rience which the World Bank in these years has been accumulating in a rather pioneering venture.

Mr. REUSS. If that is the case, and if World Bank employees are apparently to wear 2 hats, 1 a World Bank hat and the other an IFC hat, why bother with 2 organizations and 2 hierarchies and tiers of officials?

Mr. TENENBAUM. It would involve a revision of the charter of the International Bank. It seems that it would be more advisable and appropriate to do it this way than the other way around.

I think this is more a technical question, and it seems to be easier, particularly as this is something new. It is a new pioneering thing, and experience will see how it works out.

Mr. REUSS. If it turned out that the method of amending the World Bank charter so as to permit this new function was more in the interest of economy and efficiency than to pass into existence an entirely new organization, the Washington Board of Trade would be for that more economical and efficient method; would it not?

Mr. TENENBAUM. I wouldn't be able to say what the position of the Washington Board of Trade would be, but our position has been generally to support and encourage all measures and proposals of the Government which try to promote more world trade and foreign investment. It is from this point of view that we have been supporting this thing. I think these technical questions can be worked out among technicians, who know how to do these things, and the future will tell what should be done.

Yet, you have to remember that right now the world economy has fortunately come back to a stronger position, and we are at the beginning of a new era. There are all sorts of things involved. We are somewhat pioneering in this field, and experience will teach what will be the best way.

The IFC will, among other things, accomplish one thing, of substituting more private enterprise and initiative to public entrepreneurial activities which have been taking place in many of the underdeveloped countries. We think this should be left to private enterprise rather than having the governments do it under State auspices. Mr. MULTER. Mr. Reuss, will you yield to me on that point?

Mr. REUSS. Yes.

Mr. MULTER. I think the reason it is being done this way is this. would be the more effective and expeditious way of setting it up. The idea is not that there is any feeling against putting this power into the World Bank. Remember, the World Bank was organized first by all these countries, agreeing to the charter. Then so far as this country was concerned we had to enact legislation to permit our country to go into it, and to approve what was done.

We must go through that same procedure, whether we do it this way or by an amendment of the World Bank charter. The desire is to keep the two, at least while this is in the pioneering stage, independent of each other. If you are going to do it by an amendment of the World Bank charter, you run into all sorts of administrative difficulties, and you have to come back to the Congress in any event to approve that change. This is a change in substance rather than just an incidental power of administration.

Mr. REUSS. Yes, although I should think, Mr. Multer, that it might be sensible for Congress, if it is going to pass legislation of this sort,

to give the administration the option of proceeding either to set up a new organization or to proceed for the amendment of the World Bank Charter. I certainly would be loath to seeing a whole new organization come into being if its functions were so like an existing organization that we had better give that initial organization initial power. Mr. MULTER. The difficulty is that you must work up in a charter of this kind all these details, by negotiation and agreement, with all these various countries, 56 of them, as to this particular charter. That confronts you with all sorts of difficulties in trying to get it all agreed upon first. If we are simply going to give them the power, we might give them too much power by the enabling act, and may not like what they come up with. This way we have an agreement that was negotiated, they come in and give us the result of the negotiation, and say "This is what we would like to do. You either approve or disapprove."

We can approve or disapprove, or we can impose additional conditions. In each case you are dealing with many different countries. It would be extremely difficult, I think, to do it by amendment of the World Bank Charter rather than this way, even though actually it would be the one bank running both institutions.

Mr. REUSS. I thank the gentleman from New York.

I just have a couple of more questions on the subject explored by Mrs. Griffiths, and that is this:

As I understand it, the form of investment, while it can vary a good deal, is basically one of a loan or debenture, either for a fixed rate of interest or for a rate of interest fluctuating with the profits of the corporation in which the investment is made, and there is a further provision that, to the extent possible, these direct investments will be sold to private investors, as soon as they may be; is that correct? Mr. TENENBAUM. That is right.

Mr. REUSS. I have this difficulty with the proposal: It seems to me from what I have heard that the good investments, the nonsour investments, would, of course, be promptly gobbled up by private investors who would be just delighted to get in on a good thing. The sour ones, of course, would be left in the lap of the International Finance Corporation, and when you couple that fact with the fact the International Finance Corporation is by the proposed charter not enabled to invest in stocks of the Corporation, I would be afraid that you would find IFC stuck with a good many lemons, and it couldn't even exercise the normal control of a common or preferred stockholder with regard to those lemons. It would just be a poor old debentureholder that would be not entitled to participate in the management of the company, even though it felt that the management of a particular company was very bad.

If those fears of mine are true, isn't some strengthening of the proposed charter of the IFC needed?

Mr. TENENBAUM. Experience will show whether it will be needed or not, but, on the other hand, I would like to say this, that the International Bank for Reconstruction and Development has an extremely able and efficient management, and it has an excellent reputation throughout the entire world. I personally, through my familiarity with these things, am rather doubtful whether there will be any lemons or any at all, knowing some of the people who will have to pass on the loan applications. You have to deal in any venture

of this sort with certain human elements, such as experience and capability of people.

I think that we can trust the International Bank because they will be basically the same people to administer it and there will be very few lemons if at all.

Mr. REUSS. I hope, sir, you are mistaken in that because unless there are some lemons it seems to me the IFC wouldn't fulfill its functions providing risk capital. Risk capital implies there are some losses. What I am concerned about is as to those investments which show come dangers of becoming losses the IFC under the proposed charter would not be enabled to exercise the normal controls of equity management. It would merely be in the form of a debentureholder, and if it saw a company headed toward destruction there isn't much it could do about it.

Mr. TENENBAUM. I have the impression that the people and the management of the World Bank-the board of directors would be the same for both IFC and the World Bank-that they want to make out of this a success, and they will do everything possible to make it a success. And they have their reputation at stake in this venture. I will even go so far, and I say that in my own capacity, and not on behalf of the Board of Trade, that even if it turned out that there would be failures it would be certainly worthwhile, maybe to lose a million or $500,000 in 1 or 2 ventures, if the operation, on the whole, on a broad scale, were successful, because this loss will be made up in the long run by gains in other ventures. It will be worthwhile, even if you look at the risk aspect of any venture.

Mr. REUSS. I agree with you that you can't make an omelet without breaking eggs. I was just concerned that as to broken eggs we have some power to cut our losses there.

Thank you.

Mrs. GRIFFITH. Would you yield?

Mr. Chairman, may I ask one more question?

Mr. REUSS. Yes.

The CHAIRMAN. Mrs. Griffiths.

Mrs. GRIFFITHS. As a matter of fact, the International Finance Corporation has to guarantee securities of private investors, does it not?

Mr. TENENBAUM. No, they don't have to guarantee it. They will put up a certain portion of the money and the bulk of the money will be put up by private investors. They supply only the marginal part in the form of debentures. There is no guaranty involved.

Mr. FOUNTAIN. It has the power to guarantee securities.
Mrs. GRIFFITHS. Section 6 says:

In addition to the operation specified elsewhere in this agreement, the corporation shall have the power to guarantee securities in which it has invested in order to facilitate their sale.

It has the power to guarantee.

Mr. TENEBAUM. I don't have the text before me.

Mr. MULTER. Will you yield?

Mrs. GRIFFITHS. Yes.

Mr. MULTER. I think that is intended to permit them to sell to the public the loans or the securities, on which they make a loan in the first instance. In other words, the bank makes a loan to a company, takes back a mortgage, or a bond or other security. It in turn may

sell that. It is impowered to guarantee the payment of that obligation to the purchaser from the bank.

Mrs. GRIFFITHS. Thank you.

Mr. ASHLEY. May I ask a question, Mr. Chairman?

The CHAIRMAN. Mr. Ashley.

Mr. ASHLEY. Is there any guaranty that you know of that the IFC will make possible venture capital which I agree is needed in underdeveloped nations; will make this venture capital available to underdeveloped nations, as against nations which are in a state of development?

You, for example, mentioned Brazil, which I don't believe in my mind I would classify as an underdeveloped nation. I wonder if there is any classification of nations with respect to state of development, and if there is any provision that you know of that would direct this venture capital to the nations that need it most?

Mr. TENENBAUM. Here in article I of the charter as I have it here in the document, it says:

The purpose of the corporation is to further economic development by encouraging the growth of productive private enterprise in member countries, particularly in the less developed areas, thus supplementing the activities of the International Bank.

So nothing is exclusive in this thing. The emphasis is on the development of the so-called less developed areas.

With regard to Brazil, it is a matter also of definition and semantics, because there is no doubt that in all of the Latin American countries there are many undeveloped natural resources.

Mr. ASHLEY. The lending power is discretionary, and the authority exercising this discretion would be the Board of Directors of the International Finance Corporation?

Mr. TENENBAUM. Exactly.

Mr. ASHLEY. That is all I have, Mr. Chairman.

The CHAIRMAN. Are there any further questions?

If not, Mr. Tenenbaum, you are excused. We are glad to have your views, and they will be considered when the committee meets in executive session.

The committee will adjourn to meet tomorrow at 10 o'clock.
(Whereupon, at 11:50 a. m., the committee adjourned.)
(The following statements were submitted to the committee:)

Hon. BRENT SPENCE,

DEPARTMENT OF AGRICULTURE,
Washington 25, D. C., July 8, 1955.

Chairman, House Banking and Currency Committee,

House of Representatives.

DEAR MR. SPENCE: We understand your committee is about to consider legislation authorizing, in accordance with the President's recommendation, United States membership in the proposed International Finance Corporation.

This Department strongly supports this recommendation. The Corporation would serve to promote productive private enterprise in friendly countries. It would do so in association with private investors, and it would seek to stimulate the flow of private capital into productive investment in member countries.

This Department supports the President's recommendation because of the great interest the United States has in economic development and the encouragement of productive private enterprise in friendly countries. We believe further that economic development and the expansion of private investment abroad will help to build up larger markets for the many agricultural commodities that United States farmers produce in excess of domestic demand.

We are, at present, confronted with a situation of burdensome agricultural surpluses in the United States and in some foreign countries while at the same time levels of nutrition are extremely low among many millions of people. The principal reason for this paradox is the lack of adequate purchasing power in the less developed areas of the world.

Promotion of productive private enterprise by means of the proposed Corporation could cause a rise in income and purchasing power of these areas several times the amount of capital of the Corporation. Thus it could make a significant contribution to the expansion of agricultural markets and the attainment of a better balance between production and consumption of foods and other agricultural commodities.

The Budget Bureau advises that this proposed legislation would be in accord with the program of the President. Sincerely yours,

TRUE D. MORSE, Acting Secretary.

UNITED STATES COUNCIL OF THE

Hon. BRENT SPENCE,

INTERNATIONAL CHAMBER OF COMMERCE, INC.,
New York 17, N. Y., July 6, 1955.

Chairman, Banking and Currency Committee,
House of Rerpresentatives, Washington, D. C.

SIR: It is our understanding that the Committee on Banking and Currency will soon consider legislation authorizing United States participation in the proposed International Finance Corporation. Since the committee may have available only a very limited amount of time to hear public witnesses, we would like to express by means of this letter the support of the United States Council for the bill under consideration. However, if in addition members of the Committee on Banking and Currency would like to have someone testify in behalf of the Council, we would be happy to arrange for such an appearance.

The United States council is an association of private business enterprises and trade associations which represents the interests of the American business community in the International Chamber of Commerce, a federation of similar organizations representing the business interests of 36 different nations. policy recommendations of the council represent the thinking of American businessmen active in its work and are based upon their understanding of what is the best interest of the United States.

The

The United States council believes that the International Finance Corporation would contribute substantially toward stimulating private investment in underdeveloped areas and thereby assist in the process of economic development. It believes that such development is in the economic interest of our country.

The United States and other advanced nations benefit directly when a developing country is enabled to import goods for its new enterprise and projects. More important, as the process of development results in higher incomes, countries like the United States can expect a continuing and increasing demand from these countries for imports of consumer goods or of machinery and equipment for further development.

The United States council is convinced that private foreign investment can make a unique contribution to this process in that it makes foreign exchange available to the developing nation; it undertakes projects which promise to be productive since it seeks a return; it carries with it technical knowledge and managerial skills.

However, the flow of private capital abroad has been disappointingly small. In order to find out why this has been so and to seek ways in which the flow might be increased, the United States council has participated with the International Chamber of Commerce in a continuing study of this problem. Our experience and study have convinced us that, although there have been improvements in some countries, one of the chief hindrances to a more adequate movement of private investment funds lies in conditions existing in prospective creditor countries-the so-called climate for investment. The threat of expropriation, discriminatory regulations, excessive taxation, and inability to repatriate earnings deter investors from risking their funds abroad.

The council is therefore especially concerned that any proposal for supplementing existing funds for economic development not serve to perpetuate the very conditions which have hindered a more adequate flow of private capital funds.