JOHN SPARKMAN, ALA., CHAIRMAN

FRANK CHURCH, IDAHO
CLAIBORNE PELL, R.I.
GEORGE MCGOVERN, S. DAK.
HUBERT H. HUMPHREY, MINN.
DICK CLARK, IOWA
JOSEPH R. BIDEN, JR., DEL.
JOHN GLENN, OHIO
RICHARD (DICK) STONE, FLA.
PAUL S. SARRAMES, MD.

CLIFFORD P. CASE, N.J.
JACOB K. JAVITS, N.Y.
JAMES B. PEARSON, KANS.
CHARLES H. PEPCY, ILL.
ROBERT P. GRIFFIN, MICH.
HOWARD H. BAKER, JR., TENN.

NORVILL JONES, CHIEF OF STAFF
ABNER E. KENDRICK, CHIEF CLERK

United States Senate

COMMITTEE ON FOREIGN RELATIONS

WASHINGTON, D.C. 20510

August 10, 1977

MEMORANDUM

TO: Hon. Henry Kissinger
Suite 520
1800 K Street, N. W.
Washington, D. C. 20006

FROM: Ms. Margaret C. Brown
U. S. Senate Committee on
Foreign Relations
4229 Dirksen Senate Office Bldg.
Washington, D. C. 20510

Attached are the pages of the hearing transcript
of 8/4/77 on OPIC authorization
containing your testimony.

Please make such _minor factual and grammatical corrections_ as are necessary for clarity and accuracy and return the pages by 8/13/77.

A copy of any requested material or answers to
additional questions submitted by any Senator for
the record should accompany return of these corrections
or follow shortly thereafter.

Attachments

Barker: r&t

TO HEAR TESTIMONY ON S.1771, AUTHORIZING LEGISLATION
FOR THE OVERSEAS PRIVATE INVESTMENT CORPORATION (OPIC):
TO DISCUSS THE ROLE OF THE PRIVATE SECTOR IN DEVELOPMENT

THURSDAY, AUGUST 4, 1977

United States Senate,
Subcommittee on Foreign Assistance of the
Committee on Foreign Relations,
Washington, D. C.

The subcommittee met, pursuant to notice, at 10:04 a.m.,
in Room 4221, Dirksen Senate Office Building, Senator Frank
Church presiding.

Present: Senators Church (presiding), Case, and Javits.

Also present: Norvill Jones, Chief of Staff.

Senator Javits. The subcommittee will come to order.

We meet this morning to continue the consideration of
legislation to continue the Overseas Private Investment Corpor-
ation, and we have the great pleasure -- and I consider it a
personal pleasure -- to have as our witness the very distinguished
brilliant former Secretary of State, Dr. Henry Kissinger.

Senator Humphrey has been delayed and has asked me to open
the hearing. I am very hopeful that Senator Church will be here
very shortly, but at Senator Humphrey's request, I would like
to read into the record Senator Humphrey's opening statement.

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STATEMENT OF THE HONORABLE HENRY KISSINGER, FORMER
SECRETARY OF STATE, WASHINGTON, D. C.

Mr. Kissinger. Senator Javits, I take great pleasure in testifying on behalf of the OPIC, and I will, with your permission, make a few general observations and then answer your questions.

Senator Javits. Thank you.

Mr. Kissinger. In general, I support the testimony of Secretary Bergsten and of Mr. Poats, both of whom have been associates of mine in the past, although I don't think I should stress this fact, in order not to diminish their prospects in the current Administration.

In the last several years, the poorer nations, in a variety of forums, have stated their demands for the renovation of international economic relations. They claim a greater voice in the decisions that affect them, and what seems to them a more just share of the global prosperity.

The industrial nations, in response, have reiterated their continued commitment to the open system of world trade and investment.

It is plain enough that if this dialogue deteriorates to a level of confrontation, the self between rich and poor will widen. This prospect would be unfortunate for all. The developing countries would be hurt the most. The United States, as the world's strongest economy, would be injured less. But the

ALDERSON REPORTING COMPANY, INC.

outbreak of economic conflict between North and South would damage
even our own wellbeing.

I believe that public assistance is of great importance,
but I believe also that private enterprise can be an effective
vehicle for the development of science and technology, for the
application of new knowledge to the world's resources, for the
management of international capital markets, and for the promo-
tion of trade and commerce among nations.

Private direct investment can facilitate economic develop-
ment by transferring resources and expertise to the developing
countries.

Public assistance, as I have already pointed out, will con-
tinue to be vital. The flow of resources through international
financial institutions, as well as bilaterally, can and, in my
view, should be increased. The United States has a responsibil-
ity to raise its level of official development assistance.

But it is increasingly plain also that public aid cannot be
expected to do the whole job. No foreseeable increase in public
assistance can come close to meeting the needs of the develop-
ing countries. The developing countries, therefore, must look
increasingly to private investment for the capital resources
they need for growth.

Latin America, for example, has progressed further and
faster in the last decade than any other region of the developing
world. It has done so while shifting from public to private

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sources of external capital and probably, in part, for that reason.

In the period of the Alliance for Progress, most of Latin America's external capital was public. Today, more than 80 percent of it is from the private sector.

To an increasing degree, it will be the private sector which will be the vehicle for the technology transfer which the developing world requires and demands. This concept, the quality of capital investment, is a major concern of those developing countries that have already made significant progress and have become important actors on the world economic scene.

Most of the new knowledge, skills, and techniques that will be needed by developing countries in the years to come are in the inventory of private industry. The bulk of that technology is in the West. Thus, it is in the interest of the industrial democracies, as well as the interest of the developing countries, to enhance the incentives of our private sector to adapt its storehouse of know-how and skills to opportunities in the developing world.

It is clear that the solution to this problem, as to others, will not be found exclusively in the relationship of the private firm to their host country. Governments of the industrial nation must assume a major responsibility. New agreed practices of international cooperation, new institutions which have the confidence of all parties, are needed to provide a framework of public

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commitment and private incentive within which private investment
can make a constructive contribution to development in the decade
ahead.

A major barrier to direct private investment is political
risk, and the rather hostile rhetoric of many developing countries
has increased the risk in the eyes of investors. The dependence
of most developing countries on commodity export earnings is
painfully obvious. Nevertheless, because of the tensions and
uncertainties which attend the question of private foreign investment in new commodities projects, the vast bulk of mineral investments today are being made not in the poor countries of the
world, but in the four richest countries, Australia, Canada,
South Africa, and the United States. Rich deposits of minerals
are left undeveloped in the developing countries, while lesser
deposits are developed at high cost in the United States.

There is a role for OPIC in many developing countries which welcome foreign investment but in which investors continue to view the investment climate as politically risky. This is especially true in many of the poorer developing countries, whose access to private foreign capital without OPIC insurance would be severely limited.

There is also a role for OPIC in facilitating investment
in minerals in the developing countries. If the present
declining investment trend is not reversed, commodity export
earnings of these countries will be far below what they might be,

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[u]

and prices will be higher for everyone.

At the Nairobi meeting of UNCTAD last year, I suggested an International Resources Bank, which could act as an intermediary or partner with the host countries and foreign investors. Whatever the institution, it is important that we search for new ways to reduce the noncommercial risks for resource investment and thus promote greater flows of investment capital for worthy projects on reasonable terms, in the interests of both producers and consumers.

There is scope for OPIC to join with its counterpart agencies of other industrialized countries in assisting raw material projects in the developing countries. This would permit larger projects to be financed at less risk to OPIC's financial position. It would also reduce the likelihood of losses from expropriation, as a potential expropriator would confront the government institutions from several countries.

Cooperation between OPIC and its counterparts would be flexible and could be implemented without triggering a new round of the North-South dialogue.

In short, gentlemen of the committee, I support OPIC, and I hope that you will give it your favorable consideration.

Senator Church (presiding). Thank you very much, Dr. Kissinger.

One of the facts of life concerning OPIC with which we have had to deal for a number of years is that the insurance naturally

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follows the decision of the investor and that, therefore, OPIC has had at best only a marginal influence on where those investments were made. The concentration has not dissipated. It has grown more acute despite our concerns about the poorest countries and the need for investment capital in those places.

For example, today there are just a few countries -- a handful, really -- where OPIC insurance is concentrated, and those countries, Brazil, Korea, Taiwan, The Philippines, and Jamaica, are really not the poorest countries at all, but countries that are well on their way to development.

That raises the question in my mind as to whether, if one were to accept the validity of the argument that private investment in poor countries is good for them -- a proposition I seriously question -- but if one were to accept the validity of that argument, OPIC is not reaching into those countries that really need it most, as their own portfolio demonstrates.

Do you see any way that this might be corrected?

Mr. Kissinger. As I understand it, OPIC, in addition to the countries you mentioned, Mr. Chairman, has also been active in Indonesia, Trinidad, and the Dominican Republic, which does not undermine your fundamental point; it just indicates that there is greater flexibility.

Basically, it is true that OPIC will have to follow the decisions of the private investor, and basically, OPIC, by itself, cannot substitute for the necessity of creating an investment

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climate for private capital. The fundamental dilemma of the present development situation is that foreseeable public funds will not be sufficient to meet development needs, and that the largest sources of untapped capital are probably in the private sector. We therefore require a governmental strategy in which through negotiations with the developing countries, through the North-South dialogue, we contribute in general to a climate in which the developing countries find that their concerns about undue interference or interference in their political processes are eliminated and, at the same time, the private investors are given the assurances that they need in order to move forward.

If progress is made on that framework, then I believe OPIC can play a very important contributory role in easing some of the concerns, especially with respect to expropriation.

Of course, I don't fully agree, Mr. Chairman, with your statement that the role of private capital in the less developed countries is not generally helpful. I think it can be made to be helpful, and I see no alternative to it under present development policies of all the industrialized countries.

Senator Church. Yes. Well, I think that is a very basic argument that will continue for a long time to come.

I have been very much influenced, I think, by the present situation in Puerto Rico, which is very bad, despite the enormous concentration of private investment through multinational corporations. If that is a showcase of how private capital

contributes to the wholesome development of the host country, I think there are some serious defects in the theory.

Be that as it may, I understand the arguments that favor private investment; I just tend to be skeptical of them.

Mr. Kissinger. Mr. Chairman, with respect to Puerto Rico, of course, since the unfortunate events of January 20, there have been limitations placed on my ability to do research.

(General laughter.)

—Mr. Kissinger. But I am generally aware, from my previous incarnation, of your concerns, and my understanding is that, while the situation in Puerto Rico has the difficulties which you describe, this is due to many factors. It is due, for example, in part, to the dramatic rise in oil prices. As I understand it, some of the industry in Puerto Rico was based on the accessibility of relatively cheap Venezuelan oil, and therefore, the increase in oil prices, at least as much as the increase in labor costs, has contributed to some of the difficulties of private enterprise and the rate of return of Puerto Ricans from the mainland.

In other words, there are many special factors that apply to Puerto Rico, from which it would be dangerous to generalize.

Senator Church. I think that that is true, that there are many complicating factors there, but when you consider that 40 percent of the population has moved from Puerto Rico to the mainland and most developing countries don't have that kind of escape hatch and that, despite that enormous migration, 60 percent

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of the people are now on food stamps, and this, despite probably the largest concentration of corporate investment that we can point to anywhere in the world; and yet that investment was really ill-suited to the internal needs of balanced development for the benefit of the Puerto Rican people.

That just leads me to question the validity of the theory that private investment necessarily contributes to the developmental needs of those lesser developed countries.

Mr. Kissinger. My research tells me, Mr. Chairman, that you have done more research on the subject than I have, but I understand that the problem has many facets, including some failures of the Puerto Rican Government with respect to agricultural development and diversification of industry.

But, leaving Puerto Rico aside, I am not saying that private industry, left to its own decisions, simply by the operation of the free market, is going to bring about the economic development of least developed countries. Its incentive is going to be to go into the most developed situations in the less developed countries, and it may pursue policies that are not in every respect compatible with the long-term interests of the countries concerned.

This is why I believe that there is necessary, as part of the North-South dialogue, an understanding on a governmental level, with respect to some ground rules within which private investment can operate in which, on the one hand, the developing

countries are given some assurance with respect to the concerns you raised, as well as concerns about interference in political affairs; and in return, private companies are given some assurance with respect to their concerns about security against expropriation and other factors. It is in this area that OPIC can be a useful tool, and not in sort of the automatic operation of self-interest.

Senator Church. I understand. I would hope that that balance could in some way be achieved, because I do think it is critical.

I know your time is limited and other Senators here will want to ask questions, Senator Case and Senator Javits. And Senator Jackson has just sent word to me that my body is needed at the Energy Committee, in order to make a quorum to vote out Mr. Schlesinger's nomination, among others. So I will have to absent myself for that purpose, but before I leave, I would like to ask you one further question.

There has been a very large increase in commercial bank lending to the developing countries, as you know, and there seems to be a corresponding decrease in the equity investment in these countries; that is, the tendency seems to be shifting toward borrowing and in that borrowing, our commercial banks played a very large role, to the point where those of us on the Foreign Economic Policy Subcommittee are wondering about the strains on the credit system in the Western world.

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Detroit

Now, you have just spoken in New York yesterday to this issue and you said, "For the first time in our history, a small group of nations controlling a scarce resource could, over time, be tempted to pressure us into foreign policy decisions not dictated by our national interests."

You also said in that address that, "since 1973, the oil-producing countries have quadrupled crude oil prices, garnering "enormous surplus earnings," billions of surplus dollars. These surpluses amounting to $46 billion alone last year," are a factor of instability, even if not manipulative political motives." Indeed they are.

That surplus, translated into debt for the Western world, has to be carried by commercial banks, as well as by our international instrumentalities, like the IMF. But the strain is very great.

Now, how do you visualize our handling this problem in the Western world, to avoid a serious collapse of the credit structure and what interpretation would you lay upon the heavier reliance upon borrowing, rather than equity investment in the less developed countries?

Mr. Kissinger. I believe that you have identified, Mr. Chairman, a very fundamental problem which has not yet found a solution and which, over time, could produce a very severe economic crisis. I believe that these surpluses, translated into debt, lend themselves to all sorts of manipulation and that, even if they are not deliberately manipulated, create the

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following kinds of difficulty.

Most of these surpluses are invested rather short-term and are lent out rather longer-term. Therefore, there is the possibility, even without bad intentions on anybody's part, that a series of decisions taken on strictly economic grounds, could produce very grave difficulties for some of the lending institutions. This is on top of the possibilities of default by the borrowers.

If deliberately manipulated, these short-term investments could, of course, compound the difficulty.

Secondly, many of the developing countries have been forced to borrow, by their own growing balance of payments deficits, which have doubled since 1973, and I believe that the commercial banks have played an important role in preventing an even more severe deterioration of the conditions of the developing countries. However, the structural problem exists and must be urgently dealt with.

As you know, Mr. Chairman, I recommended in 1975 the creation of a Financial Support Fund to take care of crises that might develop as a result of the short-term borrowing and long-term lending, a fund that was approved by all the industrialized nations at our recommendation and that we, then, finally failed to ratify.

There is now under discussion, I believe this week, in Paris, a proposal to create a new facility in the International

lb

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Monetary Fund which would enlist a 50 percent contribution from the OPEC nations and which could perform some of the role that was envisaged by the Financial Support Fund. I hope that they will move urgently towards creating this facility and if the fund for this facility are placed into it on a long-term basis and if no political conditions, directly or indirectly, are attached to it, the IMF could play a major role in dealing with some of the problems which you have correctly identified.

However, if political conditions are a factor, or if the funds are not put into it on a sufficiently long-term basis, then we may face the problem that we are relying on the very funds that will be causing the crisis to help us solve the crisis

The reason that I supported the Financial Support Fund was that its resources could act as a safety net in case money was not available or was being manipulated in a politically disruptive way. If it can be done with the assistance of money, so much the better.

But I believe, Mr. Chairman, you have identified some very serious problems, and I think the international financial system must be geared to meeting them; otherwise, we may find a multiplying succession of defaults at that critical moment.

Senator Church. We have spent the last six months identifying those problems and I must admit to you, we have been much more successful in identifying the problems than in finding the solutions. They seem to be quite elusive.

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3-17

Senator Case?

Senator Case (presiding). Thank you.

We welcome you back, sir. It is nice to see you again.

Carrying along, in a way, in the line of questioning that Senator Church has followed, do you think there is any substantial chance for less developed countries, by and large, to become less less developed without imposition of dictatorial regimes upon their people?

Is there not an almost irresistible tendency, as soon as a little surplus arises, to spend it on Coca-Cola, Hondas, and perhaps other forms of perhaps harmless but frivolous ways that prevent the accumulation of capital in those countries and real development? Is there any example of the old theories that were so fervently held by people like Max Milliken and others of the developmental process really coming into operation, really providing countries with a take-off and justifying all of the kinds of things that we have been doing on the general assumption that this was the thing to do?

Mr. Kissinger. Senator, I am reluctant to supply material for the charges of moral deficiency which have been occasionally leveled against me.

Senator Case. You are an elder statesman now. You can view this from outer space, in a sense, and really give us some perspective.

Mr. Kissinger. Viewing it from outer space, one would have

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to say that the conditions for parliamentary democracy, as it developed in Western Europe, were characteristic of very special conditions in societies in which the process of industrialization was relatively slow, compared to modern standards, in which it was managed by relatively small groups of upper middle-class and aristocratic societies that gradually enlarged the franchise; and that it occurred under conditions in which free enterprise and laissez faire capitalism were elevated into a moral principle so that people did not resist politically the economic deprivations that this particular process imposed on them until it was well along and there were enough surpluses to take care of the needs of social legislation.

So looking at it historically, one would have to say that the special conditions under which parliamentary democracy, as we know it, flourished in Northwest Europe and in the United States, with a different constitutional system but the same principles, those special conditions do not exist in most other countries. And in many other countries, there does not exist either this degree of national consciousness and national cohesion which makes an alternation between majority and minority bearable for those who lose power and which makes the acquisition of power by others not a matter of life and death.

So it is for all these reasons, plus the fact that revolutionaries generally do not make revolutions in order to become dispensable that Marxist theories or other forms of authoritarian

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rule have become more and more prevalent throughout the develop-
ing world. I think it is no accident that the expectations that
were previously held in the '50s that development would auto-
matically leads towards democratization have not been fulfilled.
Indeed, many governments have found it easier to impose the
discipline that is needed for industrialization through authori-
tarian methods, rather than through democratic methods.

On the other hand, while the hopes of the democratization
of political life were not fulfilled as rapidly as the authors
in the 1950s believed, it is probably true that there is inher-
ence in the process of economic events a process also of educa-
tion, of the creation of new groups of people that have an in-
terest in predictability, in some sense of justice, so that at
least progress towards some of the elements that were represent-
ed in our Bill of Rights tends to be necessary in order to spur
the process of industrialization; and so that the humane concerns
which, in my view, are correctly emphasized by the Administration
and which must be an American objective, (that these concerns) will
be fostered by the process of industrialization, though over a
longer time span and in a much less automatic way and with many
more setbacks than we so hopefully envisaged in the 1950s.

Senator Case. I think I will just stop now and turn you
over to Senator Javits.

I want to thank you for a very thoughtful answer on that
point.

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Senator Javits. Dr. Kissinger, we welcome you here very much. Your testimony can be extremely valuable. OPIC is not only at issue but at stake, and I believe it involves, as you have correctly perceived, the whole participation of private enterprise in the development process: Just where does it fit? What can it do? What can it not do?

Now, personally, I thoroughly agree with you about the safety net. I think we are making a shocking mistake in junking it. Even the Witteveen facility, to which you testified -- though you didn't call it Witteveen -- is inadequate, because it is not enough money. It may be $12 billion; we hope it would be $15 billion. It has got to be divided and largely will go to developing countries, whereas the developed countries need it as a protection against what you have properly pointed out to be OPEC tyranny of one kind or another, economic tyranny.

I just don't understand ourselves; I really don't. With well over $200 billion export and import trade, an enormous amount of investment in the world, and the stake of the world dependent upon it, we can't get together on a safety net of $25 billion. It is beyond me and apparently it is beyond you.

Mr. Kissinger. I agree completely.

Senator Javits. Now, in your speech to which Senator Church referred, you said the following, and I would like to read it back to you -- the New York speech on private enterprise.

It is on page 28 of the text:

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"Developing countries have a right to ensure that private capital is admitted in areas or ways consistent with the national priorities and legitimate regulations of a sovereign government. But investors and the industrial nations have a right to know in advance what the ground rules are, and not to have them altered arbitrarily and capriciously in the middle of the game."

Now, is that your creed respecting private investment in developing countries?

Mr. Kissinger. Yes. This reflects my view exactly.

Senator Javits. And is the great failure which we have seen so far the inability or unwillingness -- and since Paris, I have to add the latter; that is, since the last Paris dialogue in June -- to agree upon ground rules for investors and industrial nations in investments in developing countries?

Mr. Kissinger. I think we have not been able to agree on these ground rules, and I believe that they represent the key to an expansion of private investment.

Senator Javits. And just like the situation of OPIC and private enterprise, you can have great theoretical feelings about where you want private enterprise to go, but private enterprise has got something to say about that too. That is our problem in OPIC: sure, we would like it to go to the poorest countries and stand in for our development, but private enterprise doesn't see it that way, unless these poorer countries are going to give it some kind of an opportunity to do its job.

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Mr. Kissinger. And in fact, the poorer countries sometimes have the economic conditions in which private enterprise could operate, if the political conditions could be created to provide security.

Senator Javits. So that we are engaged here in a proposition which will take a great amount of self-help -- you would agree in that -- by the countries which themselves need to be the most benefitted?

Mr. Kissinger. OPIC cannot substitute for the political framework, but once it exists, it can be a tremendous help within that framework.

Senator Javits. Moving now to the other criticism made -- and Senator Church has made it and he, I think, speaks the part of those who have grave doubts about OPIC; he has had for some time; to wit, the limitation of the number of countries in which OPIC has done most of its guaranteeing, to wit, Brazil, Korea, Taiwan, The Philippines, Jamaica -- one might add a few more, but nonetheless, that is most of the list. What do you conceive, from your own experience, Dr. Kissinger -- and that is what we are drawing on today -- as the benefit of development and investment even in those countries, which are doing better than other countries, the benefit to both ourselves, in terms of the desire to have a more prosperous world and the benefit to the poorer countries? Is there a benefit and if so, what is it?

So that even if they are success stories -- let's put it that

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South discussion of issues of development and other issues. I think it is against the national interest of the United States to polarize the world between the haves and the have-nots, between a small group of rich countries and a large group of countries that are so resentful of the existing system that they support any radical attack on the existing system.

I believe that the countries which you have mentioned, or a large number of them, or a middle-class group of countries, can act as a bridge between the industrialized countries and the developing countries, sharing some of the problems of each of them, and can, in time, take on a part of the development burden and can, in any case, play a useful mediating role.

Thirdly, I think they can help in constructing this framework of ground rules which you quoted from my other speech.

So even if the charge is correct, I would believe that it nevertheless indicates that it is in our national interest to have economic development spread to a group of countries that can become increasingly responsible members of an economic arrangement which will, in turn, then, help the poorer countries to make their efforts.

Senator Javits. If you add two countries to this list, which I think deserve to be added, to wit, Nigeria and Mexico, as these two are kind of in between poverty and the threshold, wouldn't you add a further argument to your point that they can each be the linchpins in their areas, to wit, Asia, Africa, and

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Latin America, for regional efforts to advance development?

Mr. Kissinger. Exactly.

Senator Javits. One last question from me and then, with
Senator Case's permission, I will ask the questions that Senator
Humphrey wanted to ask you, and we will get you out of here in
a few minutes.

The last question I had is, what do you think, Dr. Kissinger
ought to be our course considering the -- you have yourself used
the word resentful attitude among the developing countries. We
see a good deal of that and the confrontational rhetoric which
relates to any effort to work our cooperative means between de-
veloped and developing countries to advance development. We see
the end of the so-called North-South dialogue in Paris and the
remission of these discussions on raw materials prices, on trans-
fers of technology, on ground rules for private investment, et
cetera, to a diversity of international agencies which haven't
been able to do much about it up until now -- and that is why
we had the GIEC, or the North-South dialogue.

Give us your advice, Dr. Kissinger. Where do you think we
go from there? What do you think we ought to do?

Mr. Kissinger. I believe that the North-South dialogue has
to be restarted in a more institutional framework than simply
through the network of existing international institutions. The
basic problems in the North-South dialogue are not technical;
they are political. They are the insistence by too many of the

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developing countries on the dialogue in the form of
a confrontation and to use it partly for domestic posturing and
partly to act out some drama often of concepts of Marxist orien-
tation.

It is also due in part to the reluctance of some of the
industrialized countries to understand that it is in their own
long-term enlightened self-interest to take a generous view
towards some of the concerns of the developing countries, espe-
cially with respect to income security, again, especially in the
commodities field.

My recommendation would be that we seek an early opportunit
as a country, to restart the dialogue and to see whether we can-
not agree on some fundamental objectives outside an area of con-
frontation, some fundamental objectives and some fundamental
institutions which could help this process, in which both sides
give up the theology of whether or not we are aiming for a new
economic order or a refurbishing of the old order, but rather
ask ourselves what the fundamental problems are that we are try-
ing to solve; because in confrontation, there will be disaster
for everybody.

In the long term, we cannot have a world that is at peace
and has a sense of justice if the majority of the world's pop-
ulation feels excluded from it, nor can we have it if the indus-
trialized nations feel that they are being dealt with by methods
of extortion.

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So this, I would think, is one of the areas where the new Administration has an enormous opportunity and could make a great contribution to establish an international order that is perceived as just and that meets the aspirations of the peoples of the world.

Senator Javits. I must say, Dr. Kissinger, I thoroughly endorse that. I shall do my utmost to promote. I think it is a great mistake to abandon the CIEC and the North-South dialogue. I protested against it. I was there as a delegate, and I shall do my best to bring it back into being. I don't think there is any substitute for it.

We have been too stiff-necked, just as the developing countries have been too stiff-necked. I am myself responsible for a characterization of the attitude of the developing countries on occasion, which I haven't heard elsewhere, but I suppose there is nothing new about it. It is the tyranny of weakness, and that can be a tyranny too, and that is what has happened.

I am terribly worried about what Senator Church pointed out about the banks. I have called it to the world's attention time and again. But the best way to bail that out is to see that the LDCs are credit-worthy and what has failed to be realized -- and I shall then be through and we will go to Senator Humphrey's questions -- is that the OPEC ability to exact from the world whatever price it wants on oil is heavily attributable to the support of OPEC by all the developing countries. It is a fantastic thing. It is killing them, but they support it. It is

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unbelievable.

Mr. Kissinger. OPEC is using up all of the world's assist-
ance confined to the developing countries.

Senator Javits. Exactly, and they are helping them, and they
are supporting them out of sheer resentment.

Mr. Kissinger. That is correct.

Senator Javits. Now, Dr. Kissinger, here are Senator
Humphrey's questions. Where you have answered them -- because of
your own time -- is you would just say that you have already
answered them.

One, does the very large increase in commercial bank lending
to the developing countries constitute a serious weakness in the
present international economic system, or is it a healthy devel-
opment indicating greater LDC access to private capital markets?

Mr. Kissinger. I believe I have already answered that
question in dealing with Senator Church.

Senator Javits. Two, there seems to be a significant shift
from equity to debt investment in the LDCs in recent years. You
have been through that one.

The third question relates to the concentration of invest-
ments in these countries, so-called middle countries. You have
answered that.

One question I don't think you did answer. "To what ex-
tent should our aid" -- that is, public aid -- "to private
investment seek to differentiate between Third World and Fourth

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World countries?

Mr. Kissinger. Fourth World being the poorest?

Senator Javits. The poorest, non-resource countries.

Mr. Kissinger. In terms of public aid, I believe that we should put considerable emphasis on the poorest countries. In terms of private investment, the facts are that we cannot dictate to private investment where it should go. All we can do is to create incentives for it.

The greatest contribution that the Fourth World countries could make to private investment is to create the political conditions in their country that would make private investment seem less risky, and for us to create institutions such as OPIC, or support institutions such as OPIC, which would further reduce that risk.

Senator Javits. There are two other questions you have not answered. What are the major arguments for greater US concern with the developing countries, interdependence, need for raw materials, or humanitarian concerns?

Mr. Kissinger. I would not like to put a priority among these concerns. I think the United States has to stand for certain values if it is to have a policy that people can support and if it to stand for something in the world that is distinct.

At the same time, the fundamental fact of our contemporary period is the economic interdependence and the political interdependence of all the countries in the world, so that isolated

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policies are now disastrous for everybody.

So I would say that all of these concerns have to be part of our policy towards the developing countries, and that they come together in the proposition that the overwhelming problem of our period is to construct a world order in which all countries have a sense of participating because they share in its construction and share in its benefits; and that we cannot have the majority of the world's population feel excluded in a world of instant communication because the political and international turmoil and economic turmoil that this will cause over a period of decades will be disastrous for all hopes of peace and progress.

Senator Javits. My last question is as follows: How does the drive to promote appropriate technology in the less developed countries fit the pattern of multinational investment? Can multinational corporations be persuaded to become active participants in the transfer of appropriate technologies?

Mr. Kissinger. I have always believed that one of the concerns of the developing countries that the industrialized countries ought to be able to meet most easily is the transfer of technology; and yet, this is an area in which progress has been relatively slow because we have had difficulty meshing our institutional framework with the need of the developing country.

Just before I left office, we had a conference at the State Department, to which we invited leading multinationals, private institutions, such as universities, to see whether one could come

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up with some coherent approach to the problem of technology trans-
fer. It seemed to me then, and it still seems to me that we, as
the technologically most advanced country, could make a tremen-
dous contribution in this field, if we can just disentangle our-
selves from some of our inhibitions.

I had the sense that the attitude of all of the partici-
pants there was extremely constructive and that here we have an
opportunity to tap our private sector, taken in its widest sense,
and to do so at relatively little expense. So I think that this
is an area to which, again, the new Administration might give
considerable attention and with which they could respond to some
of the most frequently voice-aspirations of the less developed
countries.

Senator Javits. Thank you, Dr. Kissinger.

Thank you, Senator Case.

Senator Case. Thank you very much. You are a few minutes
late, so beat it. We are very much obliged to you for coming up
here, and appreciate your giving us these thoughtful answers and
so much invaluable help.

Our next witness is Mr. Poats, the Acting President of OPIC.
We have invited him to return to testify on some of the points
raised last Friday and last Wednesday. In particular, there
were issues raised by the GAO report on the Investment Insurance
Program concerning the effort to obtain participation by private
insurance companies in the insurance program that you may wish