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DEVELOPMENT LENDING AND ILLEGAL IMMIGRATION

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HEARING [-::< ^

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BEFORE THE

SUBCOMMITTEE ON INTERNATIONAL

DEVELOPMENT INSTITUTIONS AND FINANCE

OF THE

COMMITTEE ON

BANKING, FINANCE AND URBAN AFFAIRS

HOUSE OF REPRESENTATIVES

NINETY-FIFTH CONGRESS

FIRST SESSION

SEPTEMBER 14, 1977

Printed for the use of the

Committeee on Banking, Finance and Urban Affairs

D.8. GOVERNMENT PRINTING OFFICE

98-813 WASHINGTON : 1977
HOUSE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS

HENRY S. KEUSS, Wisconsin, Chairman

THOMAS L. ASHLEY, Ohio

WILLIAM S. MOORHEAD, Pennsylvania

FERNAND J. ST GERMAIN, Rhode Island

HENRY B. GONZALEZ, Texas

JOSEPH O. MINISH, New Jersey

FRANK ANNTJNZIO, Illinois

JAMES M. HANLEY, New York

PARREN J. MITCHELL, Maryland

WALTER E. FAUNTROY,

District of Columbia

STEPHEN L NBAL, North Carolina

JERRY M. PATTERSON, California

JAMES J. BLANCHARD, Michigan

CARROLL HTJBBARD. JR., Kentucky

JOHN J. LAFALCB, New York

GLADYS NOON SPELLMAN, Maryland

LES ArCOIN, Oregon

PAUL E. TSONQAS, Massachusetts

BUTLER DERRICK, South Carolina

MARK W. HANNAFORD, California

DAVID W. EVANS, Indiana

CLIFFORD ALLEN, Tennessee

NORMAN E. DAMOURS, New Hampshire

STANLEY N. LUNDINE, New York

HERMAN BADILLO, New York

EDWARD W. PATTI80N, New York

JOHN J. CAVANAUQH, Nebraska

MARY ROSE OAKAR, Ohio

JIM MATTOX, Texas

BRUCE F. VENTO, Minnesota

DOUG BARNARD, Georgia

WES WATKINS, Oklahoma

J. WILLIAM STANTON, Ohio

GARRY BROWN, Michigan

CHALMERS P. WYLIB, Ohio

JOHN H. ROUSSELOT, California

STEWART B. McKINNBY, Connecticut

GEORGE HANSEN, Idaho

HENRY J. HYDE, Illinois

RICHARD KELLY, Florida

CHARLES E. GRASSLEY. Iowa

MILLICENT FENWICK, New Jersey

JIM LEACH, Iowa

NEWTON I. STEERS, JB., Maryland

THOMAS B. EVANS, JR., Delaware

BRUCE F. CAPUTO, New York

HAROLD C. HOLLENBECK, New Jersey

PAUL NELSON, Clerk and Staff Director

WILLIAM P. DixON, General Counsel

MICHAEL P. FLAREBTT, Counsel

GBASTT CREWS II, Counsel

MIBCEB L. JACKSON, Minority Staff Director

GRAHAM T. NOBTHUP, Deputy Minority Staff Director

SUBCOMMITTEE ON INTERNATIONAL DEVELOPMENT INSTITUTIONS AND FINANCE

HENRY B. GONZALEZ, Texas, Chairman

JOSEPH G. MINISH, New Jersey

WILLIAM S. MOORHEAD, Pennsylvania

JERRY M. PATTERSON, California

PAUL E. TSONGAB, Massachusetts

NORMAN E. D*AMOURS. New Hampshire

HERMAN BADTLLO, New York

JOHN J. LAFALCE, New York

MARK W. HANNAFORD, California

HENRY J. HYDE. Illinois

CHARLES E. GRASSLEY, Iowa

GARRY BROWN. Michigan

HAROLD C. HOLLENBECK, New Jersey

(TD
CONTENTS

STATEMENTS

Fan

Arellano, Richard G., Deputy Assistant Secretary of State for InterAmerican Affairs 16

Dnngan, Ralph, Executive Director for the United States, Inter-American

Development Bank

Fried, Edward R., U.S. Executive Director, World Bank 30

Nachmanoff, Arnold, Deputy Assistant Secretary of the Treasury for

Developing Nations

ADDITIONAL INFORMATION SUBMITTED FOB THE RECORD

Arellano, Richard 6., prepared statement

Fried, Edward R., prepared statement 33

Nachmanoff, Arnold, prepared statement 11

(m)

r-

DEVELOPMENT LENDING AND ILLEGAL IMMIGRATION

WEDNESDAY, SEPTEMBER 14, 1977

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON INTERNATIONAL

DEVELOPMENT INSTITUTIONS AND FINANCE,

COMMITTEE ON BANKING, FINANCE, AND URBAN AFFAIRS,

Washington, D.C.

The subcommittee met, pursuant to notice, at 10 a.m. in room 2222,

Rayburn House Office Building, Hon. Henry B. Gonzalez (chairman

of the subcommittee) presiding.

Present: Representatives Gonzalez, Tsongas, LaFalce, Hannaford,

and Hyde.

Chairman GONZALEZ. The subcommittee will please come to order.

I first wish to thank our two witnesses. We may have other members later on, but a word of explanation is in order.

First, I have noticed that the reforms of the House have ended up

in a need for real reforms. You see, this morning you have about

three or four simultaneous subcommittee hearings that involve interconnecting, or interlocking, membership.

Also, I don't know, I guess I have a pretty ill-starred track record

as a committee chairman. Yesterday we had our minority ranking

member announce a meeting to see a part of the CBS documentary

on illegal aliens. We were supposed to have that one earlier this morning. So, I warn the witnesses, this is what you are facing.

However, on a serious basis, I am deeply grateful. I know that in

one or two cases you had conflicts, and I believe you have a need to

get away because you postponed your trip•which I want you to

know we are deeply appreciative for. And the substantial members

of the subcommittee are aware of it, and the only reason they are

not here is because one is chairing a hearing himself; the other is

having a caucus on a bill that he is trying to get up on the House

floor this week, and thatis the only reason.

But I do want to impress the fact that this meeting is considered

very important by us. In the message that the President sent the Congress just about the time we were to recess, he made reference to the

international financial institutions, and the possibilities that they

could have some bearing, or throw some light on this question of the

illegal alien phenomenon, but it was with very little notice.

In the first discussion that I attended of a group of Senators and

Representatives with the President, I had suggested that. So I felt that

it was a recognition of the suggestion that I had made. Therefore,

I have a very personal and keen interest in this, and we are very

anxious to hear your ideas in the presentation.

(1)
2

Thank you, Mr. LaFalce, I appreciate your coming.

Mr. LAFALCE. Thank you, Mr. Chairman.

Chairman GONZALEZ. This hearing of the subcommittee is for the

purpose of exploring whether or not the relevant lending institutions

can structure their Tending program in a way that will help reduce

the flow of illegal immigration into our country. Another way of

looking at this is that it is an examination of just how effective development bank lending has been or can be instrumental in reducing the

great difference in economic opportunities between-countries that are

rich and those that are less well off.

Our witnesses today will be the U.S. Executive Director for the

World Bank, Edward R. Fried; the U.S. Executive Director for the

Inter-American Development Bank, Ralph Dungan; the Deputy Assistant Secretary of the Treasury for Developing Nations, Arnold

Nachmanoff; and the Deputy Assistant Secretary of State for InterAmerican Affairs, Richard G. Arellano.

I am informed that Mr. Nachmanoff was originally scheduled to be

in Paris today. I feel very guilty about that. I understand Paris is as

Eretty in September as it is in the spring. So, he has delayed his trip to

2 here, so we are going to try to get to him first and allow him to get

away assoon as possible.

We are very grateful, under the circumstances.

I would like to have the privilege of reading into the record a short

statement that I have prepared:

There is no question that illegal immigration exists, and there is

no question that there are a great many illegal immigrants in this

country today. But, unfortunately, there is far more that is unknown

about this than there is known. We have had wildly variating and

diverse statements as to what the estimates of illegal flow is.

In my district, for example, where I am about 150 miles in from

the border and is the most historical spot in the United States that

has identification with Mexico, there is no way that anybody can tell

me just what the illegal flow is. I have personally contacted almost

every single local organized union unit that would have any bearing,

and they atthistime show very little interest.

A few years ago when the Rodino bill first came out, the unions and

the representatives were the ones who were the most adamant in

seeking its adoption. Not one union group in San Antonio can tell

me at this time from any knowledge they have as to what, from any

informative or documented source they have, as to what that number

is•even approximately•in San Antonio.

One reason I think that they are not interested, at this point, is

that the only study I have seen of any real consequence is the one that

was made by a Federal Reserve bank in the Dallas district, an

officer who based his study on an inhouse Texas region immigration

and naturalization survey that had been made in which a certain

number of illegals had been interviewed.

His projections show that better than 74 percent were earning less

than the minimum wage. So, this would tend to show why the unions

don't care much right now. There are very few of the illegals who

are earning $4.50 an hour, or anywhere approximating the prevailing

union standards.
3

Now, the thing I am mostly interested in is the humanitarian aspect

of this. What is going on is shameful. The United States should never

be in the position of countenancing, through indifference and inaction,

what is going on. Because it involves, in my State that I know of,

cases where for instance four workers were killed in a cave-in in my

city in my district within 2 days. One on one day, three the next day,

where they were digging a trench. Every one of the workers was an

illegal alien. Every one of them was not protected by the basic safety

precautions that OSHA in its regulations should have been insisting

upon.

Of course, we cannot blame OSHA because it has been quite a bit

watered down by congressional action. But, nevertheless, it is reflective

of the environment in which this worker finds himself, finding that

he is in desperate need of employment being the only reason he really

comes over. He is working at submarginal levels, and he is working

in an exploitive way. More than that, in our area we have had a case

where posses have been set up, and ranchers go out in jeeps as if it is

an open season on some illegal alien they are hunting down.

We have one case in which a young illegal farm worker, for some

reason or another, was pursued that way. He was hunted down worse

than an animal, and finally caught up with and was so shot up that

when his wife came from Mexico to identify the body she couldn't

even recognize him. There is absolutely no protection in these twilight

areas, and yet these are the areas in which you have the heaviest involvement of employment.

The study that I refer to also indicates that the estimate is far

more modest for the State of Texas than what had been reported

by the former Immigration and Naturalization Commissioner, and

some of the estimates that have been written about lately. So, we

really don't know. We have no real, fundamental documented information as to the extent of the problem. And, for this reason, President

Carter's recommendations which have not yet been presented in the

form of a bill•we have no bill before the Congress; we have this

general recommendation which, as I said, was presented right about

the time we were taking off on the recess.

Actually, it is a recommendation for emergency legislation. And

I can't conceive of us acting without at least getting some kind of a

documented figure that is halfway reliable. All we have is extrapolations based on extrapolations. As the former Commissioner who,

in very bombastic statements, kept saying that Mexican illegal immigrants were coming in at the rate of 10 to 12 million in the country.

But, when the committee examined him, he admitted that it was

just a guess, and that he was taking a mean average from what he

had heard when he came on and what he figured was going on now.

Well, that is hardly something to go on in emergency legislation.

We do know two things for certain: That is, that the'immigration

law is unrealistic. In 1965, T voted against the famous act of 1965

which President Johnson signed at the base of the Statute of Liberty.

Because, for the first time, an amendment offered by a former Representative from Minnesota, Clark MaeGregor, was placed which set

?uotas for the Western Hemisphere, particularly Mexico and

lanada•which I thought were absurd.
I was the only one that opposed it on the House floor. But, unfortunately, the chairman then of the Judiciary Committee backtracked

on me. Ho had said he wouldn't, but he did accept the amendment from

Representative MacGregor, later the special assistant of President

Nixon. I felt that it was absurd to say, no matter what equitable distributions we are seeking in the law for source of origin or country,

to try to place the two geographically adjacent countries such as

Canada and Mexico on the same footing as Iceland. And yet, that is

what it would have done.

And, to compound matters, the chairman of the subcommittee of

the Judiciary Committee last year at midnight, after some of us had

left the floor to go check on a bill in the Senate, got up and asked for

unanimous consent•with about seven people present•and further reduced the quota allowable for Mexico•with no chance to debate, not

even knowledge. So, therefore, I have more than just a personal passing interest in this; but also a concern. Because the situation, as you

know•the witnesses know this better than I do•involves a very

sensitive area with respect to the Government of Mexico.

And, on top of that, from a purely humanitarian standpoint, we

can hardly in the United States talk about human rights when we

allow some of these things I described a while ago to go on almost

weekly, with no perceptible protest from anybody, including the Mexican Government. These workers have no protection from either their

national government or ours. And I think that is a very black spot on

our record.

The greatest number of illegal entrants are Mexicans;•60 percent,

it is estimated•40 percent are on our eastern and western shores, and

Canada. Which shows that it is still substantial, even though we in

the Southwest like to think there's only one problem, and that's the

illegal entrant from Mexico.

We are well aware of the fact that it is a national problem.

Now this study I referred to shows that the typical Mexican in a

manufacturing trade earns far less than the U.S. minimum wage•

about $1.53 an hour.

We know that the purpose for which these illegals come in here is

to work•and they are willing to work at anything, because almost

anything in our country is much more than whatever they could get

if they could get a job in Mexico. There is tremendous wage disparity•125 miles south of the border from the nearest point from

my district, in the mines there the mine worker at the present time

receives no more than about $1 a day. Tf it had not been tor an explosion that cost the lives of over 130 about 3 years ago, nobody would

have heard of such an activity even there.

Now, this is very close to the border, and with that kind of wage

disparity we know that this phenomenon is not going to disappear, or

that, we can afford to continue to muddle through.

The studies further show that the illegally entered Mexican workers

indicate that nearly all of them came in for that one purpose•to find

a job. Now, while some stay here on a permanent basis, most don't

intend to say here and do go back home.

It is estimated that if the figure, as projected by the present Immigration Commissioner is correct, that there are at least 1 million of this

flow that go back to Mexico yearly. Now, whether this is taken into
account in the figures that show how many they think are in this

country or not, I don't know. The vast majority soon find jobs. And,

of course, in the lowest paid occupations.

The estimate of this study I referred to shows that there are about

697,000 illegally entered Mexicans working in Texas, about threefourths of them, as I said•well, much more than three-fourths•at less

than the minimum. As I said, more than 94 percent.

As for the economic impact•which is what we are interested in•no

one really knows that, either. None of the unions in my district can

show me where they have any displaced worker, because of an illegal

getting a job•at least that is what they have told me within the last

month or so. And they have no knowledge, so they say, no records or

no documented facts. They think that most of those in my area are

working in the home construction business, if any at all. This would be

borne out by this fatality record that we have had. But it doesn't necessarily show that that is true.

But even if the true figure is 697,000 the figures contradict our impression. And that is, most of them are not working in rural or farm

occupations. They are working in either light manufacturing or in

some other service capacity.

Now, it is estimated that undocumented Mexican workers return

about $3 billion a year to their home country. Even if the true figure

is only a third that high, obviously the money these workers send home

is a very important factor to the Mexican balance of payments. In

fact, it compares most favorably, from what they get from the tourism

account.

Do undocumented workers displace Americans from jobs? No one

knows the answer to that, as best I can establish, and in my district

I can say absolutely that the people that ought to know•the organized

union movement•indicate they have no knowledge of any such factor.

The one certainty, aside from the fact that a great many workers

have entered this country illegally, is that they do so because their best

chance to get a reasonably well-paying job•or in many cases, any job

at all•is to leave home and country and come to the United States.

I believe that it is possible that the development lending agencies

could develop programs that would help alleviate this disparity, and

thereby reduce illegal entry. It is certain that law enforcement alone

will not do it.

Unilateral action, I don't think, will do it as far as the long run of

obtaining a handle on this problem is concerned. And then it is for

sure that the little insanities like reducing the Mexican immigration

quota, which we did•as I said•last year under these tricky circumstances, are only exacerbating the problem.

The development banks have invested a great deal in Mexico, $4.3

billion altogether, or about $21 per capita•far less than others have

received, on a per capita basis, but still enough investment to be a

large factor. Could development banks concentrate more on loan projects that create jobs, rather than on projects that involve huge capital

outlays? Could the banks influence the Mexican Government, itself,

to adopt policies that would ease the maldistribution of income in the

country, or stress the creation of employment opportunities in its own

investment plans?
Mexico is not a recipient of bilateral aid, nor is it interested, and it

is very jealous, in warding off that kind of help. They look upon it

as reducing their independence and sovereignty. And whether we agree

or not, that is a fact.

So I would think that the multilateral banking approach would be

about the only way, if it is possible.

What, in short, can the banks do to help not just overcome the lack

of investment capital, but to see that Mexican investments and economic policies are structured in a way that helps reduce the opportunity gap•and thereby reduces the flow of illegal workers? What

have the banks done, and what will they, or can they, do ?

I do not suggest that the banks can overcome the problem alone. Our

immigration laws are a large part of the problem, for it is simply impossible to enforce a statute that sets an artificially low limit on Mexican immigration quotas. Matters have not been helped, though, by

economic forces, especially since the 1976 peso devaluation. Immigration law reform is beyond the scope of this subcommittee and this

hearing, but we can deal with the most vital aspect of the situation•

which is, the question of economic opportunity. This is what the hope

is for this hearing•a realistic discussion on what has been done and

can be done.

And with that, I think I have said enough. And again I welcome the

witnesses. Mr. Arellano, we had said that we would try to hear Mr.

Nachmanoff first, because he postponed a trip to Paris in order to be

here, and he is going to try to take off today as soon as he is released.

Mr. LaFalce came in. Mr. Hannaford is present. I will ask Mr.

Hannaford if he has a preliminary statement?

Mr. HANNAFORD. I have no statement, Mr. Chairman. I assume that

the purview of the subcommittee is to investigate only that aspect of

the problem that deals with the disparity of wages and job opportunities on each side of the border.

Chairman GONZALEZ. Yes; and also what the bank officials and

other officials have to say about what has been done in the lending

Eractices that impact on this, and what could be done, or what possiility there may be

Mr. HANNAFORD. Well, my section of the country and my district is

heavily impacted by this problem, as is yours. Ours is such a flow that

it calls for an eight-lane highway by San Clemente.

I suspect the numbers of illegal immigrants are staggering. No one

really understands them. I do think in our State that a substantial

part of the farm labor is illegal. That is my understanding. The conditions under which the illegals work, as you indicate, is a disgrace to

this country. They are people without protection on the other side of

the border. They are exploited as slave labor in unsafe and unhealthy

circumstances, often working a 12- and 14-hour day while being paid

subminimum wages for an 8-hour day.

So, I commend you for having this hearing. I am not going to be

able to stay for all of it, but I think it is of the greatest importance.

Thank you, Mr. Chairman.

Chairman GONZALKZ. Thank you very much for your interest.

Mr. Tsongas from Massachusetts is present, and I expect Mr. LaFalce will return as soon as he gets free from another subcommittee.

Mr. Tsongas, do you have any preliminary statement vou would like

to make?
Mr. TSONOAS. I guess I representthe Ellis Island point of view, from

the East.

Chairman GONZALEZ. Well, you have a problems up there. It's estimated that about 40 percent of the illegals come in from either that

point, or east or west coast also; 60 percent from Mexico.

Mr. HANNAFORD. Irish.

Mr. TSONGAS. That is what people were saying about my father

when he came 50 years ago.

Chairman GONZALEZ. That is what makes it very difficult, I might

add, because every one of us knows what our fathers and forefathers

came here for pretty much the same reason that most of these workers

are trying to get into the country. So it makes it very hard. It is very

difficult. But, still and all, I'm glad that at least the Carter administration is addressing itself to it.

So, without any further waste of time, Mr. Nachmanoff, we recognize you as the leadoff witness.

STATEMENT OF ARNOLD NACHMANOFF, DEPUTY ASSISTANT

SECRETARY OF THE TREASURY FOR DEVELOPING NATIONS

Mr. NACHMANOFF. Thank you, Mr. Chairman.

It is a great honor to appear before you to discuss their important

subject.

In order to keep our presentations as brief as possible, and to facilitate discussion, my colleagues and I propose to divide our initial remarks along the following lines, if that is agreeable with you.

That is, I would focus primarily on the nature and causes of the undocumented aliens' problem, and how development assistance may be

helpful.

Chairman GONZALEZ. If there is no objection, that's fine.

Mr. HANNAFORD. That's what I would do, Mr. Chairman, if I were

waiting to go to Paris. [Laughter.]

Mr. TSONOAS. It may even be a great honor to go to Paris, too.

Mr. NACHMANOFF. Yes, indeed. Thank you.

Mr. Arellano will expand upon these subjects, as well as discuss the

impact of the problem on our bilateral relations. And the U.S. Directors of the World Bank and the Inter-American Bank, Mr. Fried

and Mr. Dungan, will address the question of what their respective

institutions are doing, and what they might be able to do to help

alleviate this problem.

I would like to talk, first, about the nature and causes of the

problem:

The roots of the undocumented alien problem in all source countries are principally economic in nature, Mr. Chairman, as you have

so clearly stated. Income levels and general living conditions, for many

of the people in these countries•particularly those in rural areas•

are much lower than those in the United States.

Their prospects for improvement are relatively limited in most

cases. These are the factors which "push" individuals to leave their

home areas. Many of them migrate to urban centers in their own

countries, but others migrate across national borders to the United

States.

Why some migrants go to Mexico City, for example, and others

to the United States is not fully understood. However, the attraction
of living in an urban or an industrial environment, with its social

amenities and services and infrastructure, combined with the perception of greater opportunities for employment, for a higher standard

of living, for upward mobility seems to pull many of these individuals

to the United States.

We will focus primarily on the major source country, Mexico, which

you noted, Mr. Chairman, is estimated to be the source of perhaps

60 to 65 percent of the undocumented aliens in the United States.

However, other important source countries include Jamaica, the Dominican Kepublic, Haiti, Guatamala, Peru, and Ecuador. Many of the

problems wnich generate migration from these countries are similar

to those of Mexico and, therefore, our discussion will also be applicable

to those countries.

The entry of undocumented aliens into the United States from

Mexico became a noticeable pattern toward the end of the last century.

In many cases, it has become an ongoing social process involving

several generations of Mexican workers.

The U.S. Government made several attempts to ameliorate the problem in previous years, but none of the measures taken have had a lasting effect. In fact, the problem has become more acute, particularly

since 1970. It is now estimated that somewhere between 300,000 and

600,000 Mexicans cross the border illegally each year. The long border

makes illegal entry relatively easy, and only a small fraction are apprehended by the Immigration and Naturalization Service.

Many of these individuals are apprehended only after they have illegally entered the United States a number of times.

Most of the Mexicans who enter the United States illegally come

from rural areas in the North Central States of Jalisco, Chihuahua,

Michoacan, Zacatecas, Guanajuato, Coahuila, and Durango. Only two

of those States are located along the border.

In contrast to those rural migrants who go to the urban areas in

Mexico with a view toward living and working in those areas permanently, many of those who came to the United States do so with

the idea of earning substantially more money than they can in Mexico,

and then returning to the areas from where they came to buy farms

or set up small businesses. People in the latter category frequently

have to come to the United States several times over the course of

many years before their goals are realized.

Now, one of the basic causes of the undocumented aliens problem,

Mr. Chairman as you noted, is the very substantial gap which exists

between the number of unemployed workers and available jobs in

Mexico.

The Mexican economy has not been able to generate sufficient employment opportunities to close that gap. It is estimated that each year

there are some 600.000 to 800,000 new entrants into labor force•a

labor force which now consists of 17 million people. Unemployment

in Mexico is estimated at between 15 and 18 percent, with perhaps an

additional 25 percent underemployed. Even at annual growth rates

of 5 to 8 percent, which Mexico achieved in the early 1970's•it is

estimated that only about 300,000 new job opportunities are created

annually.

With the growth rate reduced to 2 percent, as it has been in the

past 2 years, new job opportunities dropped to about 200,000 annually.
9

Thus, new job opportunities have not been sufficient to absorb the

number of new entrants into the labor force, the level of unemployment

has increased, and pressures for outward migration have continued

to mount.

A fundamental factor in the persistence of this problem is the growth

rate and composition of the Mexican population. The rate of population growth is estimated at between 3.2 and 3.6 percent per year, one

of the highest in the world.

A high concentration of the population is under 15 years of age.

Therefore, even under the most optimistic assumptions concerning

population, new entrants into the labor force will continue to grow

at a rapid rate for many years to come.

While our understanding of the causes and nature of the undocumented aliens problem is far from perfect, and much work needs to

be done in this area, it's clear that this is a long-term problem, the

solution of which will depend largely upon the success of domestic

Mexican measures to reduce population growth, and to generate increased investment in the agricultural and industrial sectors, and

thereby create more job opportunities.

The Mexican Government is making serious efforts to address this

problem. It has increased public-sector spending substantially to

strengthen the country's capital base and improve living conditions in

the rural areas.

These outlays have helped, but public-sector revenues have not expanded apace. For example, the public sector deficit quadrupled between 1972 and 1976. This fueled inflation and also resulted in larger

current account deficits which were among the principal factors precipitating the economic crisis which came to a head last year. As a

result, the Mexican Government has had to cut back on the budget

deficit and imports as part of its stabilization program. External development assistance, particularly through the international development lending institutions, can be helpful to the Mexican Government

in its efforts to strengthen the economy, to create new jobs, and to

improve living conditions and expand its family planning efforts.

It can contribute to the general growth of the economy, both by

directly providing additional resources for investment, but perhaps

more importantly by acting as a catalyst for increased investment from

the private and public sectors.

The Mexican Government and the international development banks

have been giving increased attention to development of rural areas in

Mexico. This includes not only basic agricultural projects, but also

small- and medium-sized industry, infrastructure development, and

social services in rural areas. Programs to create jobs and improve

living conditions probably will have the most direct effect•that is,

programs in rural areas-•on the undocumented aliens' problem.

The average cost per permanent job in rural areas is estimated at

between $5,000 and $10.000•considerably lower than the $15,000 to

$20,000 cost per job in the industrial sectors. Rural projects, moreover, would produce significant multiplier effects, since the expanded

income of the lower income groups would result in increased demand,

which in turn would stimulate other productive activities having secondary employment and investment implications.

Development assistance can also provide additional support for the

Mexican Government's own efforts to slow population growth. The
10

Government recently has initiated a major effort to expand family

planning programs. This, of course, is a sensitive area involving

changes in cultural and social attitudes, and change cannot be accomplished overnight.

Leadership must come from the Mexican Government. The development banks can provide additional resources and expertise, however.

Of course, the development and expansion of the Mexican economy

is linked to continued access for its exports to the external markets

in developed countries.

Given our geographic proximity and the size of our economy, Mexico

will continue to depend heavily on the United States as an outlet for

its products.

In concluding my initial remarks, Mr. Chairman, I would note that

the World Bank and the Inter-American Development Bank have

provided some $4.2 billion in economic assistance to Mexico since the

early 1950's.

At the present time, they lend a total of about $500 million annually to Mexico. This support for Mexico's economic development undoubtedly has helped to ameliorate the pressure for outward migration somewhat.

The increased attention which the banks are giving to the development of the rural sector should increase the direct impact of their

programs on the problem. But, as I noted before, this is a long-term

problem and it would be unrealistic to expect quick solutions.

I would like to leave it to my colleagues, Mr. Fried and Mr. Dungan,

to discuss more specifically the programs of the international development banks and what those programs have done, or may be able to

do, to help ameliorate the problem.

Thank you, Mr. Chairman.

[Mr. Nachmanoff's prepared statement on behalf of the Treasury

Department follows:]
11

STATEMENT BY ARNOLD NACHMANOPF

DEPUTY ASSISTANT SECRETARY OP TREASURY FOR DEVELOPING NATIONS

BEFORE THE SUBCOMMITTEE ON INTERNATIONAL DEVELOPMENT

INSTITUTIONS AND FINANCE OF THE COMMITTEE ON BANKING,

FINANCE AND URBAN AFFAIRS

Mr. Chairman and Members of the Committee, it is an

honor to appear before your today to discuss the subject of

illegal immigration and what the international development

banks can do to help alleviate the problem. In order to

keep our remarks as brief as possible, and facilitate the

discussion, my colleagues and I propose to divide our initial

remarks along the following lines:

My remarks will focus primarily on the nature and causes

of the undocumented alien problem, and how development

assistance may be helpful. Mr. Arellano will expand on these

subjects as well as discuss the impact of the problem on our

bilateral relations with source countries, with particular

emphasis on Mexico; the U.S. Executive Directors of the World

Bank and the Inter-American Development Bank, Mr. Fried and

Mr. Dungan, will address the question of what their respective

institutions are doing and what they might be able to do in the

future to help alleviate this problem.

1. Nature and Causes of the Problem

The roots of the undocumented alien problem in all source

countries are principally economic in nature. Income levels

and general living conditions for many of the people in these

countries, particularly those in rural areas, are much lower

than those in the United States. Their prospects for improvement are relatively limited in most cases. These conditions

are the factors which "push" individuals to leave their home

areas. Many of them migrate to urban centers in their own

countries, but others migrate across national borders to the
12

United States. Why some migrants go to Mexico City, for

example, and others go to the United States, is not fully

understood. However, the attraction of living in an urban

or industrial environment with its social amenities, services,

and infrastructure combined with the perception of greater

opportunities for employment, a higher standard of living,

and upward mobility seems to "pull" many of these individuals

to the United States.

Our comments will focus primarily on the major source

country, Mexico, since it is estimated that perhaps 60-65

percent of the undocumented aliens in the United States today

originate from Mexico. However, other important source countries

include the Dominican Republic, Haiti, Jamaica, Guatemala,

Peru and Ecuador. Many of the problems which generate migration

from those countries are similar to those of Mexico and therefore

much of our discussion on Mexico will also be applicable to

those countries.

The entry of undocumented aliens into the United States

from Mexico became a noticeable pattern toward the end of the

last century. In many cases it has become an ongoing social

process involving several generations of Mexican workers. The

U.S. Government made several attempts to ameliorate the problem

in previous years but none of the measures taken have had a

lasting effect. In fact, the problem has become more acute,

particularly since 1970. It is now estimated that somewhere

between 300,000 and 600,000 Mexicans cross the border illegally

each year. The long border makes illegal entry relatively easy

and only a small fraction are apprehended by the U.S. Immigration

and Naturalization Service. Many of these individuals are

apprehended only after they have illegally entered the U.S. a

number of times.

2. Where They Come From

Most of the Mexicans who enter the United States illegally

come from the rural areas in the North Central states of Jalisco,

Chihuahua, Michoacan, Zacatecas, Guanajuato, Coahuila, and Durango.

Only two of those states are located along the border.

In contrast to those rural migrants who go to the urban

areas in Mexico with a view toward living and working there

permanently, many of those who came to the United States do so
13

with the idea of earning substantially more money than they can

in Mexico and then returning to the areas from where they came to

buy farms or set up small businesses. People in the latter

category frequently have to come to the U.S. several times over

the course of many years before their goals are realized.

3. Population and Jobs

One of the basic causes of the undocumented aliens problem

is the very substantial gap which exists between unemployed

workers and available jobs in Mexico. The Mexican economy

has not been able to generate sufficient employment opportunities

to close that gap. It is estimated that each year there are

600,000 - 800,000 new entrants into the labor force, a labor

force which now consists of 17 million people. Unemployment in

Mexico is estimated at 15-18 percent with perhaps an additional

25 percent underemployed. Even at annual growth rates of 5-8

percent•which Mexico achieved in early 1970"s•it is estimated

that only 300,000 new jobs openings are created annually. With

the growth rate reduced to 2 percent, as it has been in 1976 and

1977, new job opportunities drop to about 200,000 annually. Thus,

new job opportunities have not been sufficient to absorb the

number of new entrants into the labor force, the level of

unemployment has increased, and pressures for outward migration

have continued to mount.

A fundamental factor in the persistance of the problem is

the growth rate and composition of the Mexican population. The

rate of population growth in Mexico is estimated at between 3.2

and 3.6 percent per year, one of the highest in the world. A

high concentration of the population is under 15 years of age.

Even under the most optimistic assumptions, new entrants into

the labor force will continue to grow at a rapid rate for many

years to come.

4. The Role of Development Assistance

While our understanding of the causes and nature of the

undocumented aliens problem is far from perfect, and much work

needs to be done in this area to improve our understanding of

the problem, it is clear that this is a long term problem, the

solution of which will depend largely on the success of domestic

Mexican measures to reduce population growth and to generate

increased investment in the agricultural and industrial sectors

thereby creating more job opportunities.

The Mexican Government is making serious efforts to address

these problems. The GOM has increased public sector spending

98-813 O - 77 - 3
14

substantially to strengthen the country's capital base and

improve living conditions in the rural areas. These outlays

have helped but public sector revenues have not expanded apace.

For example, the public sector deficit quadrupled between 1972

and 1976. This fueled inflation and also resulted in larger

current account deficits which were among the principal

factors precipitating the economic crisis which came to a

head last year. As a result, the GOH has had to cut back

on the budget deficit and imports as part of its stabilization

program.

External development assistance particularly through the

International Development Lending Institutions, can be helpful

to the Mexican Government in its efforts to strengthen the

economy, create new jobs, and improve living conditions, and

expand its family planning efforts. Development assistance

can contribute to the general growth of the ecomony, both by

directly providing additional resources for investment, but

perhaps more importantly by acting as a catalyst for increased

investment from the private and public sectors. The Mexican

Government and the international development banks are giving

increased attention to the development of rural areas in Mexico.

This includes not only basic agricultural projects but also small

and medium size industry, infrastructure, and social services

in rural areas. Programs to create jobs and improve living

conditions in those areas probably will have the most direct

effect on the undocumented aliens problem. The average cost per

permanent job estimated at $5,000 to $10,000, which is considerably

lower than the $15,000 to $20,000 cost per permanent job estimated

in the industrial sector. Rural projects, moreover, could produce

significant multiplier effects, since the expanded income of lower

income groups would result in increased demand, which in turn would

stimulate other productive activities having secondary employment

and investment implications.

Development assistance can also provide additional support

for the Mexican Government's efforts to slow population growth.

The government has recently initiated a major effort to expand

family planning programs. This, of course, is a sensitive area

involving changes in cultural and social attitudes, and change

cannot be accomplished overnight. Leadership must come from the

Mexican Government; the development banks can provide additional

resources and expertise, however.

Of course, the development and expansion of the Mexican

economy is linked to continued access for its exports to external

markets in developed countries. Given our geographic proximity
15

and the size of our economy, Mexico will continue to depend

heavily on the U.S. as an outlet for their products.

In concluding my remarks, I would note that the World Bank

and the Inter-American Development Bank have provided some $4.2

billion in economic assistance to Mexico since the early 1950s.

At the present time, they are lending about $500 million annually

to Mexico. This support for Mexico's economic development undoubtedly

has helped ameliorate the pressure for outward migration. The

increased attention which the Banks are giving to the development

of the rural sector should increase the direct impact of their

programs on the problem. But, as noted before, this is a longterm problem and it would be unrealistic to expect quick solutions.

I will leave it to my colleagues Mr. Pried and Mr. Dungan

to discuss more specifically programs of the international

development banks and what those programs have done or may be

able to do to help ameliorate the problem of undocumented aliens.
16

Chairman GONZALEZ. Thank you very much.

I realize that you do have a need to leave as soon as possibleMr. NACHMANOFF. Mr. Chairman, I can remain for the remainder

of the hearing.

Chairman GONZALEZ. You are in a position to remain? OK, fine.

Well, then, what would you suggest, Mr. Hannaford and Mr. Tsongas? Do you have any questions? Or should we hear the witnesses

and then ask questions?

Mr. TSONOAS. Mr. Chairman, I have an 11 o'clock meeting in the

Speaker's office. I would like to hear the testimony.

Chairman GONZALEZ. All right.

Mr. NACHMANOFF. May I suggest, Mr. Chairman, that Mr. Arellano

might proceed?

Chairman GONZALEZ. Fine. We will recognize Mr. Arellano.

Mr. ARELLANO. Thank you very much for this opportunity to appear before you. I have more than just a passing interest in this subject.

I, in 1947, came from Mexico first to Kerrville, and then to San

Antonio. Mr. Chairman, in fact I know the term "illegal" doesn't

apply here, but as you noted this is a doubly sensitive subject for

many of us because we are familiar, on a firsthand basis, with what

the problems are that have occurred.

Chairman GONZALEZ. AS a matter of fact, it was in Kerr County•

I don't know if you were present. I referred to a case•a very shameful case•where this illegal was hunted down and shot so badly he

couldn't even be recognized•posse justice, and apparently it isn't the

first time•in that county. This happened before in surrounding counties ; it has happened before, but this was a pretty bad case.

I know of nothing that is being done by either Government, the

Mexican Government or the American Government, to try to at least

avoid such terribly devastating abuses. Because the individual is in

this twilight "illegal" category and in these areas it's pretty rough. But,

for what reason it seems to be exacerbated in Kerr County, I don't

know. There is quite a number of illegals in Kerr County.

Mr. ARELLANO. I can only comment that my stay there was a pleasant one.

Chairman GONZALEZ. Well, it is a beautiful part of the State, and

my experiences there have been pleasant. But in the early years, it

was considered a hostile area for minorities. But, in the case of the

illegal farmworker, or ranch help, there is no question that this pattern of abuse seems to bo exacerbated. I don't know why. In the hunt,

it involved not only the established authorities, but almost every

rancher that could get a jeep and get his carbine and go out.

I just thought I would mention that.

Mr. ARELLANO. I will have to bear that in mind when I go back down

there. Mr. Chairman. T would like to expand a little bit•Mr. Dungan

says I will pass, and I don't have to worry.

[Laughter.]

STATEMENT OF RICHARD G. ARELLANO, DEPUTY ASSISTANT

SECRETARY OF STATE FOR INTER-AMERICAN AFFAIRS

Mr. ARELLANO. At present the problem of undocumented aliens is

the most important and the most serious one which we have with

Mexico. From the U.S. domestic point of view, it is charged that illegal
17

immigration from Mexico exacerbates our own unemployment probblem, depresses wages, puts a drain on our social welfare program, and

results in a considerable public expenditure for policing the border and

apprehension of illegals and represents a drain of foreign exchange

through remittances.

From the Mexican viewpoint, illegal immigration is a "safety valve"

for the Mexican economy which relieves the pressures created by its

domestic unemployment and the lack of development in its rural areas.

In this context, the Mexicans view the problem of undocumented

workers as a mutual one which must be solved through joint effort with

the United States, rather than merely through unilateral sanctions and

regulations by the United States which would treat the illegals as

criminals.

Until we are able to solve this problem amicably and cooperatively

with Mexico, it will be a festering sore which will adversely affect the

totality of our bilateral relations with Mexico and less directly the

other nations of Latin America which depend upon emigration to the

United Statesto relieve their unemployment pressures.

As President Carter said in his message to Congress August 4:

Tbe economies of most of the source countries are still not sufficiently developed to produce, even with significant U.S. aid, enough jobs over the short-term

to match their rapidly growing work force. Over the longer term, however, I

believe that marked improvement in source countries' economies are achieveable

by their own efforts with support from the United States.

He also said:

I welcome the economic development efforts now being made by the dynamic

and competent leaders of Mexico. To further efforts such as those, the United

States is committed to helping source countries' means of providing such assistance. In some cases, this will mean bilateral or multilateral economic assistance.

In the short run, external assistance either from the United States

or the international financial institutions is unlikely to have a major

effect in reducing illegal immigration from Latin America•the level

of which has not been, as you pointed out, accurately determined.

In the long term, assistance directed toward increasing rural employment opportunities, particularly in Mexico, will have a more positive effect in reducing the economic incentives to emigrate. However,

the task will not be easy.

The United States has encountered considerable difficulty in its

efforts to reduce unemployment. The problems of reducing unemployment and raising the standard of living in Mexico are even more

formidable.

A discussion of the character of migration across national frontiers

in Latin America may shed some light on the complexity of this problem.

Over the last two decades, Latin America has become a region of

net outward migration. Additionally, migration among countries within the region•previously very small•has increased considerably.

The flow of migration from Latin America to the rest of the world

and the currents from one country to another both are made up of

very different types of migrants.

The most numerous category is that of "unskilled workers." This

group comes mainly from the rural poor of countries with high underemployment. These people move directly across land frontiers seeking

work, mainly in agriculture, construction, and domestic services.
18

The main movements within Latin America of this type are from

Bolivia, Chile, and Paraguay into Argentina; from Colombia into

Venezuela and Panama; and from El Salvador into Honduras. By far

the largest movement of this category of migrants is from Mexico to

the United States.

The main attraction of the United States for the unskilled migrant

is the higher level of U.S. wages. A typical worker can earn more in

3 months in the United States than he can in a year in Mexico.

Recent studies indicate that the vast majority of these unskilled migrants do not consider staying permanently in the United States. They

come to work temporarily•usually for periods of 4 to 6 months•and

then return to their home communities. Credence to .this finding is

given by an understanding of the nature of traditionally strong Mexican family ties. I might add that those of us that understand this, that

there is an exceptionally strong pull to return to the home, and to use

the stay in the United States as a means of capital formation to take

money back with them to improve the home state.

A crucial factor in this migration is, of course, the general economic

situation within Mexico. Historically, sharp increases in the rate of

migration to the United States resulted after severe drought, flooding,

or other adverse conditions which affect agriculture in Mexico.

Mexico's high levels of unemployment and underemployment, as I

have previously suggested, contribute to migrant flows. However, empirical research indicates that it is not just the lack of jobs, but the

lack of "steady," relatively "well-paid" jobs, which fuels migration.

The consensus of scholarly opinion is that large wage differentials

are more important than simply the level of unemployment in Mexico

in promoting migration of temporary workers to the United States.

Now, a different category of migrant are those "skilled and semiskilled workers" who seek various kinds of urban employment, who

move on a more limited scale to a wide variety of destinations. They

are not concentrated in border areas as are most of the unskilled. These

migrants are far more likely to become permanent residents of the

United States than the unskilled workers. However, I should note that

this group primarily is comprised of migrants from source nations

other than Mexico.

Of course, substantial numbers of Mexican illegals do become

permanent residents of the United States, either by blending into predominantly Mexican-American neighborhoods or t>y eventually legalizing their status.

Again, empirical research indicates that they are outnumbered•

probably by a margin of about 10 to 1•by illegals who maintain a

pattern seasonal of or "shuttle" border migration.

Migrants in the skilled category are much more likely to speak

English, have more formal education, and hence are less likely to be

detected by the Immigration and Naturalization Service.

The third, and presumably the smallest, group of illegal migrants

are those who come for "sociopolitical" reasons. Ihis group originates

mainly in the urban middle class. Movements in this class include persons suffering from some degree of discrimination either because of

lack of adequate educational opportunities, access to public or private

employment, or because of economic insecurity, or the incompatability of their values with those dominant at home.
19

Now, there are several myths which have grown up concerning the

character of illegal aliens. David S. North of the Center for Labor

and Migration Studies has examined some of these myths and has concluded the following: Illegal aliens are a more polyglot and sexually

integrated population than is generally realized. That is, illegals are

not primarily young men from Mexico.

The principal impact of illegals on American life is to depress the

labor market through acceptance of low-paying jobs. Illegals are net

contributors to the U.S. Treasury in that through automatic payroll

deductions they pay taxes and make social security payments but they

seldom take welfare payments, due to a reluctance to become enmeshed

in a bureaucratic structure which they fear could lead to detection by

the authorities. I might say, parenthetically, I have seen estimates as

high as 25 to 1 on that ratio of contribution to payments.

Now, as can be seen from this short discussion, illegal migrants are

not a monolithic group. They cross national borders to satisfy a wide

variety of goals.

They are impelled by many different motivations. The problem is too

large, too complex, and has existed far too long to permit simple, painless solutions.

The flow of illegal aliens is likely to continue in the foreseeable

future, no matter what measures are taken. However, the rate of this

flow depends in part on whether adequate steps to create attractive

alternatives to migration can be taken within Mexico and other source

countries.

Assistance from the United States and other donors, including the

IFI's, can provide help to the efforts of source countries to deal with

the factors which stimulate emigration.

For instance, the Mexican Government has requested the assistance

of the World Bank to devise programs for channeling more credits

and other forms of help to small and medium-sized industries in that

country.

This is in an effort to reorient their development policies more toward small-scale, labor-intensive rural industrialization. A bank

mission visited Mexico in October 1976 to survey the whole small and

medium-scale sector and to analyze the operations of existing financial

institutions. The mission has proposed a project for expanding credits

to smaller industries linked to a program of technical assistance.

While programs like this are a step in the right direction, Mexico's

demographic position may vitiate the benefits they can bring. About

700,000 to 800,000 new workers will enter the labor force annually over

the next 15 to 20 years.

According to World Bank estimates, even if Mexico could quickly

resume its historically high rate of economic growth•about 6 percent•the economy would absorb only about half the new entrants to

the labor force.

More recently, economic literature hassuggested that "intermediate"

or "appropiratc" technologies could be used to create more laborintensive development.

However, it is difficult for development banks to design projects

using "appropriate"•I put that in quotes, "appropriate"•technologies when such alternatives are by no means obvious, and usually

do not exist in forms ready for immediate application.
20

These technologies are new and innovative, therefore they entail a

higher level of risk than proven industrial designs and techniques.

Experienced bankers are, and I might say properly, somewhat reluctant to place excessive reliance on these concepts.

In closing, I would like to reiterate that it is really the source countries•as Mr. Nachmanoff has indicated•who must take the lead in

solving their basic structural problems•problemssuch as maldistribution or income, high population growth, and low rural productivity.

However, we believe the international financial institutions can

assist these efforts toward improving overall economic conditions, and

by so doing reduce the pressure for emigration.

[Mr. Arellano's prepared statement on behalf of the State Department follows:]
21

STATEMENT BY RICHARD G. ARELLANO

DEPUTY ASSISTANT SECRETARY OF STATE FOR INTER-AMERICAN AFFAIRS

BEFORE THE SUBCOMMITTEE ON INTERNATIONAL DEVELOPMENT

INSTITUTIONS AND FINANCE OF THE COMMITTEE ON BAHKI~NG

FINANCE AND URBAN AFFAIRS

September 14, 1977 at 10:00 A.M.

Thank you, Mr. Chairman, for this opportunity

to appear before you and your Sub-committee to testify

on the problem of illegal migrants to the United

States.

At present the problem of undocumented aliens

is the most important and the most serious which we

have with Mexico. From the U.S. domestic point of

view, it is charged that illegal immigration from Mexico

exacerbates our own unemployment problem, depresses

wages, puts a drain on our social welfare program, and

results in a considerable public expenditure for policing

the border and apprehension of illegals and represents

a drain of foreign exchange through remittances.

From the Mexican viewpoint illegal immigration

is a "safety valve" for the Mexican economy which

relieves the pressures created by its domestic unemployment and the lack of development in its rural areas. In

this context the Mexicans view the problem of undocumented

workers as a mutual one which must be solved through joint

effort with the United States, rather than merely through

unilateral sanctions and regulations by the United States
22

which would treat the illegals as criminals. Until we

are able to solve this problem amicably and cooperatively

with Mexico, it will be a festering sore which will

adversely affect the totallity of our bilateral

relations with Mexico and less directly the other

nations of Latin America which depend on emigration

to the United States to relieve their unemployment pressure.

As the President said in his message to Congress

August 4, "...the economies of most of the source

countries are still not sufficiently developed to

produce, even with significant U.S. aid, enough jobs

over the short-term to match their rapidly growing

workforce....Over the longer-term, however, I believe

that marked improvements in source countries' economies

are achieveable by their own efforts with support

from the United States." He also said,"I welcome

the economic development efforts now being made by

the dynamic and competent leaders of Mexico. To further

efforts such as those, the United States is committed

to helping source countries' means of providing such

assistance. In some cases, this will mean bilateral

or multilateral economic assistance."

In the short run, external assistance either from

the United States or the International Financial Institutions
23

is unlikely to have a major effect in reducing illegal

immigration from Latin America•the level of which has

not been accurately determined. In the long-term, assistance

directed toward increasing rural employment opportunities,

particularly in Mexico, will have more positive effects

in reducing the economic incentives to emigrate. The

United States has encountered considerable difficulty in

its efforts to reduce unemployment. The problems of

reducing unemployment and raising the standard of living

in Mexico are even more formidable.

Discussion of the character of migration across

national frontiers in Latin America may shed some

light on the coxplexity of this problem.

Over the last two decades, Latin America has become

a region of net outward migration. Additionally, migration

among countries within the region, previously very small,

has increased considerably. The flow of migration from

Latin America to the rest of the world and the currents

front one country to another both are made up of very

different types of migrants.

The most numerous category is that of unskilled workers.

This group comes mainly from the rural poor of countries

with high underemployment. These people move directly
24

across land frontiers seeking work, mainly in agriculture,

construction and domestic service. The main movements

within Latin America of this type are from Bolivia,

Chile, and Paraguay into Argentina; from Colombia into

Venezuela and Panama; and from El Salvador into Honduras.

By far the largest movement of this categoy of migrants

is from Mexico to the United States.

The main attraction of the United States for the

unskilled migrant is the higher level of U.S. wages.

A typical worker can earn more in three months in the

in the U.S. than he can in a year in Mexico. Recent studies

indicate that the vast majority of these unskilled migrants

do not consider staying permanently in the U.S. They

come to work temporarily•usually for periods of four

to six months•and then return to their home communities.

Credence to this finding is given by an understanding of

the nature of traditionally strong Mexican family ties.

A crucial factor in this migration is, of course,

the general economic situation within Mexico. Historically,

sharp increases in the rate of migration to the U.S.

have resulted after severe drought, flooding, or other

adverse conditions affecting agriculture in Mexico.
25

Mexico's high levels of unemployment and underemployment, as I have previously suggested, contribute

to migrant flows; however, empirical research indicates

that it is not just the lack of jobs, but the lack

of steady, relatively well-paid jobs, which fuels

migration. The consensus of scholarly opinion is

that large wage differentials are more important

than simply the level of unemployment in Mexico in promoting migration of temporary workers to the U.S.

A different category of migrant, are those Skilled

.and semi-skilled workers seeking various kinds of

of urban employment, who move on a more limited scale

to a wide variety of destinations; they are not concentrated in border areas, as are most of the unskilled.

These migrants are far more likely to become permanent

residents of the U.S. than the unskilled workers.

However, I should note that this group primarily

is comprised of migrants from source nations other than

Mexico.

Of course, substantial numbers of Mexican illegals

do become permanent residents of the U.S., either

by blending into predominantly Mexican-American

neighborhoods or by eventually legalizing their status.
26

But empirical research indicates that they are outnumbered•probably by a margin of about 10 to 1• by

illegals who maintain a pattern of seasonal or "shuttle"

border migration.

Migrants in the skilled category are much more

likely to speak English, have more formal education,

and hence, are less likely to be detected by the Immigration

and Naturalization Service.

The third and presumably smallest group of illegal

migrants are those who corae for socio-political reasons.

This group originates mainly in the urban middle-class.

Movements in this class include persons suffering from

sor.e degree of discrimination either because of lack

of adequate educational opportunities, access to

public or private employment, because of economic

insecurity, or the incompatability of their values

with those dominant at home.

There are several myths which have grown up concerning the character of illegal aliens. David S.

North of the Center for Labor and Migration Studies

has examined some of these myths and has concluded

the following: Illegal aliens are a more polyglot

and sexually integrated population than is generally
27

realized (i.e. illegals are not primarily young men

from Mexico); the principal impact of illegals on

American life is to depress the labor market through

acceptance of low paying jobs; and illegals are

net contributors to the U.S. Treasury in that through

automatic payroll deduction they pay taxes and make

social security payments but they seldom take welfare

payments due to a reluctance to become enmeshed in a

bureaucratic structure which they fear could lead to .

detection by the authorities.

As can be seen from this short discussion, illegal

migrants are not a monolithic group. They cross national

borders to satisfy a wide variety of goals. They are

impelled by many different motivations. The problem

is too large, too complex and has existed far too long

to permit simple, painless solutions. The flow of illegal

aliens is likely to continue in the foreseeable future

no matter what measures are taken. However, the rate of

this flow depends in part on whether adequate steps

to create attractive alternatives to migration can

be taken within Mexico and other source countries.

Assistance from the US and other donors, including the

IFI's, can provide help to the efforts of source countries
28

to deal with the factors which stimulate emigration.

For instance, the Mexican government has requested

the assistance of the World Bank to devise programs

for channeling more credits and other forms of help

to small and medium industries in that country. This

is in an effort to reorient their development policies

more toward small-scale, labor-intensive rural industrialization. A Bank mission visited Mexico in October 1976

to survey the whole small and medium scale sector

and analyze the operations of existing financial institutions.

The mission has proposed a project for expanding credits

to sraller industries linked to a program of technical

assistance.

While programs like this are a step in the right

direction, Mexico's demographic position may vitiate

the benefits they can bring. About 700,000 to 800,000

new workers will enter the labor force annually over

the next 15 to 20 years. According to World Bank estimates, even if Mexico could quickly resume its historically

high rate of economic growth (about 6 percent), the

economy could absorb only about half the new entrants.

Recent economic literature has suggested that "intermediate" or "appropriate" technologies could be used to
29

create more labor-intensive development. However, it ic

difficult for development banks to design projects

using "appropriate" technologies when such alternatives

are by no means obvious and usually do not exist

in forms ready for immediate application. These

technologies are new and innovative; therefore, they

entail a higher level of risk than proven industrial

designs and techniques. Experienced bankers are,

properly, somewhat reluctant to place excessive

reliance on these concepts.

In closing, I would like to reiterate that it is

really the source countries who must take the lead in

solving their basic structural problems; problems such

as maldistribution of income, high population growth,

and low rural productivity. However, we believe the

International Financial Institutions can assist these

efforts toward improving overall economic conditions

and, by so doing, reduce the pressure for emigration.
30

Chairman GONZALEZ. Thank you, sir.

Mr. Fried?

STATEMENT OP EDWARD R. FRIED, U.S. EXECUTIVE DIRECTOR,

WORLD BANK

Mr. FRIED. In these brief introductory comments, Mr. Chairman,

I propose to outline trends in World Bank lending to Mexico, to describe briefly the Bank's pioneering work in encouraging rural development, and to indicate some potentialities for the future.

My main theme will be, first, to stress what my colleagues have already emphasized•namely, thatthere are no "quick fixes to the problem of checking illegal immigration, just as there are no quick fixes

to solving the problems of absolute poverty anywhere. And, second,

to urge, nonetheless, that the sooner that programs to improve the conditions of the rural poor in Mexico, as well as in the other source countries, can be accelerated through whatever means the sooner it might

be possible to get some grip on the illegal immigration problem confronting the United States.

Since the early 1950's, the World Bank has made 47 loans to Mexico

totaling almost $3 billion, which has amounted to about 7 percent of

total Bank lending.

Over the years, a marked shift in the direction of this lending has

taken place: From an early concentration on heavy industry and infrastructure•power and electric capacity, railways and ports; to the

more recent emphasis on agriculture, water supply, and small-scale

industry.

Increasingly, the Bank has been concentrating its efforts on employment-intensive, rather than capital-intensive projects, with the

goal of generating the maximum number of jobs from its capital

resources.

At present the benchmark for Bank lending to Mexico is about $500

million a year. And. of this total, about two-thirds is destined for

agriculture, rural development, and medium- and small-scale industry.

In general, the Bank finances about one-third of the cost of the projects it supports in Mexico, the rest coming mainly from domestic

savings.

Mexico's efforts to develop its rural areas in recent decades have

been concentrated on expanding agricultural production and consolidating land reform through the further distribution of arable and

pasture acreage to landless farmers. Agricultural production did indeed more than triple between 1940 and 1965, principally because of

the expansion of large-scale irrigation, the increasing use of fertilizers

and pesticides, the provision of better seed strains, and improved farmto-market transport. Nonetheless, income inequality widened in the

rural areas, because the economy could not provide adequate employment opportunities for the poorer sectors of the rural population, particularly those living in rainfed areas.

The grim facts are that some 2 million rural farm families, or 15 to

20 percent of Mexico's total population, have per capita incomes of

only $100 to $150 per year, and the number is growing.
31

The lack of employment opportunities and social services have

caused workers from these families to migrate on a massive scale, most

of them to urban areas of Mexico but also to seek employment in the

United States.

In response to this growing concentration of rural poverty, the Mexican Government in the early 1970's began to reassess its development

strategy. The World Bank, as part of this reassessment, worked with

the Government to organize an integrated rural development program

designed to secure the wider participation of the rural poor in the

market economy, to expand agricultural production, to improve income distribution, and generally to encourage greater social stability.

The heart of this effort is the PIDER programs, but it also includes

additional irrigation projects, investment in small- and medium-scale

industry and agricultural credits. Altogether, public investment in

agriculture now amounts to $1 billion a year, and this represents onefourth of total public investment•a proportion that has doubled in

the past 5 years.

The rural development program, in which the World Bank and IDB

are heavily involved, is of special interest. The objective of these programs is to concentrate on individual microregions, each containing

approximately 50,000 rural poor in areas that have some potential for

greater productive activity, employment and income.

A new coordinated investment program is being developed for each

of these regions. It seeks to bring together in one package improved

small-scale irrigation, extension services, credit, marketing facilities,

health, education, water supply, and electricity. In addition, the project includes experimental work to encourage the formation of smallscale rural industries.

Thus far, programs have been developed for 86 of these microregions covering a rural population of some 4 million people. The total

investment for these regions will be about $1 billion, of which the

World Bank will supply $230 million.

Of this amount, $110 million was committed in a loan made in May

1975 and $120 million in a loan made in May 1977. The IDB has provided additional financing, which I'm sure Mr. Dungan will describe,

and of course a major part of the funds is being provided by the

Mexican Government.

Now, this is clearly a new program which will take time to get into

full gear. There are substantial risks for any program that seeks to

mobilize self-help efforts on a local, communitywide basis, in areas

where natural endowments are usually below average. Social and institutional change have to take place in the face of deep-seated obstacles ; administrative and technical capacities have to be built up and

consolidated. If the programs get substantially ahead of the development of such capabilities, waste will result•and even more important,

disillusionment will set in.

If all goes well, these projects will achieve a satisfactory economic

rate of return, and a substantial number of new jobs will be created.

On the average, the direct effects of these programs could increase the

income of the rural poor by at least 50 percent, and the indirect or multiplier effects by much more. Incomes would continue to be very low,

but concrete prospects for improvement would replace what presently

must be a widespre adfeeling of despair.
32

These programs•I have to emphasize•will take 8 to 10 years to

complete. But in the meanwhile aspirations should be on the rise.

What more could be done in this general area ? The answer generally

is that a good deal more could be done. And, indeed, the Mexican Government has made agricultural improvement a top priority•and this

includes improvement in the conditions of the rural poor.

It may be useful for me to speculate on some of the theoretical possibilities. To cover all areas of rural pvoerty in Mexico, it would be

necessary to develop PIDER programs for some 300 microregions. In

some cases, the technical possibilities simply would be too poor to justify going ahead, but for most regions, programs•or new programs•

would be feasible. The total cost to cover the country would be on the

order of $4 or $5 billion.

A program to step up small-scale irrigation would cost perhaps $1

billion over 5 years. Such, a program, if successful, could triple incomes

on small farm holdings, and also provide•by definition•much

greater employment opportunities from more intensive and more productive agriculture.

Programs to benefit rainfed agriculture and to expand rural industries could also be accelerated, but it must be also emphasized that the

potentialities here are less well established, and the risks proportionately greater.

The major constraints in all these programs are administrative:

They simply take a long time to develop. But, capital is also a problem. The World Bank is prepared to do more in this area, and to continue to help the Mexican Government to innovate new rural development strategies, and I'm sure that new programs will be developed.

The Mexican Government has given these programs top priority, but

is itself under pressure to contain its public expenditures so as to reestablish the foundation for high sustained economic growth.

Hence, there is reason for Mexico to explore new areas of financial

cooperation, both with the international financial institutions and with

the United States.

In closing, I would emphasize again that the alleviation of rural

poverty in Mexico is a long-term endeavor, and there can be no assurance that it will substantially reduce the flow of illegal immigration

into the United States.

Such evidence as there is, however•and simple intuition•would at

least suggest that people prefer to stay within their native cultural environments rather than risk the strange and the unknown.

Mr. Arellano emphasized this in pointing to the pressures, the desire

in Mexico•the strong desire in Mexico•to maintain traditional ties.

Mass migration is more the product of desperation than anything

else. The alleviation of the worst aspects of poverty, and the beginnings of hope in the rural areas, therefore should at least reduce the

pressures to leave.

Thank yon, Mr. Chairman.

TMr. Fried's prepared statement on behalf of the World Bank

follows:]
33

STATEMENT BY EDWARD R. FRIED

U.S. EXECUTIVE DIRECTOR,

WORLD B/NK

BEFORE THE SUBCOMMITTEE ON INTERNATIONAL DEVELOPMENT

INSTITUTIONS AND FINANCE OF THE COMMITTEE ON BANKING

FINANCE AND URBAN AFFAIRS

September 14, 1977 at 10:00 A.M..EST

In these brief introductory comments, I propose to outline trends

in World Bank lending to Mexico, to describe briefly the Bank's pioneering work in encouraging rural development, and to indicate some potentialities for the future. My main theme will be, first, to stress what my

colleagues have already emphasized--namely, that there are no quick fixes

to the problem of checking illegal immigration, just as there are no quick

fixes to solving the problems of absolute poverty--and second, to urge,-

nonetheless, that the sooner that programs to improve the conditions of

Mexico's rural poor can be accelerated, through whatever means, the sooner

It might be possible to get some grip on the illegal immigration problem

confronting the United States. .

World Bank Lending to Mexico

Since the early 1950's, the World Bank has made 47 loans to Mexico totaling almost $3 billion, which has amounted to about 7% of total Bank lending.

Over the years a marked shift in the direction of this lending has taken place,

from an early concentration on heavy Industry and infrastructure (power, railways and ports) to the more recent emphasis on agriculture, water supply and

small-scale industry. Increasingly, the Bank has been concentrating its

efforts on employment-in tensive rather than capital-intensive projects, with

the goal of generating the maximum number of jobs from its capital loans. At

present the benchmark for Bank lending to Mexico is about $500 million a year,
34

and of this total, about two-thirds is destined for agriculture, rural

development, and medium and small-scale industry. In general, the Bank

finances about one-third the cost of the projects it supports in Mexico,

the rest coming mainly from domestic savings.

Rural Development Programs

Mexico's efforts to develop its rural areas in recent decades

have been concentrated on expanding agricultural production and consolidating

land reform through the further distribution of arable and pasture acreage

to landless farmers. Agricultural production did indeed more than triple

between 1940 and 1965, principally because of the expansion of large-scale

Irrigation, the Increasing use of fertilizers and pesticides, the provision

of better seed strains and improved farm-to-market transport. Nonetheless,

income inequality widened in the rural areas because the economy could not

provide adequate employment opportunities for the poorer sectors of the

rural population, particularly those living in rainfed areas.

The grim facts are that some 2 million rural farm families, or

15-20$ of Mexico's total population, have per-capita Incomes of only

$100 to $150 a year, and the number is growing. The lack of employment opportunities and social services have caused workers from these families to

migrate on a massive scale, mostly to urban areas in Mexico but also to

seek employment In the United States.

In response to this growing concentration of rural poverty, the

Mexican Government in the early 1970's began to reassess Its development

strategy. The World Bank as part of this reassessment worked with the Government to organize an integrated rural development program designed to secure

the wider participation 6f the rural poor in the market economy, expand
35

agricultural production. Improve Income distribution, and encourage greater

social stability. The heart of the effort 1s the PIDER programs, but it also

includes additional irrigation projects, Investment 1n small- and mediumscale Industry and agricultural credits. Altogether, public investment in

agriculture now amounts to $1 billion a year. This represents one-fourth of

total public investment, a proportion that has doubled in the past five years.

The rural development program, 1n which the World Bank and the IDB

are heavily Involved, 1s of special interest. The objective of these programs

is to concentrate on individual micro-regions, each containing approximately

50,000 rural poor in areas that have some potential for greater productive

activity, employment and Income. A new coordinated investment program is

being developed for each of these regions. It seeks to bring together in

one package improved small-scale irrigation, extension services, credit,

marketing facilities, health, education, water supply and electricity. In

addition, the project includes experimental work to encourage the formation

of small-scale rural Industry.

Thus far, programs have been developed for 86 micro-regions covering

a rural population of some 4 million people. The total investment for these

regions will be about $1 billion, of which the World Bank will supply $230

million. Of this amount, $110 million was committed in a loan made in May

1975 and $120 million In a loan made 1n May 1977. The IDB has provided

additional financing and of course the major part of the funds is being provided by the Mexican Government.

This is clearly a new program which will take time to get into

full gear. There are substantial risks for any program that seeks to mobilize

self-help efforts on a local, community-wide basis, In areas where natural

endowments are usually below average. Social and Institutional change have

to take place in the face of deep-seated obstacles; administrative and
36

technical capacities have to be built up and consolidated. If the programs

get substantially ahead of the development of such capabilities, Haste will

result, and even more Important, disillusionment will set In.

If all goes well, these projects will achieve a satisfactory

economic rate of return and a substantial number of new jobs will be created.

On the average, the direct effects of these programs could Increase the

Income of the rural poor by at least 50X and the Indirect or multiplier

effects by much more. Incomes would continue to be very low, but concrete

prospects for Improvement will replace what presently must be despair. These

programs will take eight to ten years to complete but 1n the meanwhile

aspirations would be on the rise.

Potentialities for Expansion

Could more be done 1n this general area? The answer 1s clearly

yes, and Indeed the Mexican Government has made agricultural Improvement a

top priority and this Includes Improvement 1n the conditions of the rural

poor.

It may be useful for me to speculate on some of the theoretical

possibilities. To cover all areas of rural poverty, 1t would be necessary to

develop PIOER programs for some 300 micro-regions. In some cases, the technical

possibilities simply would be too poor to justify going ahead, but for most

regions, programs would be feasible. The total cost to cover the country

would be on the order of $4-5 billion.

A program to step up small-scale agriculture could cost perhaps

$1 billion over five years. Such a program, 1f successful, could triple Incomes on small farm holdings and also provide greater employment opportunities.

Programs to benefit rainfed agriculture and to expand rural industries

could also be accelerated, but it must also be emphasized that the potentialities

here are less well-established and the risks proportionately greater.
37

The major constraints in all these programs are administrative:

they simply take a long time to develop. But capital 1s also a problem.

The World Bank 1s prepared to do more 1n this area and new programs undoubtedly will be developed. The Mexican Government has given these programs

top priority but is itself under pressure to contain Its public expenditures

so as to re-establish the foundation for high sustained economic growth.

Hence there 1s reason for Mexico to explore new areas of financial cooperation both with the international financial institutions and with the United

States.

In closing, I would emphasize again that the alleviation of rural

poverty in Mexico is a long-term endeavor and there can be no assurance

that it will substantially reduce the flow of Illegal iranigration Into the

United States. Such evidence as there 1s, and simple intuition, would at

least suggest that people prefer to stay within their native cultural environment rather than risk the strange and the unknown. Mass migration is more

the product of desperation than anything else. The alleviation of the worst

aspects of poverty and the beginnings of hope 1n the rural areas, therefore,

should at least reduce the pressures to leave.
38

Mr. HANNAFORD. Mr. Chairman, I would like to ask a question, since

Mr. Tsongas is no longer here.

Chairman GONZALEZ. Certainly.

Mr. HANNAFORD. YOU are talking about relieving rural poverty, and

that seems to me to have a conflict as to whether you try to produce subsistence farms of a sort of "homestead" nature•which would be labor

intensive•or are you trying to produce efficient farms of a larger capital investment for international trade?

What direction are you going in ?

Mr. FRIED. The emphasis of these programs, of the new programs,

Mr. Hannaford, is to develop and expand small-scale farming. This

would have an effect, in expanding agricultural production, to some

extent some of this production might well go into exports. We should

recognize the consequences of this, as far as international trade is concerned. But, this whole new emphasis is on changing the prospects in

the rural areas among the poorest people. And this means: production,

social services, and everything else.

Mr. HANNAFORD. I have seen this problem in other Latin American

countries, where the small farm, of course, is a beautiful picture in

keeping the people down on the farm in labor-intensive kinds of development, but then marketing is a problem in terms of getting anything sold out there.

Mr. FRIED. May I just add•I would like to emphasize, again, if I

have not made the point clear•that the whole rationale for these programs is to produce a package that combines credit, improved marketing techniques, and provides greater productivity as well as improving

social services.

Mr. DUNCAN. T would just like to piggyback, Mr. Hannaford, if I

may.

I think it would be a wrong impression if anyone believed that the

PIDEB programs, or any of these rural development programs, concentrate on small holdings. Many of these are organized on a communitarian basis, so that you don't necessarily have a small plot•which

would be inefficient and which would not have marketing, credit, or

other facilities.

It would be a disaster if the international institutions, or the Mexican Government began emphasizing subsistence farming. That is not

the name of the frame here. And T think actually the difficulty of working out some of these new structural reforms by which one organizes

these microdistricts to which Mr. Fried referred, is really one of the

challenges that faces the Wold Bank, as well as the Inter-American

Bank.

Mr. HANNAFORD. I assume you have private production in communal facilities?

Mr. DTTNGAN. Precisely.

Mr. FRIED. I might add•and this, I think, is relevant to the general

and very important question you are raising•as these things are

reckoned, the Bank estimates that the economic rate of return on these

funds might be something over 20 percent. I didn't want to state them

because I think that they are rather speculative. I don't think that we

should exaggerate the possibilities. But, these programs are designed on

the basis, and on the assumption, that they are economic programs as
39

well as having substantial social benefits. So far, in the limited experience that we have had. this has turned out to be true.

Mr. HANNAFORD. That is interesting. Well, Mexico certainly has so

much that we need that could be developed, and it seems to me there is

great economic opportunity there.

Thank you, Mr. Chairman.

Chairman GONZALEZ, Thank you, sir.

Mr. Dungan ?

STATEMENT OF RALPH DUNGAN, EXECUTIVE DIRECTOR FOR THE

UNITED STATES, INTER-AMERICAN DEVELOPMENT BANK

Mr. DUNCAN. Well, Mr. Chairman, my colleagues, as usual, have

been so eloquent and comprehensive in their testimony that there remains very little for me to add.

I think Mr. Fried's presentation, particularly, demonstrates that

there has been thoughtful input not only by the World Bank but also

the Inter-American Bank, and very close collaboration in the lending

programs with the Government of Mexico.

I do have some information here about the lending program in the

Inter-American Bank which will substantiate the point that Mr.

Nachmanoff made earlier, thatthe Inter-American Bank has put about

60 percent, more or less, of its $500 million a year lending program into

the agricultural sector, and some of it in other kinds of activities which

have the effect of creating employment in light industry, and so forth.

This is all being coordinated very carefully with the Mexican Government's program which, as Mr. Fried suggested, has turned around

in the last couple of years.

I think it's very important, however, to put the caveats in•as each

of my colleagues has suggested•so that we get a balanced picture.

The rural development program is long term: it is high risk, and, the

effectiveness of some of the effort that we're making has yet to be

tested. In the Inter-American Bank, for example, we are precisely

setting about now to take a 'ook at how effective this "integrated rural

development program" has been•we are attempting to monitor the

effort very closely.

So, I think as Mr. Fred pointed out, this effort, substantial as it is.

is not going to solve the problem of illegal migration. That is not to

say, however, that one shouldn't continue it and increase it. I think,

myself, that we also have to take a look at some things that might be

considered on the periphery, which we have not discussed.

For example, colonization schemes within Latin America, to the

advantage of the receiving countries as well as the labor-surplus countries. And, frankly. I believe that despite the efforts that have been

made by both private- and public-sector onerations. we have very much

more to do in the way of family planning than we have done to

date. We. meaning the United States and the international agencies,

have been in the development business now for several decades and

the population growth rate such as one has in Mexico is not very good

testimony to the effectiveness of either that Government's or the international efforts bilateral and multilateral, that have been made to

date.
40

So, I would simply say that we should continue to do the kinds of

things we are doing, explore some things like colonization even when

they seem somewhat far-out, and I think rather appropriately at

this point continue to recognize that the support of the international

financial institutions•forgive the slight pitch•is critically important

in the United States self interest.

In other words, you can't continue this level of activity in Central

America, the Caribbean, and other developing countries on good will.

You need hard cash.

I thank you very much, Mr. Chairman.

Chairman GONZALEZ. Thank you, Mr. Dungan.

It wasn't touched on, but apparently the Caribbean is second only

to Mexico as a source of illegals. Can you tell us anything about the

action of the Bank or the programs with respect to the Caribbean?

Ambassador Andrew Young just recently completed a tour. Should

we be more directly involved in the Caribbean Development Bank ?

I know that a couple of the agencies have helped to fund the Bank,

but should we belong to it and give it further impetus ?

Mr. ARELLANO. Mr. Gonzalez, I would like to respond to that. The

Department of State, along with the Treasury and a number of other

agencies, have been given very recently the task to form the Caribbean

task force study force in which we are reexamining our, I should say

"lack of policy," really, towards this are, in order to come up with a

more coherent policy of the United States and other possible donor

nations to the Caribbean.

Now, within this context, obviously the international financial institutions•which would include the Caribbean Development Bank,

the Inter-American Development Bank•are going to be important

actors. And we do intend to not only solicit but actively involve them

in this task force.

Mr. DUNGAN. I would like to add a comment, Mr. Chairman, on

that.

Your question about the Caribbean nations, and particularly the

non-Spanish-speaking nations•the English-speaking islands•demonstrates the complexity of the problem. In certain nations or territories in the Caribbean the potential for development is rather limited.

In some islands, for instance, there appears to he a question about the

availability of sufficient arable land to provide for the food needs of

the population.

So, I think the programmatic approach in certain parts of the Caribbean will be entirely different than what it might be, for example,

in Haiti or the Dominican Republic, or Mexico, or El Salvador, or

Guatemala, or any other countries that have other potentials to

exploit.

I think this area presents a very thorny problem and there seems

to be little doubt that closer economic integration will be essential.

Relatively speaking, the amount of migration is substantially smaller,

obviously, than it is from Mexico. Nevertheless, it's a difficult problem.

Mr. HANNAFORD. Have our efforts been directed in anv measure toward tourism, second homes, retirement communities, things of that

sort that could create opportunities ?

Mr. DUNGAN. Some tourism, although with very, very careful restraints. As a matter of fact, in the Inter-American Bank just last
41

week we were revising and strengthening our tourism policy. The

question is, to what extent is multinational lending justified to build

hotels and otherwise support tourism, where tourism is a major exploitable resource ? Retirement homes, as far as I recall nothing.

Mr. HANNAPORD How's it going along the west coast ?

Mr. DUNGAN. This is an area, Congressman, where we think private

capital is much more appropriate, when available, than the semi-public or the public capital would be. I think the IFI's should be providing support which would stimulate and facilitate the flow of private

capital. At least that's our attitude.

Mr. HANNAFORD. Each time I see a new renort on the oil and gas

discoveries, they have doub'ed. It looks like this could have enormous

impact on capital accumulation that could do far more than all of

our efforts at encouraging

Mr. NACHMANOFF. This is certainly true, Mr. Hannaford, that the

potential revenues to be derived from gas and oil are very substantial,

and of course would help tremendously in strengthening the Mexican

economy.

However, it will be a period of years before that stream of revenue

increases substantially. During this interim period, at least, there is

a continuing need for private capital flows and assistance through the

international financial institutions.

Mr. HANNAFORD. What is the latest estimate ? Nine billion barrels,

or something like that ?

Mr. NACHMANOFF. I don't have that figure with me.

Mr. FRrED. I think this is an important point, Mr. Hannaford, and

I would like to elaborate on it a bit. It is rather critical, as a matter

of fact.

The estimate of proven reserves in Mexico is, as you have said, going

up. They are obviously very large. I think the most solid estimates

now suggest that by the beginning of the 1980's, say in 5 years, Mexico

will be exporting something over 1 million barrels a day.

Now, let us put that in money. That would mean that by that time

the additional revenues, the additional foreign exchange that Mexico

would be receiving from oil over what it receives now•it is exporting

about 100,000 barrels now•would be on the order of $5 billion a

year. Let's say roughly, taking costs out, that would mean incremental

resources of $4 billion a year.

Now, it seems to me that we should have this very much in mind as

we think about present programs. While these additional funds won't

solve Mexico's problems, they represent, in effect, the kind of foundation that suggests that Mexico should be doing more now, since it will

be able to finance any additional debt, the obligations, not so long

from now.

To give you some perspective, $4 to $5 billion a year represents fullv

half of Mexico's total investment today. And this is a big country•$10

billion in investments.

What this suggests to me is that the Mexicans should be moving

much more rapidlv now on programs to deal with rural povertv: and

the intpma+innnl financial institutions, as well as the United States,

should be thinking about possible means of helping them, to tide them

over this transitional period so that such programs can begin all the

sooner.
42

We have to remember that if you save 5 years, or 10 years, in greatly

expanding this kind of effort, you save, in many respects. You greatly

improve possibilities for reducing population growth, and you get

that much sooner to the point where you're increasing hopes in the

rural areas.

Mr. HANNAFORD. Mortgage future income.

Mr. FRIED. Exactly. And Mexico is in a unique position to move in

that direction.

Mr. HANNAFORD. IS it socially or politically possible to check this

rampant population growth in Mexico ?

Can anyone answer that question ?

Mr. FRIED. Interestingly enough

Mr. HANNAFORD. It is a permanent problem, as long as we have this

kind of population growthMr. FRIED. Eight.

I don't know if Mr. Dungan has any further information. I was

checking on this. Some of the bank people tell me that there is indeed

fairly solid evidence that the rate has gone down from 3.6 to 3.2 percent over the past few years.

Now, that rate is tremendous, but if in fact the trend is true, the

rate of decline is also very great. And I think that all of the work

that's now going on in the area of population suggests that the biggest

single fact to getting that rate down is what happens to incomes in

the poorest areas.

So, it's not only family planning; it is changing the outlook of the

poorest people on what their expectations would be. And that is why,

if we get going sooner rather than later, we can affect the ultimate size

of Mexico's population.

If we don't, the prospect•as you all probably know•is that in

another 50 years there will be 175 million people in Mexico, compared

to the present 60 million.

Mr. ARELLANO. Mr. Hannaford, it does appear that, as Mr. Fried

suggests, this is in large measure a matter of changing perceptions

and attitudes.

I remember that Prof. Eric Zimmerman, at the University of

Texas•a very famous professor of resources•used to say, when he

was discussing demographic policies, that there came a time in demographic cycles when the people preferred "baby grands" to "grand

babies."

This is what I think we're talking about. We are talking about aspirations, in terms of income policies and so on.

Mr. FRIED. I might add, Mr. Chairman, on this rather critical point,

that I think as Mr. Nachmanoff pointed out, there has been a very

impressive turnaround in the attitude of the Mexican Government

itself. And now they're positively pursuing greater family planning.

The Rank has had a project, which has been appraised and ready to

go. to help Mexico's population program•a matter of some $50

million.

Chairman GONZALEZ. That is a very sensitive problem for the Government•much more than it would be. perhaps, to the average other

government. So I can understand that. But I'm glad to hear thatthere

is a reported change of governmental attitudes.
43

Yes, sir ?

Mr. NACIIMANOFF. Mr. Chairman, just to give you some indication

of that, it's our understanding that the Mexican Government's family

planning program is•according to some of the experts in this field•

one of the most comprehensive ever designed. It calls for the expenditure of about $250 million over the next 5 years, and they are hoping

to reduce the rate of the population growth of 2.5 percent by 1982.

So, they are certainly targeting very ambitious goals.

Mr. HANNAFORD. AS conditions improve, sometimes fertility improves also. You can't win.

Mr. FRIED. NO ; I think the relationship is the other way.

Mr. HANNAFORD. The other way around ?

Mr. FRIED. That is the point. At least the research that has been

done for the past 10 years or so, suggests the contrary, as incomes rise

the population growth rate does go down.

Mr. HANNAFORD. Thank you.

Mr. ARELLANO. It appears to me, in the early phases as you indicated,

Mr. Hannaford, as you have public health programs that come onstream, and so on, that mortality and morbidity rates move downward.

Then, you do have increase in rates of growth of the population, which

is precisely what is happening in Mexico.

But then, as time goes on, as attitudes change as we have here in the

United States now, it tends to move backward•that is the rate of

growth of the population.

Chairman GONZALEZ. I think this is very important. However, as

you brought out in the testimony, about 50 percent of the population

fat Mexico is 15 years or younger now. That, to me, sounds like a

crisis situatiton which may not give us this time spread you are

speaking of, if we look on it as business as usual. I wanted to ask you

if you don't consider this sort of a crisis situation that would justify

a very radical change in the pattern of the institution's lending, ana

also stopgap programing? Because it would seem to me that, with

that statistic staring us in the face, we've got a real situation where

time's a wasting. We've let the situation creep up on us.

Mr. DUNCAN. In the popuation area? A radical shift there?

Chairman GONZALEZ. Well, with 50 percent 15 years or younger

at this point, I am thinking of the interim.

Mr. DUNCAN. Eight.

Chairman GONZALEZ. AS this sector enters the labor force

Mr. DUNCAN. I am not sure whether you mean a "radical change"

in the profile of the lending program

Chairman GONZALEZ. Yes; I mean, is it justified? Or should we be

thinking in terms of "emergency" or "crisis programs"?

Mr. DUNCAN. There is some doubt in my mind, although I think

we need to examine that more carefully, given the point you make.

Mr. Chairman, there is some doubt in my mind as to the absorptive

capacity•recalling Mr. Fried's very wise observation that the major

limiting factor in complicated integrated rural development•he and

I, and others know that very well, from our experiences in other

years•which is the capacity to administer them in a sensible way.

If you push it in too fast, it clearly can result in very wasteful
44

activity. If, on the other hand, you're talking about more intensive

activity•both bilateral and multilateral•in the population area, I

think that's something, myself, that really needs perhaps a fresh

look.

I mean, I am cheered, also, by the Mexican Government's attitude.

But, after all, we have had several decades where we have all been

hyped up on the population question, and it seems to me rather late

in the game to be moving.

Mr. HANNAFORD. The $250 million, that's Mexican funds? Is that

right?

Mr. NACHMANOFF. Mexican budget funds.

Mr. HANNAFOBD. Mr. Chairman, I was impressed by that "15 years,"

not only entering the labor force, but also women of child-bearing age

in their most fertile years.

Chairman GONZALEZ. Yes, sir?

Mr. ARELLANO. Mr. Chairman, I think that the population control

policy is, as you have pointed out, at best not a short-term solution.

We are looking at intermediate and long-term solutions here.

I would like to suggest that the Mexican Government itself has

proposed another dimension to what might be a solution. And that

is, that they are quite interested in receiving, or in applying increased

resources to the development of small- and medium-sized industries

in that country.

Now, we all know that for a very long period of time now Mexico has

taken the road that I would characterize as "state capitalism." They

have gone very, very heavily into the development of the so-called

"empresas paraestatales."

The figures that come to my mind are 1970, I believe, about 80

so-called "state enterprises;" 1976, there were over 800 of them. And

some of these are very large enterprises, They are bureaucratically

administered and controlled. It's very refreshing to me, that they are

now raising the question of productivity of these enterprises. The

record is not good and they admit this, themselves, very readily.

It is very interesting and satisfying for me to see the Mexican

Government looking again and saying: We'd like to take a good,

solid, hard look at the private enterprise sector.

And I would hope that the efforts that we would make in this

country would be efforts that were devoted toward the strengthening

of the enterprise sector in Mexico.

Mexicans are an entrepreneurially-orierited people; they are a creative people; they are a hard-working people; and anything that we

can do to give impetus to, and to help finance the desired horizontal

spreading of the enterprise system in Mexico, I think, would be well

in our interest and in theirs, too, by the way.

Chairman GONZALEZ. Yes, sir?

Mr. FREED. I would like to add a couple of comments to this point, as

I think we're getting at, from a policy point of view, what may well

be a critical area. What can be done about it ?

And I do think that a major constraint to doing more are administrative. Capital is also a constraint, particularly at the present time.

The Mexican Government does have to hold back on its public deficit,

and should.
45

Now, we should be thinking about whether, during this interim

period, when commitments to restrict spending exist•whether the

Mexican Government wouldn't be able, really, to expand its planning, and programs•rural development, medium- and small-scale

industry, and all the rest. Population policy is on track, and more can

be done. Capital isn't a constraint on population. Capital might be

a constraint on some of these other programs.

All I would argue is that it's a crisis in the sense that all parties

that are involved should think about thinking more ambitiously•

in that sense, it's a crisis•and examine what the constraints really

are, and to push ahead to the maximum.

I might say on the question of small- and medium-scale industry as

pointed out, the World Bank has a project now for $100 million to

push toward the development of small- and medium-scale industries

in the small cities and towns where the rural people first go. That

would again, reduce the pressure for those people to move on to

Mexico City, or•from our point of view•across the border.

This also is, it seems to me, an extremely constructive avenue of

development.

Chairman GONZALEZ. Well, of course what we are really staring at

is the fact that, with that very dramatic figure, we are looking at a

fact we can't escape. And that is, that Mexico is going to have from

200,000 to 300,000 coming into that labor force as of now, and job

creation just isn't there.

Now, in that connection, maybe some of the Treasury officials could

say: What is the status of the IMF loan to Mexico? Because that is a

restraint, also, from a policy standpoint, on what the Mexican Government can really do.

What, is the present condition of the peso? What is that IMF status?

Another thing, the immediate predecessor administration didn't

have•as near best as I can gather•the same attitude that is reflected in your statement about what present officials are talking about,

stimulating private enterprise. I don't think that was very much the

attitude of the last administration.

Mr. ARELTANO. Most definitely it was not.

Chairman GONZALEZ. But now, at the time of the devaluation, we

had a very heavy outflow of capital. You had flight capital. A lot of

it came to Texas. And the impact was very severe on this substratum

Mexican society, on cost of living, inflation, and I attributed that to

the greater spurt of illegal flow during this period•which would be

1 year, iy2 years?

So, I know that when the first danger signal came was when Mexico

drew on the swap fund, or the stabilization fund. But then, obviously

the rich and the powerful were tipped off, because they moved their

capital out very fast, immediately before the devaluation was

announced.

Now, a lot of that is still in the States. A lot of that has been used

even in my district to purchase substantial businesses, shopping centers

and the like, in my own home town.

So. when the IMF loan was made, the Federal Reserve extended a

loan•a "credit resource"•which I understand Mexico has paid back.

But what is the present status of the IMF loan, and the peso, if you

are in a position to tell us? Because I think it has bearing on this.
46

Mr. NACHMANOFF. Mr. Arellano wanted to offer a comment before

I respond to the question.

Mr. ABELLA.NO. If you will allow me to take you back just a little

bit and make a comment, specifically with reference to this "capital

flight."

In the September 1 state of the union message President Lopez

Portillo observed, somewhat wryly, that we put up severe barriers to

the flow of labor. That is, of "indocumentados." But we have absolutely

no compunction about accepting the flow of capital.

Of course, that doesn't recognize a very important fact: That is,

that money is the most cowardly thing in the world. As you point out,

it leaves in a big hurry, and much of it did come to Texas, and is still

residing in Texas. And what is very important, and very difficult for

Mexico, is that unless they take the right kinds•and I mean by that,

"right" in terms of Mexican investors•right kinds of policy steps to

induce the reflow of that capital back, it is not going to return to

Mexico.

So that the investment policies in Mexico, the treatment of the private sector, the way the private sector views the present Mexican Government, is extremely important

These are things that we may be of some assistance, possibly, by

just continuously reminding that this is the case. I don't know whether

frankly, a lot of that capital will, in the short term, repatriate. As

you have pointed out, it is in substantial investments. It is sunk now,

It is literally in a productive capacity in the southwestern region.

Chairman GONZALEZ. That is very true. Thank you veiy much.

Mr. NACHMANOFF. Mr. Chairman, the Mexican Government reached

an agreement with the IMF in October of last year on stabilizing the

economy and establishing the basis for long-term economic growth.

This agreement included a series of macroeconomic objectives, the

most important of which were reduction in the budget and current account deficits, and limitations on increases in external debt.

So far this year, it is my understanding that Mexico has been able

to adhere to the targets that were outlined in that program. And this

kind of program is necessary to restore confidence in the economy, in

the peso, and to bring back some of that capital that did flow out.

Now, with regard to the IMF program, we don't think that this will

necessarily be an obstacle to the expansion of worthwhile development

efforts on projects which can result in increased productive activity in

the Mexican economy. But, at this time, Mexico appears to be on-target

with regard to itsIMF program.

Chairman GONZALEZ. Thank you.

One question I wanted to go back to, since we have you here and

this subcommittee is particularly interested, I know that through ATP

and IDB, the Caribbean Development Bank has received help from

us. But, should we have a greater presence? Or should we get into

the Bank, and therefore assert a greater presence in that area ?

This is a question that has agitated some of us here. We had intended,

sooner or later, to have some hearing on the subject matter. I don't

know if you would care to comment on it, now, but since there is some

flow of illegal immigration from that area, I was wondering if that

is advisable.
47

Mr. ARELLANO. Are you speaking, now, of the Caribbean Development Bank, per se?

Chairman GONZALEZ. Yes.

Mr. ARELLANO. The Caribbean Development Bank has, as you know,

received capital applications from us. We have made contributions to

it. We are not members, as I understand it, of the Bank, as such, but

we have made capital available to them.

This Bank is criticized in the English-speaking Caribbean because

it isn't, quote, "forthcoming." Really what is happening here, in my

judgment, is that the Bank is being run as a bank, and not as an

eleemosynary institution. And this just doesn't seem to be acceptable

to some of the English-speaking countries in the Caribbean. They

would really rather have no strings attached•"grants," so to speak•

and the Bank is just not set up to do this.

It is attempting to run itself in a business-like fashion that would

insure its long-term viability.

Chairman GONZALEZ. You would hope that a greater American

presence such as actually participating in the Bank•Do you think it

would be helpful, from the American standpoint ?

Mr. ARELLANO. I defer to my colleague.

Mr. DUNGAN. In my own judgment, Mr. Chairman, there is no

substantial interest either to the United States or to the Bank in the

development of the Caribbean, for us to have a more dominant

presence in its operations.

The critical question there, as is the case in most developing countries, is to build domestic capacity, not to have heavy reliance on

external technical or managerial support•except where it's needed on

an ad hoc basis.

And I just think, personally, I think it is best to have that Bank

work its own destiny out, with the sympathetic support•especially

financial support•but not in any way dominance•which would be

inevitable, I believe.

Chairman GONZALEZ. Yes, sir?

Mr. NACHMANOFF. Mr. Chairman, could I just reiterate what Mr.

Arellano said earlier, that ve are in the process, within the administration, of looking at ways in which we can be helpful to the development process within the Caribbean region. And, we will be engaging in

consultations with various parties, both countries that are recipients

of development assistance, and those that may be donors or potential

donors, and the international institutions.

So, the problem is being addressed very seriously, and with considerable priority, within the administration. But our role and the

part we can play will depend to a great extent on how the countries of

the region see the problem, and the extent to which there is agreement

on approaches that can be taken.

Chairman GONZALEZ. Mr. Hyde, welcome aboard.

Mr. HYDE. Thank you, Mr. Chairman.

Chairman GONZALEZ. Sorry I couldn't see your movie.

Mr. HYDE. That is all right; I had two other subcommittee meetings

this morning, and bilocation is no tone of my talents.

I really don't think it's fair for me to ask questions because I did

not hear the testimony, and I don't want to take these gentlemen over

something that they may well have already covered.
48

Chairman GONZALEZ. YOU may have some question you may have

entertained before the hearings. You are certainly welcome to ask it.

Mr. HYDE. I am troubled by the illegal alien problem in the United

States. And we watched a film yesterday from "60 Minutes" which

graphically portrayed the woeful inadequacy of the border patrol.

I know that is certainly not the only answer to the problem, but for

the life of me I can't figure out why we have 80 people patrolling 2,000

miles of border: or 21 counties, I am sorry.

The chief of Laredo said he has 21 counties. He has 80 people. And

I know you are not the appropriate people to ask whether their budget

is cut, or whether they don't ask for enough, or whether we have a

policy of turning the other cheek to the immigration across the Mexican border.

I would like to find out: We have billions to give overseas for problems, and rightly so, but we just somehow don't have enough to have

an adequate border patrol. And this puzzles me, Mr. Dungan. Do you

have the answer ?

Mr. DUNCAN. You are right; we are not, in our official capacity, in

a position to advise on this matter. But, because of a past association

with this problem many years ago, I would like to make an observation•which is more or less personal, and unofficial.

It seems to me that what is different about the administration's approach to this problem is that it is balanced. It does not take one

approach to the exclusion of others. We have been discussing the contribution of the IFI's to stemming the flow of illegal immigration.

You are now talking about policing the borders.

It seems to me that to place the full onus•INS is in a much better

position to comment on this•but to place the full onus on the police

force, in this case, is somewhat analogous to the situation of placing

the onus on, let us say, the Labor Department to police illegal or sweetheart contracts between trade unions and employers.

Some of the burden needs to be placed on the violators. And not

only, in this case, the immigrant himself, but rather the person•the

employer who hires illegals•who, in one sense, is more culpable in the

sense of his knowledge.

So it seems to me there is quite a difference in the administration's

program from any past efforts toward the policing aspects of dealing

with this problem.

Mr. HYDE. I agree. And we had a bill last session that did just that.

And somehow it got lost along the way. I don't know whatever happened to it. but it certainly imposed penalties on employers who

knowingly hired illegal aliens. And there were warnings, and escape

clauses, and everything. It was a moderate bill. I think it was an innovative approach, and I am pleased to see the administration usinff

that, too. Do you have any other comments on the administration's

program? The amnesty provision, and the 7-year provision, and the

enforceability of that ?

Chairman GONZALEZ. Well technically, Mr. Hyde, that has to do

with our immigration laws and all. We have to defer to Mr. Rodino

and his committee on that.

Mr. HYDE. OK. I simply read here that one of the witnesses testified on the problem of "illegal migrants" and I thought that was within

the generic umbrella. But I will accept your distinction, and I might

be asking too broad a question.
Chairman GONZALEZ. NO: in fact as far as I am concerned I am not

trying to rule out your question•except that these particular witnesses

may be unable, or reluctant; I did touch on something that is peripheral

and similar to something you asked at the outset, which is really not

pertinent here but it was related to the enforcement and the like, and

some of the byproducts of social problems that result from this flow.

But, no, if any of the witnesses feel they have an opinion and care to

comment on Mr. Hyde's question, it is fine. But I would like to stress

the fact that it. isn't really in keeping

Mr. HYDE. I will withdraw the question. You know, your opinions

are your opinions, and I don't know where the program is going to go,

but it is a thoughtful approach. I had my own problems with the

amnesty thing and its enforceability. But, we have got to do something.

I have no other questions, Mr. Chairman.

Chairman GONZALEZ. Well, I have one final question.

And I don't know if this would apply to Mexico or not, but we have

often heard "trade not aid," and the Mexican Presidents have constantly, almost monotonously, referred to the fact. And they have

implied•and this is a thing that I find questionable, as far as attitudes on the part of the Mexican Government•that if there is anybody's fault, it is really the United States, because we have such a

tremendously favorable balance of trade with Mexico. Implying that

Mexico is sort of on the receiving end of the old mercantile system. And,

that if the United States would give Mexico a favorable trade consideration in some of its tariff treatments and the like, and would help

reduce that imbalance in the trade factor, that this would be more

helpful than anything else.

Now, the President has referred to globalism, and in fact I think•

if I am not mistaken•he referred to the fact thatthere really shouldn't

be any special relationship with Latin America•which I don't know

how to accept here. Because destiny and geography gives us a special

relationship we can't escape any way we try.

Now, is there such a thing as Mexico being considered for reduction

in trade and tariff barriers? Is it under the GATT rules amenable

to being singled out for special treatment ? I don't know.

Mr. NACHMANOFF. Well, Mr. Chairman, I will respond briefly to

you, if my colleagues want to add anything to that.

The administration's policy, of course, is to seek to maintain and

work toward as open a trade system as possible on a global basis. As

I mentioned in my remarks, certainly the Mexican economy depends

very heavily on its exports, and we are the largest market for Mexican

exports.

And it is very important to Mexico that we avoid and resist measures which would restrict those exports. I don't think that our present

policies are unduly restrictive. The basic problem is in increasing

production and keeping open the markets that are now available.

But certainly this is being pursued on a global scale•multilateral

trade negotiations within the generalized system of preferences for

developing nations under the Trade Act.

There are considerable opportunities. I think the main point is to

keep them open for countries such as Mexico.

Mr. ARELLANO. If I could amplify on that just a bit, Mr. Chairman ?

Chairman GONZALEZ. GO right ahead.
50

Mr. ARELLANO. The United States does have, as a fundamental

economic policy, a recognition of special and differential trade agreements. As Mr. Nachmanoff pointed out, our entire GSP umbrella is

indeed this.

In Mexico's case they have not utilized the generalized system of

preferences as well as they might have. We have been urging them

to look very carefully atthe GSP system, to utilize it in a more effective

fashion; because it does, we believe, offer them the opportunity to increase trade with the United States under these special differential

and more favorable terms.

Again, at the risk of sounding like this might be a hobbyhorse, and

it is, I think that what Mexico needs to do is to develop the capacity

to export to us products which are desired in the American market.

And this whole question of developing small- and medium-scale industries may, to some extent, move in these directions.

The enterprise system in Mexico is•well, it can be strengthened.

And it would be to their advantage to do it over the longer term,

certainly in terms of trade.

Chairman GONZALEZ. Yes, sir?

Mr. FRIED. Mr. Chairman, let me start by saying I think the problem

of development in Mexico that we face is not a question of trade•

neither aid nor trade. I think it's important to move across the whole

range of possibilities in this area, including the kinds of things like

rural development, small-scale industry, as well as pushing ahead to

further expansion of the industrial capacity that Mexico has accomplished in the past. It can do more in the future.

Does that mean that special treatment of Mexico is necessary? I

would argue very strongly that it does not, and it should not be

accorded.

Mexico's is a big economy. I think what Mexico has is the opportunity to export against a very, very large market in the United

States. To export without penalty in transportation or all the rest,

it has the opportunity, if it can use its own resources efficiently. If it

can get away from excessive protection of its own economy, it can

generate the kinds of activities and production that would result in a

very, very big increase in exports to the United States. That's its

responsibility.

Our responsibility, it seems to me, is that if the Mexicans can do

that, we should be prepared to keep our markets open. Because then,

in effect, we face a choice: Do we want the imports? Or do we want

the workers; on a small segment of this problem, that's the kind of

choice it is.

And I think that from our own point of view, both in terms of our

own welfare and in many other aspects of the situation, we're better

off in trying to keep markets open and deal with the problems that

that poses for us in other ways.

Chairman GONZALEZ. That is a very good point. In fact, Mexico

is far more protectionist than anything the United States could conceive of.

Mr. FREED. That is right.

Chairman GONZALEZ. And in fact, in the last few years, particularly

under the immediate predecessor of their President, it amounted almost

to a vindictiveness toward the American business on the American side

of the border.
51

And this is the reason that I haven't•and I guess the United

States would hardly be in a position to have a public disputation•

but I notice that the last three Presidents of Mexico have repeatedly

said, "Well, your balance of trade with us is the most favorable in the

world, and in effect we are your customer." But, they have left out the

very antagonistic policy or pattern that they have systematically

adopted.

I know, especially in the last 5 or 6 years, for example we had a

crisis in some of our border points•in fact, going all the way into

the interior as far as my district during the holiday season where,

arbitrarily, Mexican authorities would strip a Mexican citizen visiting

the United States who purchased goods•would come back and have

every one of those goods removed, arbitrarily, by the Mexican border

officials. And it created quite a crisis among the business element on

our side.

I recall vividly 3 years in a row, in 1968, in the early 1970's, and

it's sporadically done•until quite recently. I don't know whether

it's happened thus far in this administration.

Now, this was our argument when we received the complaints: That

the United States, we couldn't possibly do that overnight. About the

only way I know that we could do the equivalent would be on a

disease inspection on fruit importation. But this is different. And, it

was intended. And the Mexican officials admitted, at the time, that

they were out to dissuade Mexican tourists coming to the United

States from purchasing American-made goods.

Now, I havent heard any argument publicly made to defend the

American interest in that respect, but the point I am making is that,

from the utterances of the Mexican leaders, they look upon it like

they do. And what they have told our leaders lately with respect to

the illegal alien problem is: They say publicly, well, it is our problem;

but, in reality, in discussing it with us and our officials, they really

tell them, well, it is your problem.

And what I deplore the most is what appears to be a lack of willingness to consider this on a bilateral basis, like trade, being a two-way

street.

It is fine for us to consider reduction of tariffs and everything else

and special treatment, but if they don't avail themselves of the programs that are now available I don't know what we can do about it.

Or, if they insist on a unilateral and rather arbitrary erection of barriers when it comes to the purchase of American goods, well then again

I don't know what we can do about it, from our standpoint.

And I imagine that, in the desire to maintain amicable and harmonious relationships, the less said publicly about these areas the

better. But we still have a responsibility on our side to defend our

proper interests.

As I have said time and time again, I don't think we have to give the

family jewels away to prove we're good neighbors.

Well, gentlemen, I don't have any further questions.

Do you, Mr. Hyde ? You may have one final one.

Mr. HYDE. Well, yes, I think you brought up a very good area.

What is the current climate for foreign investment in Mexico? Is it

conducive to foreign investment? Is Mexico doing anything to improve it, or enhance it t
52

Mr. ARELLANO. The early indications, Mr. Hyde, in the early statements that were made by the Mexican administration in public statements that were made, were that they were desirous of foreign investment in Mexico. These are the statements that have been made at the

very highest levels; that is, the President and his Ministers and so

forth. They were extremely interested, and indeed desirous, of foreign

investment•particularly the U.S. investment.

The actuality of the situation is a bit different. And that is, that

there are a series of measures which have been taken in recent months,

particularly things such as the automotive industry decree, and just

yesterday a decree relating to the entry of new businesses. And they

defined that very broadly: you can already be in Mexico and have

your business established, but if you choose to expand it it may be

classified as a "new business," and placed under administrative

controls. '

These things tend to dampen the climate for foreign investment;

there's no question about it. The Mexicans quite rightly say, "This is

our Nation, and we intend to regulate investment in any way that we

see proper."

And, that is obviously their right to do so.

The other side of the coin is that foreign investment, particularly

investment from the United States, is a free agent and it can make

choices "yea" or "nay."

So that, in my opinion, they should be very careful in measuring

what they do at the administrative level, as against what the stated

desires of their leadership has been.

Mr. HYDE. In other words, one of the problems is that Mexico is

not as receptive. It is not making things as seductive for foreign investment as they might. Is this a matter of some negotiation, I would

assume ?

Mr. ARELLANO. I think that the leadership is quite interested in seeing•the present leadership•in seeing investment in Mexico under

terms that they consider acceptable. That is, from the national

standpoint.

Again, repeating myself, whether the actions that are taken at the

bureaucratic-administrative level are conducive to that, is another

story. And yes, to some extent, this is open to negotiation. We do,

through our joint consultative mechanism, point out the problems

as seen from our side with, say, such things as the automotive decree.

We have made this clear to them, and we have difficulty with this in

that our producers who have investments in Mexico are quite

concerned.

Mr. HYDE. Thank you, Mr. Chairman.

Chairman GONZALEZ. They don't mind Hispanicizing the trade

name•I am just kidding. I understand they had this movement in

Mexico this last year to change everything. I was wondering whatthey

would call Coca-Cola.

[Laughter.]

Chairman GONZALEZ. Didn't they have some law or decree that

they'd have to change the name from a foreign or an English name

to Spanish?
53

Mr. ARELLANO. There has been this licensing, patenting, and world

trademark act, and I am frankly not familiar enough with all the provisions about it. If you'd like, we could submit something on it.

Chairman GONZALEZ. I was really not that much interested. It is

part of the trend. They are doing it in Canada. So, I guess•but we are

really very grateful to you gentlemen for responding so quickly. It

gave this subcommittee a chance to be the first to act on some of the

things the President has communicated to the Congress, and we are

deeply grateful for the time you have taken.

I hope we maintain a relationship with you and follow through on

some of these and related problems.

I might add that our biggest concern at this time is to try to get the

conference report on appropriations. [Laughter.]

So that we can have these.

But, incidentally, these practices I referred to•and the only reason

I referred to them•is that they have had a very definite adverse impact, and have provided obstacles in our handling expeditiously and

favorably the replenishment legislation; and the emphasis and the

dire need to continue the U.S. viable presence in these multilateral

lending institutions were under very heavy attack.

We do face legislative dangers and perils. And when you have these

subsidiary problems such as illegal alien problems and others, we

have to confront it as a side issue.

Mr. FRIED. I think we have all tried to avoid self-serving comments,

Mr. Chairman, but it seems to me that there is no better indication

of the strong and very direct interests of the United States in enabling

these institutions to continue and to expand their programs as in the

case of Mexico. This is one of the few ways in which we can politically

advance interests that are obvious•our own, as well as Mexico's.

Second, I think the record shows that, as far as innovation is concerned, these institutions have done a tremendous job in seeking to

push ahead into the new frontiers to deal with the root causes of this

problem.

Chairman GONZALEZ. I agree with you. I think that has been the

track record of the banks. And that has enabled us, even with obstacles

and problems, to really prevail in the end. It is the only real thing,

because you can't dispute the record.

Thank you again, gentlemen.

[Whereupon, at 12:05 p.m., the hearing was adjourned, subject to

the call of the Chair.]

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