ago Sunday. It shows precisely the proposals which were made, and that in this other Latin American country land reform and taxation were needed, but have not occurred. The writer of the article, who is a very responsible newspaper correspondent and is known to all of us as a journalist with a national reputation for reliability and effectualness, said:

The architects of President Kennedy's "alliance for progress" say that if we dangle the bait of more billions in aid before the oligarchic societies of Latin America, they will enact tax and other reforms needed to bring themselves Into the second half of the 20th century.

The theory is that the propertied classes of Latin America, thoroughly frightened by the wave of Castroism, will give a little now rather than lose it all later to the Communists. The theory simply hasn't worked in Guatemala.

The owner of a Guatemalan coffee plantation with an assessed valuation of $100,000 pays a real estate tax of $300 a year-and that is only part of the picture. According to competent authority here, there are vast coffee estates paying the $3 per $1,000 tax rate on assessed valuations that were computed 150 years ago.

"Actually, this is Guatemala's own business. But since the United States helped overthrow the Communists here 7 years ago, the successor governments have informally promised" - I note those words, Mr. President - "informally promised to enact tax reforms so that the propertied class would share more of the burden of the aid program."

These promises have not been redeemed despite many apparently well-intentioned gestures.

In July of 1955, on the first anniversary of the liberation from communism, the late President Carlos Castillo Armas said privately that Guatemala would enact its first income tax law in a matter of months. When Castillo Armas was assassinated in 1957, he still dreamed wistfully of taxing the middle and upper classes.

President Ydigoras has also urged Congress to adopt income tax legislation, but without success. A cynical Guatemalan says: "The deputies in Congress are lawyers, professional men, and friends of the propertied classes. They are not about to start taxing themselves."

Well, it can be said that this is Guatemala, and it was not spelled out quite as much there as it is to be henceforth.

However, yesterday, in Uruguay, the United States yielded on its program under which Latin American nations were to be asked to submit their plans, do not now have to do so.

I am frankly very much distressed that so early in the game we are showing this kind of weakness. The President's program for 5-year loans will fail unless we exact specific conditions, and spell them out, and get firm commitments. We have not shown the necessary fortitude and firmness at this important conference and suggested merely that as in the past we are a soft touch.

The question I would like to ask the Senator is whether he has any suggestion as to how Congress can write into the pending bill conditions which will insure that things of this kind we say we require will be carried out. If we merely go ahead in a kind of hazy, fuzzy, wishful, and idealistic way hoping that what we hope for will happen, it will not happen. All history, which is the only record we have to go by, shows the contrary. I believe this goes to the heart of the question. I would like to support the 5-year program. I believe it is a good idea. I believe it is sound and that it is essential. The corollary to its success is that we must have some assurance that the other part of the program will also be carried out.

Mr. MUSKIE. Mr. President, first of all, I am in complete sympathy with the point of view which the Senator from Alaska has expressed. I remind the Senator that one of the arguments for a long-term loan program is that it will make it possible to hold out long-term development plans as an inducement to recipient countries to develop essential internal reforms. I will cover that point in my prepared remarks later.

Mr. GRUENING. I ask unanimous consent that the article from the New York Times be printed in the RECORD at this point.

Mr. MUSKIE. I am glad to have that done.

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

LATIN PLAN LACKS REFORM DETAILS -- BUT AID NEEDS ARE SPECIFIED IN URUGUAY PARLEY DRAFT

(By Edward C. Burks)

PUNTA DEL ESTE, URUGUAY, August 9. -- The draft of an alliance for progress charter offered by Latin American nations today was specific on the foreign aid needed, but somewhat general as to social reform measures planned.

The draft, prepared by Argentina, Brazil, Chile, Mexico, and Peru states that at least $20 billion in foreign aid is to be invested in Latin America during the next 10 years. The United States participated actively in preparation of the draft but has decided to remain in the background and allow what purports to be an all-Latin document to be adopted by the Inter-American Economic and Social Conference of Finance Ministers here.

While calling for land and tax reform in participating Latin countries to insure that benefits of the 10-year program are enjoyed by persons at all social levels, the draft does not list specific goals in those areas.

U.S. sources gave this rough breakdown on how they expected the $20 billion economic and social development program to be financed annually at the rate of $2 billion a year: From U.S. Government lending agencies, about $1,100 million; from the International Bank for Reconstruction and Development, the Inter-American Development Bank and other international lending agencies, about $300 million; from U.S. private capital sources, about $300 million, and from European public and private sources about $300 million.

The five-nation charter draft eliminates entirely an earlier recommendation for a seven-man special multinational committee of experts, which was to evaluate development plans submitted by participating nations. The United States had favored the seven-man committee, but in the interest of maintaining harmony With the participating nations abandoned the Idea without a real struggle.

The substitute plan agreed to by the United States calls for development plans and projects to be submitted to Inter-American Development Bank, which would appoint experts to evaluate them. Under the substitute plan, participating nations may submit plans to these experts but are not forced to do so.

Some sources were describing the change in the draft as a defeat for the United States. On the other hand, top U.S. delegates were making it clear that their main interest was in getting the alliance for progress program off the ground.

The seven-man committee would have operated between the countries applying for aid and the lending agencies. But the larger Latin American countries saw in it an infringement on their sovereignty and a hindrance to their development plans.

Although Secretary Of the Treasury Douglas Dillon had described Such a supranational screening committee as helpful and influential, the official U.S. stand today was that the killing of the committee plan was perfectly acceptable.

AID IS AVAILABLE

Under the loosely worded substitute plan a nation applying for aid could, at its own request, submit its plan to experts who would be selected by the Inter-American Development Bank with the help of other inter American agencies.

The ad hoc committee of specialists could then lend its services in studying the development plan. This is far short of the original conception of a body of seven "wise men" that would screen projects before passing them on to the bank or to other lending agencies.

Even with the watered-down substitute U.S. officials expressed hope that the Latin nations would find it more fruitful and speedy to use the services of the bank's expert committees.

U.S. officials conceded that various reform measures were not specific in the charter draft and that "it is not going to be

easy" to push them through reluctant national congresses. But pressure is mounting in all countries for the needed economic and social reforms, the U.S. sources added.

In his major address to the Conference, Secretary Dillon said the alliance for progress would require the following: Tax reforms so that evaders would know they faced strict penalties; assessment of taxes in accordance with ability to pay; land reform to put underutilized big lands to full use and to permit small farmers to own their plots; and lower interest rates on loans to small farmers, and small business.

The draft charter presented today says on the subject of land reform that "frequently" fundamental reforms of land tenancy will be required. One difficulty in Latin America today is lack of agreement on what constitutes agrarian and land reform in the various countries, where there are many tenant farmers.

STRICT MEASURES ASKED

On the subject of tax reform, the charter draft calls for application of strict measures and provision for collecting adequate and equitable taxes on high incomes and on land.

On agrarian reform, the draft says that "where necessary" reforms in all cultural structures and systems of land tenancy will be carried out so that every farm family can live on a decent level.

U.S. sources say that the charter must of necessity be relatively general but that in cases of poor performance on reforms aid can simply be withheld on the grounds that the applicant did not comply with the charter.

Among the aims of the alliance outlined in the draft are the following: The spread of benefits to all sectors of the population; reduction of dependence on one or two primary export products; industrialization; low-cost housing; minimum of 4 years of education for all children by 1970, the ending of adult illiteracy; better access of Latin exports to United States and world markets; the end of price fluctuations of Latin export products.

The draft charter calls for participating nations to prepare comprehensive development programs in the next 18 months. In the meantime, they are to push short-range development plans.

Mr. MUSKIE. Mr. President, I was setting out, prior to this colloquy with the Senator from Alaska, the four reasons why the President has deemed it essential that Congress commit itself to long-term foreign aid.

First. A long-term commitment by the Congress would support the attempt by the executive branch to obtain a greater sharing of the foreign aid effort by such countries as our NATO allies and Japan. Negotiations looking toward this objective have produced a hopeful beginning with the creation of the Development Advisory Group, which recently met in Tokyo. However, unless the United States is forearmed with a long-term development authority, it will be much more difficult to participate in the joint development projects, much less to organize them.

Second. Long-term development financing authority is necessary if the United States is to succeed in assisting the underdeveloped countries to undertake the economic and social reforms that may be essential to their economic growth. This is the point which was raised by the Senator from Alaska.

In many underdeveloped countries today, economic progress is held back by antiquated tax systems that deprive governments of the revenues needed to build the schools, roads, water supply systems, and other facilities that are the first steps to development. Outdated land tenure systems deprive farmers of any incentive for increasing or diversifying their production. And, entrenched interests also keep governments from adopting the budgetary and administrative measures that are a precondition for progress.

Long-term development financing authority will make it possible to give long-term commitments to underdeveloped countries. If they call upon their citizens to make the temporary sacrifices that are a part of reform, U.S. aid will be forthcoming to help them over the difficult readjustment period. The assurance of such U.S. aid will help the countries to build popular support for the reform efforts. Our assistance could well spell the difference between successful reform and failure.

Third. Long-term development financing authority will mean better value for the U.S. aid dollar. To plan the best use of a country's resources and to identify the highest priority projects takes study and time. Even after a project is selected, it may take months before all the conditions for a loan can be met. To allocate development loan money for only a single year, therefore, inevitably means that many projects will be selected hastily in order to qualify for loan funds before the funds run out. Under such conditions, it is no wonder that the priorities that make the most sense in terms of long-term development goals are often ignored.

Long-term development financing authority will eliminate the need for hasty decisions. Combined with strict lending criteria, it will give an incentive to countries to utilize their most talented civil servants in ascertaining how their resources, and ours, can be combined to produce the maximum benefits.

Finally, a long-term commitment by the Congress to a foreign aid program is one of the best ways to improve employee morale. This is essential to high performance and to the recruitment of outstanding public servants from other parts of the Government, from business, and from the universities and foundations.

These are, I submit, ample arguments on behalf of the long-term lending authority requested for the Development Loan Fund. As I have indicated earlier, in adopting this approach to the financing of foreign aid lending projects, we are using a sound and established principle already in use in about 20 domestic lending programs, including the loan program under the Area Redevelopment Act, which we passed earlier this year.

This is an approach which has been used by Republican as well as Democratic administrations. As has been pointed out in this debate, the technique was first used in 1932, under President Hoover, to provide funds for the Reconstruction Finance Corporation. Furthermore, President Eisenhower requested the borrowing authority for development loans in 1957.

Using borrowing authority for long-term foreign aid lending activities is not new. From 1948 to 1954, under the Marshall plan, borrowing authority was used to provide funds for long-term, dollar repayable loans to 13 European Nations and to Turkey. Loans under this program totaled almost $1.2 billion. Amortization of these loans began in 1956, with the exception of Turkey, which was granted a moratorium until 1966. As of June 30, 1961, all of these loan accounts were current, and a total of $62 million in principal and $213.6 million in interest payments had been made. It is estimated that during fiscal year 1962 payments of $19 million in principal and $26 million in interest will be made. All of this money has been deposited with the Treasury Department.

And yet, in spite of the successful use of this technique in domestic and international lending programs, there are those who tremble and quake at the suggestion that we enact such a provision in this bill. They conjure up images of bureaucrats from the Department of State creeping into the back door of the Treasury Department in the still of the night to spirit away funds for secret operations in far-off lands. We, as Members of Congress, are warned against giving up rights which were ours from the foundations of the Republic, even though authorizations and appropriations were not separated until 1922. We are told that this is but another wedge in the drive to take away Congress power over the purse strings. The rhetoric is magnificent, but the logic is weak.

Under the terms of the Act for International Development, the annual rate of borrowing is specific and limited. Section 202 of the bill provides:

The President is authorized to issue, during the fiscal years 1962 through 1966, notes for purchase by the Secretary of the Treasury in order to carry out the purposes of this title. The maximum aggregate amount of such notes issued during the fiscal year 1962 shall be $1,187,000,000, and the maximum aggregate amount of such notes issued during each of the fiscal years 1963 through 1966 shall be $1,900,000,000: Provided, That any unissued portion of the maximum amount of notes authorized for any such fiscal year may be issued in any subsequent fiscal year during the note issuing period in addition to the maximum aggregate amount of notes otherwise authorized for such subsequent fiscal year.

In other words, the flow of funds for lending operations has an outside limit each year, and their use will depend on the actual demands on the program.

Borrowing from the Treasury for the Development Loan Fund is done out in the open, through the front door; the amounts borrowed are treated as "public-debt transactions of the U.S. Government" and are carried on the budget books, just as are appropriated funds.

Mr. GORE. Mr. President, will the distinguished Senator from Maine yield?

Mr. MUSKIE. I am happy to yield.

Mr. GORE. I find it intriguing that we hear currently used the expressions "back-door financing" and "front-door financing." Is not this a public session of the U.S. Senate?

Mr. MUSKIE. The Senator is correct.

Mr. GORE. Is not the Senate now debating a proposal to act in the near future upon a measure, with our eyes wide open, in public session, in public debate, with recorded votes, to act upon this manner, this means, of making funds available for purposes which the Senate considers to be in the national interest?

Mr. MUSKIE. The Senator from Tennessee is absolutely correct. I would add that, as has been stated by the Senator from Tennessee and other Senators in the course of the debate, this method of financing important development programs, both domestic and foreign, is traditional and has been used for many years. The public is familiar with it, and Congress is familiar with it. So there is nothing secretive, hidden, or mystifying about it.

Mr. GORE. Does not the Senate now have full opportunity to reject or approve the proposal?

Mr. MUSKIE. Exactly. It will have a similar opportunity every year, if the proposal is enacted.

I thank the Senator from Tennessee for his contribution to the debate.

Mr. President, repayments on loans made under this authority are made directly to the Department of the, Treasury in U.S. dollars. They are not deposited in revolving fund accounts as are some of our domestic lending programs.

Lending standards are set in the act. This is a most important feature. Under section 201:

The President is authorized to make loans payable as to principal and interest in U.S. dollars on such terms and conditions as he may determine, in order to promote the economic development of less developed countries and areas, with emphasis upon assisting long-range plans and programs designed to develop economic resources and increase productive capacities. In so doing, the President shall take into account (1) whether financing could be obtainable in whole or in part from other free-world sources on reasonable terms, (2) the economic and technical soundness of the activity to be financed, (3) whether the activity gives reasonable promise of contributing to the development of economic resources or to the increase of productive capacities in furtherance of the purposes of this title, (4) the consistency of the activity with, and its relationship to, other development activities being undertaken or planned, and its contribution to realizable long-range objectives.

Fifth -- and this is responsive to the point raised by the Senator from Alaska -- the extent to which the recipient country is showing a responsiveness to the vital economic, political, and social concerns of its people, and demonstrating a clear determination to take effective self-help measures, and (6) the possible effects upon the U.S. economy, with special reference to areas of substantial labor surplus, of the loan involved. Loans shall be made under this title only upon a finding of reasonable prospects of repayment.

In addition to the annual reports required from the President on the overall operations of the Act for International Development, section 204 of the act imposes the following requirement for quarterly reports:

At the close of each quarter of the fiscal year, the President shall submit to the Committee on Foreign Relations and the Committee on Appropriations of the Senate and the Speaker of the House of Representatives a report of activities carried out in such a quarter under this title, including appropriate information as to the amount of loans made under section 201(b), and notes issued under section 202(a), as well as any undertakings which have committed the U.S. Government to future obligations and expenditures of funds.

In the third place, Congress may amend the basic authorization at any time, including the borrowing authority. We do not give up that power by giving the administrators of the program more flexibility in managing the flow of lending funds.

Furthermore, I see no reason to raise questions by implication about the capacity of our colleagues on the Foreign Relations Committee to oversee the operation of the program.

Finally, Congress must approve each year's proposed development lending budget in accordance with the provisions of the Government Corporation Control Act. Section 203(b) of the Act for International Development is very specific on this point:

In carrying out the purposes of this title, the President shall prepare annually and submit a budget program in accordance with the provisions of sections 102, 103, and 104 of the Government Corporation Control Act, as amended (31 U.S.C. 847-849).

Under the Government Corporation Control Act, the Development Loan Fund will be required to submit an annual business-type budget program to the Bureau of the Budget, containing "estimates of the financial condition and operations of the corporation for the current and ensuing fiscal years and the actual condition and results of operation for the last completed fiscal year. Such budget program shall include a statement of financial condition, a statement of income and expense, an analysis of surplus or deficit, a statement of sources and application of funds, and such other supplementary statements and information as are necessary and desirable to make known the financial condition and operations of the corporation, title 31, United States Code, section 847."

The President is required to submit the budget Program "as modified, amended, or revised by the President, to the Congress as part of the annual budget required by the Budget and Accounting Act, 1921," title 31, United States Code, section 848.

Congress, in turn, must consider and act upon the budget request. Section 103 of the Government Corporation Control Act -- title 31, United States Code, section 849 -- is very specific on this point:

The budget programs transmitted by the President to the Congress shall be considered and legislation shall be enacted making necessary appropriations as may be authorized by law, making available for expenditure for operating and administrative expenses such corporate funds or other financial resources or limiting the use thereof as the Congress may determine.

This authority gives the Appropriations Committees power to review and act upon the annual budget of the Development Loan Fund. As the Foreign Relations Committee has stated in its report, the Agency for International Development must "obtain from Congress authority to obligate funds to carry out this program." As with appropriations, the amounts to be borrowed must be included each year in the Federal budget as new obligational authority.

Congress, if it chooses, can limit the funds that otherwise would be available for use; consistent with legislative practice in the case of other Government agencies having borrowing authority, it is anticipated that this would be done only in unusual circumstances" -- Senate Report No. 612, page 10.

Because of the general interest in the question of annual review of development lending activities by the Appropriations Committees of Congress, Mr. President, and because of the questions which have been raised about the application of the Government Corporation Control Act to the AID bill, I requested an analysis of this matter by the executive branch.

In response to this request, I received an excellent memorandum which presents in great detail the kind of congressional control which will apply to the Development Loan Fund under the bill as reported by the Senate committee.

Mr. President, for the purpose of presenting the administration's interpretation of the requirements of the Government Corporation Control Act, I ask unanimous consent that a memorandum entitled "Annual Review of Development Lending Program by Appropriations Committees" be printed at this point in the RECORD.

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

ANNUAL REVIEW OF DEVELOPMENT LENDING PROGRAM By APPROPRIATIONS COMMITTEES

Much of the discussion which has taken place thus far regarding the proposal of the AID bill to finance the development lending program by means of 5-year borrowing authority has proceeded on the assumption that the granting of such authority would result in the elimination of any review of the development lending program by the Appropriations Committees of the House and the Senate during the 5-year period. This assumption is not correct. As a result of the inclusion in the AID bill of a provision making applicable to the development lending program certain provisions of the Government Corporation Control Act, the exercise of the borrowing authority will in fact be subject to annual review by the Appropriations Committees of both Houses.

Section 203(b) of the AID bill provides, in substance, that the development lending program shall be subject to the budget provisions (sees. 102, 103, and 104) of the Government Corporation Control Act. Section 102 of the Control Act requires the annual submission to the Bureau of the Budget by each corporation or agency which is subject to such budget provisions of a business-type budget, containing, among other things, an estimate of the financial operations of the corporation or agency for the ensuing fiscal year, including a statement of income and expense and a statement of sources and application of funds.

Section 103 provides that all such budget programs shall be transmitted to the Congress as part of the President's budget. Section 104 reads as follows:

"The budget programs transmitted by the President to the Congress shall be considered and legislation shall be enacted making necessary appropriations, as may be authorized by law, making available for expenditure for operating and administrative expenses such corporate funds or other financial resources or limiting the use thereof as the Congress may determine and providing for repayment of capital funds and the payment of dividends. The provisions of this section shall not be construed as preventing Government corporations from carrying out and financing their activities as authorized by existing law, nor as affecting the provisions of section 831 (y) of title 16. The provisions of this section shall not be construed as affecting the existing authority of any Government corporation to make contracts or other commitments without reference to fiscal year limitations."

The language of section 104 contains certain ambiguities, and these ambiguities are not fully clarified by the legislative history of the Control Act. As a result, the meaning of section 104 has been the subject of disagreement in past years.

The following discussion sets forth the views of the executive branch as to the proper interpretation of section 104.

The Government Corporation Control Act can best be understood in the light of the statement of policy which the Congress included in that act reading as follows:

"It is hereby declared to be the policy of the Congress to bring Government corporations and their transactions and operations under annual scrutiny by the Congress and provide current financial control thereof."

The procedures which are provided to accomplish the policy as set forth above are spelled out in a report by Senator FULBRIGHT on the Control Act for himself and Senator BUTLER of the Senate Committee on Banking and Currency (S. Rept. 694, 79th Cong., Ist sess., 1945). The report states:

"The President is directed to transmit to Congress, as a part of the annual budget required by the Budget and Accounting Act of 1921 the budget programs of the corporations as modified amended, or revised to conform to his recommended program for the Federal Government as a whole. The Congress will consider these budget programs and enact legislation making available such funds or other financial resources, with such directives and limitations as It may deem necessary. In this manner Congress will for the first time have a systematic procedure for annually scrutinizing and passing upon the budgets of the Government corporations as it now does for the regular agencies of the Government.

Only in this way can the operations of Government corporations be brought into balance and proportion with all other Federal activities and in harmony with the financial and economic policies of the Congress. The budget procedure established by the bill provides for the information and the facilities for the exercise of congressional control over the budget program of each of the wholly owned Government corporations in the manner and to the extent considered appropriate and desirable."

Ever since the enactment of the Control Act, it has been the consistent practice of the executive branch to lay before the Congress annually budget programs for all corporations or agencies covered by the budget provisions of the Control Act, which have included appropriate information on the programs and financial transactions contemplated. Moreover, it has been the consistent practice of the Congress to review such budget programs and to include in appropriation acts specific language authorizing the conduct of the programs for the ensuing fiscal year, and providing limitations where Congress has so decided. One instance is known in which Congress failed to enact the usual legislation for a particular year with respect to a particular agency (Institute for Inter-American Affairs.) It is understood, however, that this failure was the result of a clerical error by which the name of the agency in question was accidentally dropped from a list of agencies forwarded by the executive branch with the usual recommendation for legislation.

The customary language used by the Congress for approving budget programs is as follows:

"(Name of agency or corporation) is hereby authorized to make such expenditures, within the limits of funds and borrowing authority available to such corporation, and in accord with law, and to make such contracts and commitments without regard to fiscal year limitations as provided by section 104 of the Government Corporation Control Act, as amended, as may be necessary in carrying out the program set forth in the budget for the current fiscal year for such (agency or corporation)."

As applied to the proposed development lending program, it is understood by the executive branch that the following procedure would prevail:

1. The President would annually submit a budget showing both obligations and expenditures for the contemplated program, in accordance with law.

2. The Congress would have the responsibility of reviewing the program and acting to authorize the use of the borrowing authority year by year. In accordance with past practice, from which there has been no deviation, this review would take place in the first instance in the Appropriations Committees of the respective Houses in the same manner as all other budget proposals. The authorization for the use of funds would appear in an appropriation bill.

3. Congress could limit the use of funds in accordance with its judgment. Limitations could be proposed by the Appropriations Committees or by amendment to the bill on the floor of either House in the same manner as Congress acts with respect to all other items in an appropriation bill.

4. The executive branch would be limited, both as to obligations and expenditures, by the amounts made available in the AID Act or in the appropriation act, whichever is the more limiting.

5. The President has already transmitted to the Congress his amendments to the 1962 budget for foreign assistance, including proposed language for development loans. Until Congress enacts the necessary language approving the budget program, neither obligations nor expenditures can be incurred if in some subsequent year Congress failed to enact the necessary language approving the budget program and making the funds available for that fiscal year, the development lending program could not enter into further obligations or make expenditures other than those necessary to liquidate obligations entered into under previously authorized programs.

As indicated in the foregoing numbered paragraphs, the contemplated procedure admits of the possibility that limitations on the development lending program might be imposed by the annual section 104 legislation. This is in accordance with an explicit provision of section 104 to the effect that the use of funds may be limited where Congress determines.

However, the executive branch understands that it was the intent of the Congress, in enacting section 104, that limitations on budget programs would be imposed only where affirmative reasons existed for imposing them. There is strong support in the legislative history for this position. Thus, the report of the House Committee on Expenditures in the Executive Departments which accompanied the control act bill in 1945 contained the following statement:

"Section 104 provides for the consideration by the Congress of the budget programs and the enactment of legislation, if necessary, making available such funds or other financial resources as the Congress may determine. Under this procedure, it is contemplated that the budget programs as transmitted by the President to the Congress would include, as in the case of estimates of appropriations, language suitable for enactment as the authorizing legislation. Such programs would be referred to the House Committee on Appropriations and, after hearings, be reported to the House, in the form of (1) simple authorizing legislation, showing that the Congress had considered and approved the budget program but not setting a limitation on the corporate financial activities other than that provided by substantive law, or (2) legislation incorporating such specific limitations as necessary to enforce the will of Congress in the carrying out of the corporate financial activities or to conform such activities to the general financial program of the Government." (H. Rept. No. 853, 79th Cong., 1st sess., p. 12).

In fact, as the practice has developed under section 104, limitations have regularly been imposed with respect to administrative expenses. However, only in a few instances (e.g., in the case of the Federal Home Loan Bank Board and of the Federal Prisons Industries, Inc.) have limitations been imposed with respect to operating expenses. It would be the expectation of the executive branch that, in the case of the development lending program, limitations would be imposed upon the development lending program by the annual section 104 legislation only if affirmative reasons existed for imposing such limitations in order to assure the carrying out by the executive branch of the will of the Congress with respect to the development lending program, as expressed in the AID bill, or to conform the activities of the development lending program to the general financial program of the Government.

It is worth pointing out, as a point which is separate from, although related to, the points which are made in this memorandum with respect to the application of the Government Corporation Control Act, that section 202(a) of the AID Act, which establishes the borrowing authority, places fiscal year limitations upon the availability of funds pursuant to such authority. The result of these provisions is that the executive branch could not in any event enter into firm obligations with respect to the funds provided for any fiscal year prior to the commencement of that fiscal year. In other words, any long-term commitment which the executive branch might make providing for the lending of funds becoming available in a future fiscal year would have to be made subject to the condition that the borrowing authority had not been revoked prior to the commencement of that fiscal year.

The net result of the factors considered in this memorandum is that the exercise of the borrowing authority provided under section 202 (a) of the AID Act would be subject to annual Appropriation Committee review and congressional action pursuant to section 104 of the Control Act. Long-term commitments of funds provided by the borrowing authority would have to be made subject to such congressional review and action (as well as being made subject to the nonrevocation of the borrowing authority, as indicated in the preceding paragraph).

However, the executive branch would consider the enactment of the borrowing authority in the AID Act to constitute an expression of intent on the part of the Congress to provide funds over the 5-year period in the aggregate amount of $8.8 billion, and it would feel free to enter into conditional commitments with respect to these funds. It would be the expectation of the executive branch that the level of these funds would not be reduced, so as to render it impossible for the commitments of the executive branch to be carried out, unless the Congress considered that affirmative reasons existed for such reduction.

Mr. GRUENING. Mr. President, will the distinguished Senator from Maine yield?

Mr. MUSKIE. I yield.

Mr. GRUENING. I wish to ask the Senator from Maine, and also the distinguished Senator from Alabama (Mr. SPARKMAN] and the distinguished Senator from Idaho [Mr. CHURCH], two members of the Committee on Foreign Relations whom I observe in the Chamber, whether they have read the article in the New York Times this morning, a special dispatch from Uruguay, which indicates that the U.S. delegation has already weakened with respect to the proposal to try to secure assurances that in exchange for the $20 billion the United States is offering, there will be land reform, tax reform, and a different attitude generally. I have already received unanimous consent to have the article printed in the RECORD. I hope every Senator will read it. It is a most factual article. It shows that the original proposal of the United States, which was an attempt to guarantee that the Latin American nations would agree to consider this proposal, has been weakened. They have refused to agree and have submitted an alternative plan, which is much weaker, and we have yielded.

I am very much distressed by this event. I hope other Senators also will note it. We who would like to support the 5-year loan program wish to be assured that there will be some definite guarantees which the beneficiaries of the program will comply with; that in exchange for this generous system of grants and loans there will be land reform and tax reforms, and that there will be a definite understanding that the program will be carried out, not, as in the case of Guatemala, merely a promise to let it be carried out.

Mr. SPARKMAN. Mr. President, will the Senator from Maine yield?

Mr. MUSKIE. I yield.

Mr. SPARKMAN. I call the attention of the Senator from Alaska to the fact that included in the bill is an amendment which I have proposed to it myself, conditioning the aid program for Latin America upon the Bogota agreement, which was entered into a year ago. It provides that the nations participating will have to engage in tax reform, land reform and similar activities. I believe what the Senator is referring to now -- I have not read the particular article -- is the reluctance of Latin American nations to accept the tight overseeing commission which the United States has proposed.

Mr. MUSKIE. Mr. President, I wish to complete my remarks within the time still available to me.

The PRESIDING OFFICER. The hour of 2 o'clock has arrived. Under the unanimous-consent agreement --

Mr. MANSFIELD. Mr. President, the meeting to which I referred earlier is still in progress. I, therefore, ask unanimous consent, in order to take care of the wishes of the Senator from Maine and the Senator from Virginia [Mr. ROBERTSON], that the vote on the passage of the pending bill be taken at 2:15 o'clock.

The PRESIDING OFFICER. is there objection? The Chair hears none, and it is so ordered.

Mr. MUSKIE. Mr. President, the administration has offered a new aid program which makes use of sound banking procedures in our investment in the development of free nations.

This approach was advanced and strongly endorsed by Secretary of State John Foster Dulles. His statement before the Senate Foreign Relations Committee in 1957 is very pertinent:

The Development Loan Fund should be established upon a basis of continuity with sufficient capital for several years' operations. As I said here last month, economic development is a long-term process. It is not an annual event. If our assistance is to be useful at all, it should be provided on a sustained basis, that is consistent with the long-term nature of the job to be done.

It is not necessary that all the capital of the Fund be provided at once. But it is essential that there be initial provision for future availability. For this reason the President has asked that there be provided this year an appropriation of initial capital and the authority to borrow additional capital from the Treasury in the second and third years. Such borrowing authority has been used to capitalize other U.S. lending agencies. These additional funds which would be borrowed from the Treasury would not be available for obligation until such second and third years. However, the fact that they would be available will give the countries we wish to help and our own administrators the assurance they need to plan ahead.

The new approach we contemplate requires that we get away from the annual authorization or appropriations. These inevitably tend toward a system of illustrative programs as a basis for justifications. These are not compatible with the assurance of continuity essential to good planning and to the new long-term loaning concept. They are not compatible with cooperation with such organizations as the International Bank for Reconstruction and Development and Export-Import Bank which operate on a long-term businesslike basis, with established capital.

We can disagree -- and do -- as to the merits or the effectiveness of a national effort to assist underdeveloped countries. But surely we can agree that, once this effort is undertaken, it should be done effectively and efficiently. Surely we can agree that everything possible should be done to insure its success.

If, without relinquishing essential control, we can enable the administrators to do a better job, to move more effective toward the objective of the program, to get more results for the tax dollars expended, it seems to me it is our responsibility to do so. It is our duty to avoid waste of effort waste of energy, waste of resources. Such waste is a disservice to our constituents. It dilutes our contribution on behalf of freedom, and economic and social growth in all parts of the globe.