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As TO PROVIDE FOR INCREASED PARTICIPATION BY THF4\.i,.

415 UNITED STATES IN THE ASIAN DEVELOPMENT FUND

GOVERNMENT -% M LNTS

Storage

L 7 19/b

TH. Y REARING

KANSAS STATE. UNIVERSI1Y

BEFORE THE

KSU LIBRARIES 

SUBCOMMITTEE ON INTERNATIONAL

DEVELOPMENT INSTITUTIONS AND FINANCE

OF THE

COMMITTEE ON

BANKING, CURRENCY AND HOUSING

HOUSE OF REPRESENTATIVES

NINETY-FOURTH CONGRESS

SECOND SESSION

ru

rg ON

0

ul co S. 3103

A BILL TO PROVIDE FOR INCREASED PARTICIPATION BY

0 THE UNITED STATES IN THE ASIAN DEVELOPMENT FUND

0-

rg

rg MAY 12, 1976

Printed for the use of the

Committee on Banking, Currency and Housing

•

U.S. GOVERNMENT PRINTING OFFICE

71-506 WASHINGTON : 1976
COMMITTEE ON BANKING, CURRENCY AND HOUSING

HENRY S. REUSS, Wisconsin, Chairman

LEONOR K. (MRS. JOHN B.) SULLIVAN,

Missouri

THOMAS L. ASHLEY, Ohio

WILLIAM S. MOO RHEAD, Pennsylvania

ROBERT G. STEPHENS, JR., Georgia

FERNAND J. ST GERMAIN, Rhode Island

HENRY B. GONZALEZ, Texas

JOSEPH G. MINISH, New Jersey

FRANK ANN CINZIO, illinois

THOMAS M. REES, California

JAMES M. HANLEY, New York

PARREN J. MITCHELL, Maryland

WALTER E. FAUNTROY,

District of Columbia

LINDY (MRS. HALE) BOGGS, Louisiana

STEPHEN L. NEAL, North Carolina

JERRY M. PATTERSON, California

JAMES J. BLANCHARD, Michigan

CARROLL HUBBARD, JR., Kentucky

JOHN J. LAFALCE, New York

GLADYS NOON SPELLMAN, Maryland

LES AnCOIN, Oregon

PAUL E. TSONGAS, Mas.sArhusetts

BUTLER DERRICK, South Carolina

PHILIP H. HAYES, Indiana

MARK W. HANNAFORD, California

DAVID W. EVANS, Indiana

CLIFFORD ALLEN, Tennessee

NORMAN E. D'AMOU RS, New Hampshire

STANLEY N. LUNDINE, New York

PAUL NELSON, Clerk and Staff Director

WILLIAM P. DIXON, General Counsel

MICHAEL P. FLAHERTY, Counsel

GRASTY CREWS II, Counsel

ORMAN S. FINK, Minority Staff Director

GRAHAM T NORTHIIP, Deputy Minority Staff Director

ALBERT W. JOHNSON, Pennsylvania

J. WILLIAM STANTON, Ohio

GARRY BROWN, Michigan

CHALMERS P. WYLIE, Ohio

JOHN H. ROUSSELOT, California

STEWART B. McKINNEY, Connecticut

JOHN B. CONLAN,-Arizona

GEORGE HANSEN, Idaho

AICHARD T. SCHULZE, Pennsylvania

WILLIS D. GRADISON, JR., Ohio

HENRY J. HYDE, Illinois

RICHARD KELLY, Florida

CHARLES E. GRASSLEY, Iowa

MILLICENT FENWICK, New Jersey

RON PAUL, Texas

SUBCOMMITTEE ON INTERNATIONAL DEVELOPMENT INSTITUTIONS AND FINANCE

HENRY B. GONZALEZ, Texas, Chairman

PAUL E. TSONGAS, Msasarbusetts

LINDY (MRS. HALE) BOGGS, Louisiana

ROBERT G. STEPHENS, JR., Georgia

JAMES M. HANLEY, New York

THOMAS M. REES, California

WALTER E. FAUNTROY,

District of Columbia

CARROLL HUBBARD, JR., Kentucky

DAVID W. EVANS, Indiana

NORMAN E. D'AMOU RS, New Hampshire

ALBERT W. JOHNSON, Pennsylvania

HENRY J. HYDE, Illinois

CHARLES E. GRASSLEY, Iowa

MILLICENT FENWICK, New Jersey

RON PAUL, Texas
CONTENTS

Page

Text of S. 3103 2

STATEMENT OF

Bushnell, Hon. John A., Acting Assistant Secretary of the Treasury for

International Affairs 4

ADDITIONAL INFORMATION SUBMITTED FOR THE RECORD

American Soybean Association, statement submitted on S. 3103 32

Bushnell, Hon. John A., prepared statement _ 5

Grassley, Hon. Charles E., statement before the Senate Committee on

Foreign Relations, April 27, 1976 28

TO PROVIDE FOR INCREASED PARTICIPATION BY

THE UNITED STATES IN THE ASIAN DEVELOPMENT

FUND

WEDNESDAY, MAY 12, 1976

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON INTERNATIONAL DEVELOPMENT

INSTITUTIONS AND FINANCE OF THE

COMMITTEE ON BANKING, CURRENCY, AND HOUSING,

Washington, D.C.

The subcommittee met, pursuant to notice, at 9:45 a.m., in room

2222, Rayburn House Office Building, Hon. Henry B. Gonzalez

(chairman of the subcommittee), presiding.

Present: Representatives Gonzalez, Rees, Hanley, Hubbard,

Tsongas, Evans, Paul, Johnson, Grassley, Fenwick, Boswell and

D'Amours.

• Mr. GONZALEZ. I will insert at this point in the record the bill

before the subcommittee, S. 3103.

[The text of S. 3103 follows:]

(1)
94TH CONGRESS

2D SESSION S. 3103

IN THE SENATE OF THE UNITED STATES

MARCH 9, 1976

Mr. SPARKMAN (by request) introduced the following bill; which was read twice

and referred to the Committee on Foreign Relations

A BILL

To provide for increased participation by the United States in

the Asian Development Fund.

1 Be it enaded by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 That the Asian Developnient Bank Act (22 U.S.C. 285-

4 285h) is amended by adding at the end thereof the following

5 new section:

6 "SEc. 22. (a) The United States Governor of the Bank

7 is hereby authorized to agree to contribute on behalf of the

8

9

10

11

United States $50,000,000 to the Asian Development Fund,

a special fund of the Bank, in accordance with and subject to

the terms and conditions of Resolution Numbered 92 adopted

by the Bank's Board of Governors on December 3, 1975.
3

2

" (b) In order to pay for the United States contribution

2 to the Asian Development Fund, there is hereby authorized

3 to be appropriated without fiscal year limitation $30,000,000

4 for payment by the Secretary of the Treasury.".
4

Mr. GONZALEZ. Mr. Secretary, why do you not just in brief—

and I know it is a difficult chore but you are good at it—just in brief,

brief us on the major points.

STATEMENT OF HON. JOHN A. BUSHNELL, ACTING ASSISTANT

SECRETARY OF THE TREASURY FOR INTERNATIONAL AFFAIRS

Mr. BUSHNELL. We have a statement to put in the record, which

lays out in full detail what we requested.

Mr. GONZALEZ. Fine, that statement will go in the record.

[Mr. Bushnell's prepared statement follows]
5

STATEMENT OF JOHN A. BUSHNELL

ACTING ASSISTANT SECRETARY OF THE TREASURY

FOR INTERNATIONAL AFFAIRS

BEFORE THE HOUSE SUBCOMMITTEE ON INTERNATIONAL

DEVELOPMENT INSTITUTIONS AND FINANCE

MAY 12, 1976 at 9:30 A.M.

I welcome this opportunity to appear before your

Committee this morning in support of S. 3103, which would

authorize a U.S. contribution of $50 million to the Asian

Development Fund (ADF), the concessionary lending facility

of the Asian Development Bank (ADB). It is contemplated

that this amount, which has been included in the 1977

budget, would be the first installment of a three-year U.S.

contribution to the ADF to be spread over fiscal years

1977-1979.

Before discussing the details of this legislation and

the total replenishment proposal, I would like to address

briefly the importance of U.S. participation in the international development banks and then Provide some specific

background material on the Asian Development Bank and Fund.

There are three international development banks of

which the U.S. is a donor member. (Final passage is

expected imminently of legislation authorizing the United

States also to join the African Development Fund.) These

banks are part of an international structure in which the

developed and developing countries work together to solve

problems. By cooperating with other developed countries

in funding these institutions we improve the effectiveness

of our own efforts.

From the U.S. national point of view, these banks

encourage development along lines compatible with our
6

own economy. They stress the role of market forces in

the effective allocation of resources and the development

of outward-looking trading economies. In working with the

international development banks, developing countries are

learning to administer large procurement programs effectively and honestly. These programs will result in

increased procurement of goods and services in the United

States and expanded future markets for our products, thus

increasing employment in our country. Our participation

in the international development banks will also provide

more assured access to essential raw materials, and a

better climate for U.S. private investment in the developing world.

Asian Development Bank 

The Asian Development Bank, established in 1966, has

a current membership of 42 countries which includes the

developing nations of Asia, together with the developed

countries of Europe, Asia and North America, including the

United States. It makes hard loans on near market terms

from its Ordinary Capital window and concessional loans

from its Special Funds. It has developed, in a few short

years, into a respected borrower in internatiohal financial

markets, and an important provider of financial and technical

assistance to the developing countries of the Asian region.

The Bank's ordinary capital lending, with interest

rates now at 8.75 percent and terms of 15-25 years, is

financed from its subscribed capital stock, the proceeds

of borrowings (which are backed by the Bank's callable

capital), the sale of participations in its loans, and

profit derived from ordinary operations. The United

States participated actively in the establishment of the

Bank with an initial subscription to the Bank's capital

stock of $200 million. In December 1974 the Congress

authorized the United States to participate in a first

replenishment of capital resources of the Bank in the amount

of $361.8 million, to be subscribed in three annual installments of $120.6 million each. The United States subscribed

to the first installment in FY 75, bringing U.S. contributions

to capital stock to a level of $361.9 million or 11 percent

of the total. The second installment of this subscription

is included in the FY 76 Foreign Assistance and Related

Programs Appropriation Bill. When this contribution is made

the United States will have put in $482.5 million, comprising

approximately 14 percent of total capital stock contributions

to the Bank. The third and last installment has been requested

for FY 77.
7

The ADB has initiated discussions on a second ordinary

capital replenishment, but the United States has not yet

taken a position on the size or timing of such a replenishment, although it is clear that additional funds are needed

relatively soon. From its establishment in 1966 through

December 31, 1975, the Bank approved 150 loans from ordinary

capital resources for projects in 15 member countries, totaling

$1,925 million. The major portion of ordinary capital loans

are made to South Korea, the Philippines, Malaysia, Thailand

and Indonesia -- countries that have shown strong self-help

efforts to achieve economic growth and are of particular

importance to the United States.

Asian Development Fund 

When the Bank was established it was recognized that it

would have to provide financing on concessional terms to meet

the needs of its poorest developing member countries. Initially,

this was done through a Multi-Purpose Special Fund administered

by the ADB. It was a collection of unscheduled bilateral

contributions made by donor member countries -- each of whom

put varying terms and stipulations on the use of its funds.

In 1973, the ADB's Board of Governors, with United States

support, adopted a resolution creating a new multilateral

special fund, the Asian Development Fund, to which all contributions would be made and used on the same terms and conditions.

Subsequently, agreement was reached among the Bank's developed

country members on an initial resource mobilization for the

new ADF of $525 million for the three-year period ending

December 31, 1975. In March 1972 the Congress authorized

a U.S. contribution of $100 million and in December 1974 a

further $50 million was authorized. Of this amount, $100

million was appropriated in FY 74 and FY 75, but only one-half

of the remaining $50 million ($25 million) is in the FY 76

appropriations bill, as reported by the Conference Committee.

From its inception, through December 31, 1975 the ADF

approved concessionary loans totaling $659 million. These

loans went to the poorest South Asian and Pacific states with

Bangladesh, Pakistan, Burma, and Sri Lanka as principal

borrowers. As a matter of practice, India does not borrow

from the Bank or Fund. Only Asian countries with 1972 per

capita incomes of less than $300 are eligible for concessionary

loans, which carry a service charge of 1 percent with maturities

of 40 years, including a 10-year grace period on repayments.
8

To date the United States has contributed a total

of $462 million to the ADB and ADF. This has generated

contributions from other member countries to finance $2,584

million worth of projects in the developing countries of Asia

-- or 5 times the U. S. investment.

Of total Bank and Fund lending 35 percent has been for

public utility projects, 23 percent for agriculture and agroindustry, 22 percent for industry and development banks, 19

percent for transport and communication, and 1 percent for

education. Bank and Fund loans serve the same developmental

purposes; the only difference is in the terms, depending on

the economic status of the borrowing country.

ADF Replenishment 

As of December 31, 1975, the ADF had only $40.9 million

remaining for new loan commitments in 1976, not including the

U.S. FY 76 contribution. At this time the ADF has nearly

exhausted its resources available for commitment.

Recognizing the depletion of ADF resources, multilateral

replenishment negotiations were begun last year. During

these negotiations the U.S. representative stated that he

could give no indication of the amount or timing of a U.S.

contribution, in part because the United States had not yet

completed its contribution to the initial resource mobilization

of the ADF, and consultations concerning U.S. participation in

a replenishment had not yet been held with Congress. The U.S.

representative did indicate that the U.S. continues to be a

strong supporter of the ADB and would, in principle, expect

to continue contributing to the ADF.

Understanding that the United States was unable to commit

itself concerning the specific timing or amount of any U.S.

contribution to the replenishment, the ADB Board of Governors,

on December 3, 1975, adopted a resolution providing for the

replenishment of the ADF resources, and authorizing the ADB to

accept contributions to the replenishment from its developed

member countries in amounts specified in the resolution, subject

to possible later adjustment by the Board of Governors.

The resolution provides for an ADF replenishment in an

amount not to exceed $830 million for the 1976-78 period.

Despite possible modifications in the total figure, the ADF

expects to raise resources sufficient to increase its 1976-78

commitment total substantially above the $456 million level

of 1973-75, in order to increase its level of lending modestly

in real terms despite the rapid worldwide inflation.
9

Most donor countries agreeet1.contribttions equal to

approximately 150 percent of their initial contributions.

The Bank's resolution on the ADF permits members to suggest

adjustments in their contribution levels. Last month the

deadline for making such changes was extended to June 30.

Canada has already indicated that it wishes to increase its

contribution from $42.4 million to $76.4 million. The participation of Sweden and France is uncertain.

The Japanese have indicated they would provide one-third

of the total contributions.' Should the total be moderately

less than the $830 million in the resolution we would hope

Japan and other donors would not reduce the contribution amounts

shown in Table I. However, for such reductions to be avoided

the United States must show its firm commitment to the replenishment.

As no decision had yet been made on the total U.S. contribution to be requested for the ADF replenishment, the United

States reserved its position on the $231 million proposed in

the resolution for the U.S. share while dommenting that such

an amount seemed large. We formally abstained on the resolution.

After reviewing carefully the finaneial needs of the Asian

Development Bank and the burdenSharing aspects of supporting a

fund of major importance to the United States, the Administration

believes that a three-year U.S. contribution in an amount

substantially smaller than the Bank's suggested U.S. share of

$231 million would be appropriate.

Pending final determination of the total three-year

U.S. contribution level, we requested authorization of an

initial U.S. contribution of $50 million for FY 77 which

would represent the first installment of the replenishment.

Authorizing legislation for this $50 million passed the

Senate on May 6. This amount represents the same level

appropriated in FY 74 and FY 75 and requested in FY 76.

Since contributionsby other countries beyond the first

year of the replenishment are contingent upon U.S.

participation, a U.S. commitment, as provided in the proposed $50 million authorization, is essential for the

successful implementation of the total ADF replenishment

package. Authorization for the remaining two installments

will be requested in the near future.

I urge your prompt consideration of this legislation

given the time limitations for authorizations and appropriations

71-505 0 - 76 - 3
10

imposed by the Budget Reform Act. A firm indication of

a U.S. commitment to the Asian Development Fund is

essential for the successful implementation of the replenishment. Asian countries will be contributing over $300 million

to the replenishment and European donors have agreed to contribute nearly $200 million. However, the linchpin to this

replenishment and the ADF itself is the United States.

The ADB -- now in existence nearly 10 years -- has

developed into an important economic development institution

for Asia. It brings special expertise and local knowledge

to the development problems of the region. The Bank's growing

impact on Asian economic progress is reflected in its recent

activities. For example, it has substantially increased

lending for agriculture in light of the world food crisis;

it has given greater emphasis to the use of intermediate

technology, thus encouraging cost effective project development; and it has mobilized supplementary sources of financing,

including OPEC country resources.

By continuing our support for this institution, through

this legislation on ADF replenishment, we will indicate to

Asia and the world our determination to play a progressive

and peaceful role in the Asian region, befitting our

responsibilities and interests as a Pacific power.

oGo
11

Table I

Suggested Contributions to ADF Replenishment

Contained in Board of Governors' Resolution

Member US $ Millions

Australia 41.6

Austria 6.9

Belgium 7 3

Canada 42:4 li

Denmark 6.6

Finland 5.8

France 42.4 1/

Germany 53.1

Italy 30.8

Japan 272.6

Netherlands 12.9

New Zealand 9.2

Norway 6.1 ,

Sweden 10.6 1/

Switzcrland 8.3

United Kingdom 42.4

United States 231.0

Total 830.0

1/ Subsequent to the replenishment proposal

Canada increased its proposed contribution to

$76.4 million; participation by France and

Sweden is undertaib.
12

. Table .11

Current Contributions to ADF/SF

(millions of dollars)

Country Amount Percent

Australia $ 33.7 5.4

Belgium 6.9 1.1

Canada 35.9 5.7

Denmark 6,2 1.0

Finland 3.6 .6

Germany, Fed, Rep, 56,5 9.0

Italy 1.5 .2

Japan 314.g 50.1

Netherlands 17.2 2.7

New Zealand 5.1 .8

Norway 3.9 .6

Switzerland 7.6 1,2

United Kingdom 35.6 5.7

United States 100.0 15.9

Total 628.5 100.0

OC Set Aside +57,4

SF Net Income and

other credits

6.0

Total ADF/SF Resources 691,9
13

Subscriptions to Table III

Asian Development Bank Ordinary Capital and Asian Development Fund

U.S. and Other Donors

(in current U.S. dollars)

ADB-OC

Original Resource Replenishment

Mobilization (as of Dec. 31, 1975)

($ millions)(Percent) ($ millions) (Percent)

U.S. 241 19.9 362 

—1/ 16.2

Other Donors 551 45.5 901 40.4

Borrowing Members 420 34.6 968 43.4

TOTAL 1212 100.0 2231 100.0

ADF

Original Resource

Mobilization

($ millions) (Percent)

U.S. 150 1/ 28.6

Other Donors 375 71.4

TOTAL 525 1/ 100.0

1/ Amount authorized. The U.S. subscription to the replenishment

is of December 31, 1975 is $121 million. A further $121 million

is included in the FY 76 appropriations legislation. If appropriated this subscription will increase the U.S. share of ordinary

capital to 14.5 percent, from the present level of 11.3 percent.

The appropriation of the third $121 million will raise the U.S.

share to 17.5 percent.

2/ A U.S. contribution of $150 million has been authorized of which

. 1.00 million has been contributed. Subsequently other countries

have increased their contributions to the ADF to $486 million. So

if the final $50 million of the U.S. contribution, of which $25

million is in the FY 76 appropriations legislation, is appropriated

the U.S. share of the replenishment will drop to 23.6 percent.

3/ Excludes transfers of $57.4 million from Multi-Purpose Special

Funds.
ASIAN DEVELOPMENT BANK

Subscriptions to Capital Stock and Voting Power 31 December 1975 (millions of dollars) • TABLE IV

EalBERS SUBSCRIBED CAPITAL PERCENT OF CAPITAL PER OF VOTES

F2.77=1, 7

$ 14,4 0.450 0.848 =istan

Al:stralia 256,3 8,007 6.894

Bangladesh 45,2 1,413 1,618

B_Irna 24,1 0,754 1.091

C=bodia 10,6 0.330 0.751

Cnina, Republic of 48,3 1,507 1.693

Fiji 3,0 0,094 0.563

Gincrt Islands .2 0,006 0,492

F:71.-, Kong 24.1 0,754 1,091

India 280.5 8,761 7,496

Indnnesia 241.3 7,536 6.517

7-,-......

...., ...• 603,2 18,840 15,560

Kcres, Republic of 223,2 6,971 6.065

1,3 0,040 0.519

Ya:aysia 120,6 3.,768 3.502

n,7a1 6,5 0,204 0.650

Zealand 68,0 2,125 2.188

Fc:kisecn 96,5 3,014 2.899

Fv-.:a 1T.,7 Guinea 4,2 0,130 0.592

irili7,DinEs 105.6 3.297 3.125

SnrzDore 15.1 0,471 0,865

Soi:..mcn Islands .3 0,009 0.495

E:h Vietnam 36.1 1,130 1.392

Sri Lanka 25.7 0,803 1.130

Maila7.d 60.3 1,884 1.995

Ttnza .2 0,006 0,492

astern Samoa .1 0,002 • 0.490

Total Regional 2,314.9 72,306 71.013 '
IMBIZ IV (it'd

V7::-REGI0NAL

- AS DEVELOPMENT

Subscriptions to Capital

31 December 1975

BANK

Stock and Voring Power

(millions of do-lars)

PF.RCENT OF CAPITAL PERCENT OF VOTES SUBSCRD3ED CAPITAL

Al;stria 15.0 0.471 0.865

Belgium 15.0 0.471 0.865

Ccnada 75.4 ' 2.355 2.372

L(.7:.ork 15.1 0.471 0.865

Finland 6,0 0.188 0.638

Frcn-. 75.4 2.355 2.372

Gc=ny, Fed. Rep. of

Italy

102.5

60.3

3.203

1.884

3.050

1.995 .•

7:c.t'cl,,:lands 33.2 .1.036 1.317

rcr.:ay 15.1 0.471 0.865

S..:adrn 6.0 0.188 0.633

S-.:itzorlend 15.1 0.471 0.865

L'.-.1ted Kingdom 90.5 2.826 2.749

Unit2d States 361.9 11.304 9.531

Total Non-Regional A86.7 27.694 2E787

GRAND TOTAL 3,201.5 100.000 100.000.
16

Table V

Asian Development Banks

Summary of Loans by Country

December 31, 1975

(millions of dollars)

ADF/

Ordinary Special

Country . Canital Funds Total Percent

Afganistan - 34.0 34.0 1.3

Bangladesh 11.4 125.4 136.8 5.3

Burma 6,6 60.2 66.8 2.6

China, Rep 100.4 - 100.4 3.9

Fiji 6.7 - 6.7 0.3

Hong Kong 41.5 - 41.5 1.6

Indonesia 153,9 113.3 267,2 10.3

Khmei Rep. - 1.7 1.7 0.1

Korea 433,6 3.7 437.3 16.9

Laos - 11.7 11.7 0.5

Malaysia 248,5 3.3 251.8 9.7

Nepal 2,0 55.5 57.5 2.2

Pakistan 235.2 100.0 335.2 13.0

Papua New Guinea - 14.3 14.3 0.6

Philippines 332,7 15.3 348.0 13.5

Singapore 101,4 3.0 104.4 4.0

Sri Lanka 14.1 56.7 70.8 2.7

Thailand 233.2- 8.1 241.3 9.3

Tonga - 1.3 1,3 0.1

Vietnam, Rep. 3.9 40.7 44.6 1.7

Western Samoa - 10.6 10.6 0.4

Total 1,924,7 658.8 /,583.5 100.0
17

ADB/ADF

Summary of Loans Approved By

Country and Sector as of

December 31, 1975

(millions of dollars).

Outstanding

Including

Undisbursed

Table VI.

Repayments 

Ordinary Capital $ 1,924.7

Special Funds/ADF 658.8

Cumulative

By Economic Sector: Percent

$ 48.7

1.0

1975

Percent

Agriculture and Agro-Industry 22.8 37.2

Education 1.1 2.2

Industry and Development Banks 22.0 19.5

Public Utilities 35.1 28.7

Transport and Communication 19.0 12.4

By Country: Curtulative 1975

Korea 16.9 15.4

Philippines 13.5 16.0

Pakistan 13.0 14.7

Indonesia 10.3 11.8

Malaysia 9.7 7.2

Thailand 9.3 11.8

Others 27.3 23.1
18

Mr. BUSHNELL. What I thought I might do is start things off,

concentrating on explaining why we regard this as urgent at this

particular time.

Mr. GONZALEZ. I think that would be the most important thing of

all.

Mr. BUSHNELL. As you know, the new budgetary procedures of the

Congress require that any authorization that will require fiscal year

funds for next year, that is fiscal 1977, needs to be reported out of the

relevant committees of the House and Senate by May 15. Thus, to

the extent that there is to be an appropriation in fiscal year 1977 for

the Asian Development Fund beyond the amount that we requested

for fiscal year 1976, there needs to be an authorization reported out

by May 15. This has been done on the Senate side. In fact, the Senate

has passed the authorization.

Now, you may very well ask why is it we are coming up for only $50

million for a 1-year program, which is very unusual. We usually

request authorizations for 3 years in order not to bother you so often

and to permit you to take a broader, longer term view.

The reason is that at this moment the Bank's relations with Vietnam

and the other Indochina countries are not quite clear. Therefore it

seemed to us unwise to come forward at this time with a 3-year

authorization as that would raise a number of questions because 3

years is a long time; questions as to whether this money would go to

Vietnam and other such countries.

The Bank is not now dispersing and funds to those countries. It has

suspended its loans. But this is an issue, which is under discussion,

and there might be some development within 3 years. We thought it

was better to come forward now with a 1-year program, which would

leave those issues open; and then come back in 1977 with requests for

authorizations of the remaining 2 years of the ADF replenishment

and the replenishment of the ordinary capital of the Bank. This

would be a major package for the ADB by which time we would hope

the situation regarding Indochina and the Bank would be clear and

definitive and could be handled mush more easily than it can be now.

There are three reasons, in addition to the budgetary process, why

this authorization is urgently needed at this time.

First of all, the Asian Development Fund, which lends to the poorest

countries in Asia, is nearly out of funds. It had only $40.9 million at

the beginning of this calendar year. More than half of this has now been

committed. Replenishment discussions began some time ago. The

United States has not set a final figure for our participation in this

replenishment because we are waiting to see what develops in Vietnam

and on some other issues.

We have, however, said that we do plan in principle to participate

and that we would recommend to the Congress a contribution for

the United States in fiscal year 1977 at the same level as recommended

in the previous 3 years; namely, $50 million in fiscal years 1974, 1975,

and 1976.

The other donors have been reasonably understanding and appear

to be prepared to make their contributions effective by about July if

we are prepared to move forward and participate on a first-year basis.

We will need to contribute this money in, in fiscal year 1977, in

order to trigger the second-year replenishment of the other donors.
19

Unless we contribute, we will be in the position of holding up beyond

the first year, Mr. Chairman, the contribution of other donors. And

unless we show we are contributing, there may very well be an unwinding of the contributions of others.

Mr. GONZALEZ. Excuse me, we have a quorum now present. I

would like for you to clarify that last point. You say this money

would be necessary. You are speaking of the replenishment.

Now this $50 million, if I understand it correctly, is a commitment

already made?

Mr. BUSHNELL. No, Mr. Chairman, we have not made any commitment. There has been a negotiation, in which we participated, for a

3-year period of 1976, 1977, and 1978.

The general formula in this replenishment is an increase to 150

percent of what countries contributed in the previous 3 years. That

formula would produce a U.S. contribution of $231 million. We have

said we think that is too high and that we cannot go up that much.

We have not yet in the administration made a decision on the

amount for the 3 years, but we have, beginning last November when

we set the fiscal year 1977 budget, come forward for the first year of

these 3 years at the level of $50 million; the same level as previously.

This is an authorization for the first year of the new 3-year replenishment at the same amount that had been authorized for the previous

3 years on an annual basis.

Mr. GONZALEZ. All right, some other members just came in. I

wonder if you would be kind enough to again emphasize why the

urgency of this at this point.

If the question is, and has been asked, why can this not wait until

the next round, then why 

Mr. BUSHNELL. As with the soft funds of all of these banks, the

United States makes a contribution every year. Under the new

budgetary procedures of the Congress, the rule is that authorizations

for appropriations in the next fiscal year—in this case fiscal year 1977—

should be reported out of committee before May 15.

If we are to continue our contributions to the Asian Development

Fund in fiscal year 1977, the authorization should be reported out of

the relevant committees by May 15. The Senate has already acted,

both in committee and in the full Senate which has passed this

authorization.

We have come forward for only the first year of the 3-year replenishment rather than the normal 3 years because it was our sense in the

administration, after consultation with the Congress, that a 3-year

authorization would raise a number of difficult questions, particularly

concerning Vietnam and Indochina. This is a situation which is unclear

at this time, even though the Bank is not disbursing any funds for

those countries.

Therefore, we have come forward with what is essentially an interim

piece of legislation to continue our contribution at the same level for

1 more year while that situation is clarified.

It would then be our intention to come to the Congress, to your

committee in 1977 with a package, including the last 2 years of the

ADF replenishment, and a replenishment of the ordinary capital of

the Asian Bank. At that time we could then engage in a more complete

review of the Bank.
20

But if this authorization is not reported out, then under the new

budgetary .procedures there would be no authorization for any new

appropriation for fiscal year 1977 for the Asian Development Fund.

Mr. GONZALEZ. Mr. Johnson, you go ahead.

Mr. JOHNSON. May I ask, you just got back from the annual

meeting of the Asian Bank for Development. We have, of course,

some new members on the committee. Could you tell us, just as

quickly as possible, Mr. Bushnell, the nations that are contributing

and about how much money has been contributed in the past and

what did you glean from the conference? Are they doing a good job?

Are they making some decent loans? Are they raising the standard

of living? Are they living up to the mandate we gave them about

7 or 8 years ago when the Bank was organized?

Mr. GRASSLEY. And would you reemphasize your point about the

standard of living? I missed that but I am interested in it.

Mr. JOHNSON. Well, the whole idea behind the Asian Bank for

Development is to make loans for agricultural products and projects,

schools, everything, in that section of the world.

And, of course—was it the Bank's 10th anniversary this year?

Mr. BUSHNELL. This was the 10th meeting. I think their record in

reaching the poorer people of the poorer countries is very good.

This past year almost 40 percent of their lending was in the agricultural sector. They have moved vigorously in two fields of agriculture:

One is in the local production of fertilizer because fertilizer is desperately needed. They have very usefully brought in a lot of OPEC

money in connection with ADB financing of fertilizer plants in the

area.

The second major area they have moved into in agriculture is

integrated development where the Bank provides technical assistance

as well as improved seeds, irrigation works, feeder works, and so forth,

for the small farmer so he can substantially increase his income.

And that is in my mind, Congressman, where the big payoff is.

If the small farmers, who in Asia often have only 2 or 3 acres, can use

modern seed, get access to fertilizer, get it at a reasonable price, then

they can double, triple, and quadruple their production, which by

our standards still is not very much. However, it does make a very

big difference in their standard of living to have enough to eat and

a little surplus to sell into the market economy.

Mr. GRASSLEY. Are we—I am sorry.

Mr. JOHNSON. GO ahead.

Mr. GRASSLEY. Along the same line, then, is the Asian Development

Bank still promoting the production of palm oil?

Mr. BUSHNELL. We have asked the Asian Bank, at least until our

studies are completed, not to bring forth any more loans for palm

oil production. They have agreed to do that for a time.

In two projects they have substituted other products for palm

oil because of the concern that we have brought to them that there

has been so much development of palm oil—not that that is a bad

thing—but that the volume of it has contributed to a surplus in the

world market.

They are awaiting the studies now being done by the U.S. Department of Agriculture and others on the long-term market situation because palm oil takes 5 years from the time a loan is made to production.

So really the relevant market is the market 5 years from now and not
21

today. The Bank will wait before moving forward with additional

projects in this field.

Mr. GRASSLEY. Well, how explicit has our communication to our

representative on the Asian Development Bank been that the Asian

Development Bank had better not make any more loans in this area,

and to what extent is that going to be respected by the Board of

Directors of the Asian Development Bank?

Mr. BUSHNELL. I would be glad to send you a copy of the letter we

wrote to our Executive Director, which was very explicit, on holding

up these loans until the studies are completed. My conversations

with the Bank staff in Jakarta indicate they will respect our request

provided our studies are done this summer or on a reasonable schedule.

Mr. GRASSLEY. OK.

Mr. HANLEY. The bill calls for increased participation in accord

with the resolution in the Senate?

Mr. BUSHNELL. The other donors in the Bank have generally

agreed to increase their contribution in the next 3 years by 50 percent,

which is 1% times what they give in the past.

Mr. HANLEY. This is a general agreement where everybody has committed themselves for an increase in participation in the amount equal

to that of this country?

Mr. BUSHNELL. Well, we have not committed ourselves. But, with

one or two exceptions, the other donors have committed themselves

to an increase of 50 percent of their contributions.

We have said that we though that was more than we would be able

to provide, but we have not yet established a figure for our 3-year

contribution. We would expect to do that before June 30. It will be

substantially less. A 50-percent increase to us would mean to go from

$150 million over 3 years to $231 million. And we have indicated we

would not go that high. We have indicated that we would expect our

share of ADF contributions to go down from a little over 25 percent to

something under 25 percent, but we have not set a precise figure yet.

Mr. HANLEY. So essentially right now the 3-year authorization

would ordinarily be about $150 million. Is that correct?

Mr. BUSHNELL. That is right. If we did the same as last time, it

would be $150 million, and we are asking for $50 million for the first

year.

Mr. HANLEY. So the suggestion, in accord with the commitment of

other countries, could bring the 3-year authorization to a total of

about $230 million. Is that right?

Mr. BUSHNELL. It would not be the intention of the administration

to request that much. It is possible we would request for 3 years

something more than $150 million. My own feeling is that $180

million would be the outside figure.

Within the administration we are looking at two options: $150

million with no increase; and $180 million, a very modest increase.

Mrs. FENWICK. Would the gentleman yield?

Mr. HANLEY. Delighted.

Mrs. FENWICK. I expect to support this Fund. However, I have

some questions.

One, is this lending wise? Are we not now running into a situation

where the very people who need money the most are the ones who

are least able to repay it; that so much of what is now given the

poorest nations has to go to interest on the debt. I wonder if this
22

process of lending is a wise one; that is, to lend, at cost to out taxpayers, and build the resentment a debtor always feels when he

cannot meet interest and amortization payments. That is the first

question.

The second question is something a little more essential. You

generally do not have to keep on giving banks money. It is wise to

call this bank? We should call things by their right names. If this is

an aid fund, it ought to be called aid. If it is a bank, it ought not to

need continual inflows of money. It ought to operate as banks do

with some relationship between income and outgo., I think we would

be better off.

Mr. REES. It is both really.

Mr. BUSHNELL. Maybe I could answer the first question and leave

the second question to Mr. Tsongas.

On the lending from the African and Asian Development Funds,

there are loans with an interest rate of 1 percent and 25 to 40 years to

repay. These are the sorts of terms that the poorest countries can

afford.

It is certainly difficult for some of these countries to borrow from

commercial banks at Eurodollar market rates of 10 percent interest

and 3-year maturity. That is the reason why the Asian Development

Fund provides funds over a long enough period to give time for the

economies of the developing countries to expand and be able to

service the loans. There is no interest. There is only a 1-percent

service charge.

Mr. TSONGAS. And I think the point to be made is that this is not

the Asian Development Bank. It is the Asian Development Fund.

It is a soft-loan window for the poorer countries.

Second, in terms of the whole lender-borrower syndrome, I think,

yes, it is true; but it is even worse with direct doles.

I think the value of these development banks and development

funds is that it is a step away from bilateral foreign aid. .

Mrs. FENWICK. Would it not be better to say: "What do you really

need?" And the answer would be: "Well, we need irrigation equipment." And I would say: "OK, let's do it together. You put in your

ideas, your energy, your knowledge of your country, the resources,

and a little money; and we will supply this. So we will do it together."

Do you see what I mean?

We would get into a cooperative effort in which their spirit, and

energy, and hopes, and plans for their own country—and a little

money—even 1 percent—are given so that they are really participating.

Mr. TSONGAS. Would the gentlelady yield on that point?

Mr. REES. Well, let me just say this. What happened after World

War II as we went into bilateral trade? We took the U.S. aid program

into another country, and I think we had successes and a lot of

failure because there was resentment of the U.S. presence because we

were the richest country in the world.

I think as the result, there came about this creation of the multinational banks like the World Bank, the Asian Bank, the African

Bank, the Inter-American Development Fund. This is actually a

situation where the people in that area make the decisions, which has

been far healthier. We get a more carefully thought-out type of

project. We do not have that presence there, which is a negative

presence. We have, rather, a positive presence.
23

And I can tell you this. I am from Los Angeles, as you well know,

and I think that the great future for this country is in the Pacific

basin in terms of trade and commerce. I feel it every time I go back

to my district.

Asia and the Pacific basin are nonalined areas in terms of trade.

It is not the Common Market. It is not tied in to Africa the way that

the Common Market is tied in to Africa. It is not like the eastern zone.

So our great future is there in the Pacific basin. And I think it

would be tragic if we did not come in with full participation 

Mrs. FENWICK. I agree.

Mr. REES [Continuing]. In this bank because we get a lot more

than we put in, because it puts our presence in the Pacific basin.

But I would suspect—there has been something like an 800-percent

increase in the last 10 years of foreign trade out of the Pacific coast.

If you look at California and the Pacific coast, you will find the

fastest industry really is export in the Pacific basin. This is why

those of us on the Pacific coast are very hot for the Asian Development Fund because we see it as good business for our area of the

country.

Mrs. FENWICK. Bank or Fund?

Mr. REES. Both. The Bank lends on a normal commercial basis.

The Bank looks at a project just like any bank would look at a project.

The Fund is a soft loan.

Mrs. FENWICK. I am in favor of it, but I think we ought to ask

some questions.

Mr. REES. And for the GNP, it is less than $300 a year.

MTS. FENWICK. Yes.

Mr. REES. And we are really getting 

Mrs. FENWICK. Does the Bank need money or just the Fund?

Mr. REES. Just the Fund at this time.

Now, when the Bank needs money, they will go in for a recapitalization. The World Bank will be coming up for recapitalization next

year.

Much of this capital is used merely to back up the borrowing that

the Bank makes in the private market, so a lot of the Asian Development Bank securities are sold in the private market. It is a good

investment. This is then used to lend in terms of hard loans.

Mr.. GONZALEZ. Let me say that we have a new member of this

subcommittee and a member of the full committee from my State of

Texas.

This is Congressman Ron Paul. We welcome you aboard. I was

going to ask the minority leader here to introduce you, but I am going

to jump the gun.

Mr. JOHNSON. I think a fellow Texan could do it better.

Mr. GONZALEZ. Well, we are always glad to have a fellow Texan

up in these hostile eastern shores.

Mr. REES. With what I have seen of Texas politics, I do not know.

Mr. GONZALEZ. Well, it all depends.

Mr. JOHNSON. Speaking of--

Mr. GONZALEZ. Excuse me, I believe Mr. Paul was seeking

recognition.

Mr. PAUL. I have a question. First, the question is, I would like

to know how often defaults occur, what percentage, and then I will

make a comment here.
24

Earlier I had investigated a little bit about our problem along the

coast in Texas about the real depression in the shrimp industry.

What was hurting the shrimp industry was that we were getting a

lot of imports, and they were underselling our country's shrimpers

and driving the price down.

But then when I further checked and found out that the shrimpers

in India and Japan were building fleets at practically giveaway

money-1 percent money—then I was surprised. And you are correct

about this: You are kidding yourself if you call it a Bank. This is

just a highway for foreign aid assistance. And people are fed up with

foreign aid.

These people come in and get these loans. They do not have to

really pay for their boats. Now they are down there with a program in

Texas to retrain our shrimpers because they cannot keep up with the

market. So first you lose the money when you send it over there and

then keep feeding funds into the Bank; and next you are down there

retraining the shrimp people who become unemployed.

So you look at the short run and you say; "Yes; we are helping to

support people 

Mrs. FENWICK. But I think 

Mr. PAUL. Excuse me, and we are helping them. But in the long

run we are hurting the American people. We are supposed to be

representing Americans not Asians.

So I would like to know how many defaults we get.

Mr. BUSHNELL. Well, there have not been any defaults on loans

through the Asian Bank from either the soft funds or the hard funds.

The closest that we have come to this is the situation now applying

in Indochina where the Vietnamese and Cambodians have not paid

interest due since the change in governments. This amounts to less

than $150,000 so far and is one of the issues that evenutally will have

to be worked out. However, the capital of those countries, which they

paid into the Bank, is about the same as the amount those countries

have borrowed. So if, in the final analysis, they refuse to pay their

interest and to repay their principal, the Bank can eventually set off

defaults against their capital. The Bank would not lose anything

since it does not have any substantial net exposure in those countries.

Aside from those countries, there is occasionally a situation where

country will get 30 or 35 days behind but not a default.

Mr. TSONGAS. Just to set the record straight, Japan is a contributor

and not a borrower.

Mr. REES. And they are higher than we are.

Mrs. FENWICK. Exactly.

Mr. BUSHNELL. For the next replenishment over 3 years, the

Japanese have agreed to contribute one-third or up to $273 million so

that, even if we were to contribute the higher of the two figures, the

Japanese would surpass us by a substantial amount.

Mr. GRASSLEY. Well, we historically have given about 11 percent.

If we go at this higher percentage, then what did you say our percentage will be?

Mr. BUSHNELL. Historically, in terms of contributions to the ADF,

if one includes the $50 million which we requested in fiscal year 1976

and which we have not given yet, we would have given slightly over

25 percent—actually, 28 percent of the soft funds.
25

Now, that is distinct from the ordinary capital of the Bank. Our

share started out at 16 percent. If we were up to date, our share today

would be about 14 percent. In the ADF our proposed share has been

just over 25 percent. We think that should go down.

Mr. HANLEY. Mr. Grassley referred to a concern about palm oil.

Are there other controversial products?

Mr. BUSHNELL. I suppose there tends to be a controversy whenever

a product—the production of which is supported by the Asian Development Bank or Fund, or any of these institutions—competes

directly or indirectly with a U.S. product.

There are very few of these because most ADF projects do not fall

into that category. They are projects to improve the nutritional

standards of the countries, to improve their infrastructure, and so

forth. There is only an occasional product that falls into this category.

The main one we have had in the last year has been palm oil. There

has only been one ADF loan involving shrimp exports to the United

States.

Mr. GRASSLEY. Mr. Chairman, the reason I am particularly concerned about this palm oil situation and the use of Asian Development Funds for that is that there is naturally competition with the

American farmers as the result of the export of that from certain

countries particularly Malaysia and Indonesia.

But, according to what Mr. Johnson said in his original question

to you—asking you to comment on the purpose of the Asian Development Bank to increase, you know, the standard of living of the people

and their domestic needs—well, your answer is fine. You know, you

can invest this money in palm oil production if that will raise the

nutritional intake and particularly the protein level of the residents

of these countries.

I think if that .is the purpose, then we are willing to contribute to

that. But then we find, after years and years of investment in this

area, when we find that they export 80 percent of their production

and the U.S. imports most of that—and we find, of course, that 4

percent of the people of America; namely, the farmers in America,

are bearing the economic brunt of it—when we find all that, then we

feel like we are getting away from the original intent.

Not only that, but we find that investment is going to carry on for

35 years, because that is what the production of these trees are.

And you say: "Well, we are holding up any more investment in this

area for 1 year until we get some studies done."

Well, you can hold up investment for the next 35 years, but what

has already been invested and the harm that is being done, well, it

is going to be continued for a long period of time. That is what concerns us.

And I think we have gotten beyond the normal purpose of the

Bank.

Mr. BUSHNELL. Well, I think it is possible to help the poor by

putting them into an export crop as well as doing something for

their domestic consumption. It is true, I think, that the production

of African oil palm, as it is called, though it is mainly produced in

Asia, is a very labor intensive activity.

There are thousands of people at work at this. It does provide jobs

for the unemployed. However, as with many good things, there is

the fact that too much can be the enemy of the good.
26

It is our feeling there has been a great deal of development of

African palm oil, particularly in Malaysia and Indonesia. ,If it goes

too far, it will create problems even for these countries. If they create

a surplus on the market, it creates not only problems for our farmers—

who produce soybeans and other sources of oil—but also for themselves, and the Bank should not engage in that sort of activity.

Nevertheless there are still some very open questions, particularly

where there is a need for more edible oil in the diet of people in Asia,

not so muck in the producing countries but in other countries where

the diet is sorely deficient. One question is whether consumption can

be expanded to absorb much of this oil from the oil palm in order to

improve the diets in the region. I think we would all like to see happen.

Mr. GRASSLEY. I might put it in perspective for the rest of the

members of the committee and particularly the Congresswoman from

New Jersey, Mrs. Fenwick, and the gentleman from Massachusetts,

Mr. Tsongas, that there is a lot of private investment overseas that

has created unfair competition for workers in America particularly

in specialty steel and in the manufacture of shoes, which have turned

out to be unfair competition for the workers in America and the

people in those occupations. The union leaders in those occupations

are asking the President of the United States to step in and put some

sort of compensatory duties on to protect American industry.

The American farmer, who feeds the other 96 percent of the people

in this country—and those farmers are 4 percent of the people of

this country—feel a little bit the same way about palm oil. Only in

this instance there was a political decision made by public officials

in the United States that there ought to be this investment overseas

in the Southeast Asian countries which have, in turn, provided this

unfair competition; whereas in the instance of specialty steel or shoe

production, those were private decisions of investment overseas.

Mrs. FENWICK. Look, about shoes, let us just talk about that a

minute.

How are we going to live in this world if every time anybody can

make anything that competes with us, we put up barriers? The

President very wisely, in my opinion, did not go in for that. We

tried that once and nearly busted the country. You cannot live like

that and we have to learn it.

Now, what has happened in the shoe industry is most interesting.

Companies have understood finally—workers and unions and companies alike in this country—they have all finally understood that

they are going to have to live with competition. That is supposed to

be our way.

If you can make it better and if the consumer is to benefit with a

cheapter product, it has to be made available to the consumer. You

cannot hold up the consumers with taxes rising as they are.

What is happening in this country is very interesting in the shoe

industry. They are retooling. They are taking a lot of those shoes and

fixing them up, because they come here not quite adequately finished,

and they are making a very good business out of that. The retailers

here had been getting complaints, and it is to the consumers' interest

that these companies are retooling, and these unions are joining in.

So we are getting some intelligent handling of an international

problem.

Excuse this long speech, Mr. Chairman.
27

Mr. GONZALEZ. No, I believe a full and free discussion is good. I

believe we may be a little astray from the central issue here and that

is whether or not this particular infusion, which is honoring a commitment, is directly or even indirectly related to these complaints,

whether it be palm oil or shrimp. And I was hoping the Secretary

could give us some specifics on that. But he has indicated, first, that

the American representative has filed his request on behalf of our

Government to suspend or freeze these loans for palm oil production

if they are involved in palm oil production. Is that correct?

Mr. BUSHNELL. That is correct, Mr. Chairman. •

The best way to proceed in these cases is not to bring matters to a

vote but, rather, to use the strength of reasoning and argument to

present the situation to the management of the Bank and to indicate

our concerns and what our preliminary studies show.

And we have received from them a concrete indication in two

projects where they have substituted other products and a general

indication they will not bring other oil palm projects forward until

we have completed our studies and they have had a chance to review

them. In the final analysis, we will have to convince them our studies

are right. But if they are good studies and come out that way, I

think we will be able to do so.

The same is true in the case of shrimp and other fish products for

export to the United States. The ADB has concentrated its lending

on helping the countries to build up sufficient fleets to fish for their own

domestic market in order to increase protein in the local diet.

Now, it is true that some Asian countries such as Japan are expanding their fishing capability. That does not have anything to do

with the Asian Development Bank.

Mr. GONZALEZ. Well, let me ask you one question.

How would you sum up the national interest in relation to the

imperative need to legislate at this moment on our side here?

Now, the Senate passed this but it did not pass it out until just a

few days ago. So that put us under the gun because of our limitation

on the reporting of bills by May 15, which is Friday.

All of this was discussed and cleared with the chairman of the committee, with the minority staff, the majority staff leaders. And I feel

it is imperative that the administration emphasize the urgency of the

need for action from the national interest.

Mr. BUSHNELL. Let me say, Mr. Chairman, that in this period—

and it has only been a year since the changes in Indochina—there is a

great deal of concern in Asia, I have just been to the ADB annual

meeting in Jakarta, and the Asians are asking if the United States is

going to continue to be interested and support them as in the past.

They are concerned that we, as an administration, have not brought

forward a full 3-year replenishment. They think perhaps that is a sign

we are not going to continue to support the Asian Bank. We have

told them we are pushing very hard for this 1 year, and we do not

want to allow a gap in our support.

So I think the timing factor here is to show by this action at this

time that we are going to support development in the Asian countries

and that we are not going to have a year in which we back off and

reconsider the whole situation and leave the countries without money

for that year and interfere with the ongoing replenishment of others.

A number of other countries—for instance, the United Kingdom,
2s

Germany, Japan, and others—have said it is very hard for those

people who have my job, to go to their Parliaments and to their

Governments saying, they should increase and continue to contribute,

if the United States is not maintaining the same level it was contributing while they are asking their Parliaments for increased contributions.

I think that is the urgency; that is, to show that we are not turning

our backs on Asia at this time.

Mr. GONZALEZ. Mr. Tsongas.

Mr. TSONGAS. I think there is another point and that is if these

countries develop, they will be customers of the United States.

The United States is increasing its percentage of GNP relative to

export. It is in our interest, just from a business point of view, that

these countries develop to a point where they require our raw materials

and products.

Mr. REES. Well, as an exporter and not running for reelection 

Mrs. FENWICK. You are free.

Mr. REES. I would like to recommend this bill and send it to the

full committee with a favorable resolution.

Mrs. FENWICK. I second the motion.

Mr. GRASSLEY. Mr. Chairman?

Mr. GONZALEZ. Mr. Grassley?

Mr. GRASSLEY. Mr. Chairman, I would ask for permission to put

in the record the same statement I gave before the Senate Committee

on Foreign Relations on this bill. Could I do that?

Mr. GONZALEZ. Without objection, so ordered. We will put your

, statement into the record at this point in the record.

[The statement of Congressman Grassley before the Senate Committee on Foreign Relations, on April 27, 1976, follows :J

STATEMENT BY HON. CHARLES E. GRASSLEY, BEFORE THE SENATE COMMITTEE

ON FOREIGN RELATIONS, APRIL 27, 1976

Mr. Chairman, members of the committee, I am testifying here today not

only as an elected representative from the third district in Iowa, but also as a

person who has made a living as a small farmer far longer than he has served in

Congress. A major problem is confronting farmers from all over the country

today and, unfortunately, that problem is exacerbated by actions of committees

in the House and the Senate which approve monies for international lending

institutions. The problem is competition with American crops brought about by

the importation of foreign palm oil. I am particularly concerned about the oil's

displacement of soy products in this country and abroad. The reason I bring this

matter to your attention is because your committee, through its authorizations

for the Asian Development Bank, is contributing to the subsidization of palm

production in nations to which the bank makes loans. At this time, I am attempting to determine if some of the money for palm production comes directly from

the Asian Development Fund. I have yet to succeed in making that determination.

Because this matter is of such crucial concern to the farmers of this nation, I

thought it best to take advantage of this hearing to let you know where we stand.

The U.S. Department of Agriculture has estimated that in 1975, a potential 43

million bushels of soybean sales to domestic edible oil users have been lost due to

increases in palm oil imports. Most of these imports originate in Malaysia and

Indonesia, to which the Bank has lent money in the past for the specific purpose of

promoting palm production. The value of the 1975 loss is about $1.5 billion. In

1976, the Department of Agriculture has estimated that an additional 30 million

bushels will be lost. The United States is by far consuming the largest portion of

new palm oil imports.

First, I want to assure you that farmers are willing to take their chances when

it comes to competing in a free market. What disturbs them, however, is that the

massive loss of income I've just described is being "aided and abetted" by actions

of the United States government, through its assistance to various international
29

lending institutions. The Asian Development Bank, in particular, lent $218 million to Malaysia between 1968 and 1971 for the production of palms. Between

1971 and 1976, Indonesia received $20 million from the bank for the same purpose.

As you may know, palm trees take about four to five years to begin producing oil,

so the trees we've helped plant are in the early stages of production. Palm trees

have a productive life of about 30-35 years, so those trees financed in part with

dollars from this country will continue producing for sometime to come. In 1975,

Malaysia produced about 57,000 metric tons of oil and Indonesia about 10,000

metric tons. Whereas 10 percent of the 1974 Malaysian crop was imported by the

U.S., nearly 28.5 percent was imported in the first seven months of 1975. By

1980, Malaysia will produce nearly 142,000 metric tons and Indonesia nearly

80,000 metric tons. Already, between 75 percent to 100 percent of the Indonesian

crop, and nearly 100 percent of the Malaysian crop is being exported.

Again, I want to emphasize that farmers don't mind competing with nation's

that produce competitive crops on their own, or which are financed with assistance

from sources outside the U.S. Nor do they mind the use of American dollars for

loans which assist nation's to grow crops for domestic needs. But when their own

government donates money for the production of a crop which, in the first place,

is used primarily for export rather than domestic consumption and, secondly, will

be a major competitor of American crops, farmers become confused about the

intentions of their government. In addition

'

there are problems associated with the

importation of palm oil that I've not yet touched on. First, it is very saturated

and may prove unhealthy for some. In addition, the result of increased palm oil

imports could well be less production of soybeans and a major derivative for

animal feed, soymeal. The result could ultimately be less production of nutritious,

high-protein meat, which would mean less good meat and higher prices for the

American consumer.

At the present pace of palm production, imported oil could displace about 10

percent of the potential soybean production in this country by 1985. Therefore,

today, I am here to urge you to instruct the American representative to the Asian

Development Bank to refuse to approve any project which might result in the

subsidization of foreign palm production, and, more generally, with American

crops. In addition, I ask that no new monies be approved for the Asian Development Bank or Fund which might be used for the future production of palm oil.

Much damage has already been done and, with a productive life of 30-35 years for

the palm trees, that damage will not be remedied for some time to come.

Mr. GRASSLEY. Could I ask how long will the record be open for

comment from any group that might be interested in submitting testimony? The reason I ask that, sir, is I did not have a chance to look

up the rule, but it just seems like I recall some rule that said that there

has to be public notice and 24 hours given for a meeting so that

organizations or individual witnesses—well, there is something in the

rules about the minority members having a right to have people

testify.

And I would suggest one of two things: Either I would like to have

that rule apply in this instance, or else I want the record left open.

Mr. GONZALEZ. Well, let me put it this way. This is a subcommittee.

Mr. GRASSLEY. Yes.

Mr. GONZALEZ. We are meeting under the emergency clause of the

rules of the House.

The chairman of the full committee indicated that he would call a

meeting of the full committee as soon as there is action on the subcommittee level.

Mr. GRASSLEY. OK.

Mr. GONZALEZ. As far as the record of this transaction, as far as I

know there should be no objection to your statement or any other

statement you wish to add.

The question of the full committee meeting is something else again.

And I 

Mr. GRASSLEY. The rule I have reference to—do we have that

here—made reference to the subcommittee as well.
30

Mr. REES. Well, the rules of the subcommittee are the rules of the

full committee.

Mr. JOHNSON. How long would you suggest holding this record opPn?

Mr. GRASSLEY. I would like to have it open at least 72 hours.

Mr. GONZALEZ. The hearing record? Oh, there is no objection to the

hearing record being open. No, I thought you were referring to something else. There is no objection to that. I mean, with unanimous

consent, we will hold it open.

Mr. GRASSLEY. Under rule No. 7 it states:

The Chairman in the case of a hearing to be conducted by the Committee and

the appropriate Subcommittee Chairman in the case of hearings conducted by a

Subcommittee, shall make public announcement of date, place, and subject

matter at least one week before commencement of the hearings unless the Committee determines there is good cause to begin such hearings at an earlier date. In

the latter event, the Chairman of the full Committee or the Subcommittee Chairman, whatever the case may be, shall make such public announcements at the

earliest possible date. The Clerk of the Committee shall promptly notify all

members of the Committee in the Daily Digest—the Clerk of the Congressional

Record, that is—as soon as possible.

Now, the reason why I am concerned about that is because, if

there were people that were interested in testifying on the matter of the

replenishment of the Bank and, particularly, in this area I brought up,

you know, they do not have any way of knowing this under the conditions by which we met.

Mr. GONZALEZ. Well, the meeting is on your Senate bill.

Mr. GRASSLEY. Yes.

Mr. GONZALEZ. And, as I understand it, the Senate had hearings

and they had all the time in the world. I do not know if they are published. I believe they published their hearings. I have not had them

delivered to me. But my understanding from the Senate side is they

did. I would say there is no problem in maintaining the record of this

subcommittee meeting open and raising your question in the event

the full committee chairman calls a meeting.

Mr. JOHNSON. You can put your statement again in front of the

full committee.

Mr. GONZALEZ. Yes, that is right. There is no problem with that.

Mr. GRASSLEY. But there would not be any presumption that

the full committee is going to have any hearings on this. Obviously,

they would not.

Mr. GONZALEZ. I do not know. He might.

Mr. REES. That is under the power of the full committee chairman.

Mr. HANLEY. In any event, you would have that opportunity in full

committee.

Mr. GRASSLEY. Now, another thing I want to say along this line is

I just wondered what was the controversy of this bill in the Senate

that it only passed by a vote of 52 to 32?

You know, there was no dissension expressed in the record on the

Senate side, and yet it had that many negative votes. What was the

reason for that?

Mr. BUSHNELL. Well, I cannot imagine why those 32 voted against

it.

Mr. GRASSLEY. You must be facetious. If there are 32 Senators

against your bill, you must know some reason why there are 32 Senators against your bill.

Mr. REES. Have you ever observed the Senate in session? I mean,

you never know why they do anything.
31

Mrs. FENWICK. They are never there.

Mr. REES. Yes, one person might vote "no" and then all the rest

would just go by his instinct. They are different from us.

Mr. BUSHNELL. There was not, in our discussions in the Senate,

Congressman, any major problem raised by any Member of the

Senate on this.

The main problem raised by some Members is that more money

over a longer period should have been requested. I am not sure that

would cause them to vote against it.

Mr. GRASSLEY. Well, Mr. Chairman, I would suggest we follow the

rules, if the way I read it here and interpreted it is right, and give the

24 hours so that if anybody is interested in appearing before us, they

can do it.

Mr. GONZALEZ. Well, as I said and repeat, I believe the preferable

thing to do would be for us to act as a subcommittee. Let this question you are raising be raised in the full committee; if the chairman

of the full committee decides he is within the rules in calling a meeting

and satisfying the requirements of the rules.

I believe a strict interpretation of that rule, with the clerk and so

forth, would satisfy the emergency clause. You also have an emergency clause in the rules. But my suggestion would be that our

subcommittee not be considered as obstructant since there is a very

short period of time confronting us.

We have this question of May 15 and I do believe that the full

committee chairman should be allowed to express his decision on

whether or not to call a full committee meeting to try and come

within the limitation of the Rules of the House with respect to the

May 15th deadline.

Mr. TSONGAS. Mr. Chairman?

Mr. GONZALEZ. Yes?

Mr. TSONGAS. Mr. Chairman, I think perhaps the one compromise

is simply that if we are going to have a markup in full committee

prior to the 15th, that time be set aside before the markup actually

begins for anybody who wants to come and testify. I think that

would resolve both problems.

Mr. GONZALEZ. That would still be a decision for the full committee

chairman. We can recommend it to him as I probably will anyway.

Mr. PAUL. I have a question about procedure. We were talking

about palm oil and shrimp. Is this a Treasury decision on taking

care of that, or is this something that would have to be accomplished

legislatively to exclude these things?

Mr. GONZALEZ. That is correct. Our representative to the Bank,

and I guess our Director, would have the direct contact with the

Bank, but the request would be made administratively through

Treasury.

Mr. TSONGAS. But it would be in our committee report?

Mr. GONZALEZ. Oh, absolutely.

Mr. PAUL. Because I would certinly like this further investigation

as to whether or not this occurred and with which countries, Mr. Chairman, to see if this is hurting American business.

Mr. GONZALES. Well, let me say this. The record of this meeting

will reflect your concern.

If the full committee chairman decides in his wisdom to call a full

committee meeting, there would have to be a report to accompany
32

the action of the full committee. And in that I think you would

have ample time to repeat your concern in the full committee hearing.

Mr. TSONOAS. Mr. Chairman, I move the previous question.

Mr. GONZALEZ. The motion has been made to move the previous

question. All in favor signify by saying aye.

[Chorus of ayes.]

Mr. GONZALEZ. All opposed to it signify by saying no.

[One no.]

Mr. GONZALEZ. The ayes seem to prevail. The previous question

has been approved. The question then reverts on the recommendation

that the subcommittee approve S. 3103 to the full committee for full

committee deliberation and decision.

Mr. JOHNSON. Question on the motion.

Mr. GONZALEZ. Question.

All of those in favor of the motion please signify by saying aye.

[Chorus of ayes.]

Mr. GONZALEZ. All opposed by saying nay.

[No response.]

Mr. GONZALEZ. The ayes have it and we will accordingly recommend this to the full committee.

[The following statement of the American Soybean Association

was received by the subcommittee for inclusion in the record:]

STATEMENT OF THE AMERICAN SOYBEAN ASSOCIATION ON S. 3103

The American Soybean Association strongly opposes direct or indirect United

States government grants or loans to assist palm oil production via the Asian

Development Bank or by other means.

We believe that it is a basic right for every country to grow crops of its own

choosing, including soybeans and palm oil. We are opposed, however, to the

United States' subsidization of the production of palm oil, directly or indirectly

as a member of the Asian Development Bank as being both uneconomic and

unfair competition.

We deplore subsidized loans made by the Asian Development Bank for palm

oil production and bring to the attention of the United States government that

such subsidies undermine the livelihood of the United States soybean farmers

and related agri-business.

World Bank and Asian Development Bank loans for palm oil production totaled

$305 million in 1965-1975.

We urge the adoption of a limitation to such loans. In the case of the Asian

Development Bank we suggest that the United States' member of the Bank's

governing body be directed to advance a policy that would encourage loans to

meet food needs of a country's people but discourage loans for export commodities

such as palm oil when the world supply of vegetable oil is more than ample,

and when such loans undermine U.S. farmers.

World palm oil production has increased greatly to a major degree as a result

of subsidized loans. World palm oil production rose from 1.3 million metric tons

in 1965 to 3.2 million tons in 1975 with projected production in 1980 of 4.7 million

tons. The major part of the increase or about 60% has been exported to the U.S.

and, as a result, U.S. soybean oil prices have fallen to low levels of 160 per lb.

with a further decline to 12-140 in 1979 projected by USDA experts as a result of

foreign competition.

We should repeat that the American Soybean Association does not deny anyone

the basic right to grow crops of their own choosing. The chief issue is whether a

crop that is already contributing to a glut of world supply and low prices and

which enjoys a very low cost of production of not more than 11-120 per lb. landed

cost in the U.S. should have the benefit of loans under concessionary terms which

undercut American farmers, and also undercut the U.S. balance of payments,

because soybeans earn about $4% billion of foreign exchange annually, in some

years being the largest single U.S. export.

[Whereupon, at 10:25 p.m., the subcommittee recessed subject to

the call of the Chair.]