cated about this at all. It is just the kind of thing that you, yourself, would do. They ask you to give up your job here and take your money and go down to some place in the Tropics. Why in the world would you go down and start in business if they are apt to confiscate your property? You would say, "I don't want to go there. I will stay here."

Or they want you to go some place up at the North Pole, the north regions. Why in the world would you do that? If they come to you and show you that there is some copper or gold or iron up there, and you can get a group of your fellows together and go up there and develop something that is worthwhile, and spend enough money to make living worthwhile when you get there, and give a lot of employment to people after you get going, then you go and do it, provided conditions of the country were favorable.

Mr. WIDNALL. Does the stimulous for this type of operation come from the country itself, or come from our desire to aid in developing those countries?

Secretary HUMPHREY. It is both. It has to come from the country itself, it has to come from having something worthwhile to go for, and it comes from us ourselves wanting to get people to do that because the world is a better world to live in if we have more people in better shape.

Mr. WIDNALL. If the government of a country actually wants this venture capital, why, then, are they not willing to enter into any kind of a government guaranty for it, when they are trying to encourage calculated risks on the part of the United States and other countries for investment there?

Secretary HUMPHREY. There are two sides to that. We are trying to stimulate private enterprise and private enterprise ought to operate without government guaranties. That is, as to financial guaranties. If the government furnishes the right kind of a climate for business to be done in and the right kind of laws to operate under that is about all the government ought to have to do.

If a business can't succeed under those conditions, then perhaps it better not be started. If the government furnishes the right kind of climate, and offers the right kind of laws to operate under, and there is something worthwhile to do, something you can make and sell, and a market that can be developed or production that can be developed, or something of that kind, then you want to stimulate private capital to go in there and manage it, because that is the way you get your best and fullest development.

Mr. WIDNALL. Will development of enterprises in those countries lead to further competition with American goods?

Secretary HUMPHREY. In some cases, it may. On the other hand, if it does it will mean that we are developing markets that will be added markets that we will have available to sell to. It will work both ways.

Mr. WIDNALL. Essentially, the difference between this proposal and the operation of the International Bank is, first, that it will provide venture capital, and second, loans will not have a government guaranty?

Secretary HUMPHREY. That is correct.

The CHAIRMAN. Your time has expired.
Mr. WIDNALL. Thank you.

Mr. PATMAN. I am talking about something that is not as prosperous or attractive, like sulfur, oil, gas, and things like that. Will you remind me when my time is up?

The CHAIRMAN. I am not keeping time on you. I believe you have 2 more minutes.

Mr. PATMAN. I think you are rather generous, but I want to ask some more questions. We will have another chance at him when it comes around.

Mr. Humphrey, where, for instance, in this place in Texas where they need this cement, a quasi-monopoly prevails, and the monopoly has interest in banks there, too; the banks don't want any competitors. Naturally, they don't. I don't blame them for it. It is part of the private enterprise system. The banks won't put up this money because it would be putting a competitor in business with some of their directors and stockholders. I don't blame them at all, and I am not condemning them for it.

We went to the insurance companies. They have lots of money, but they are separately situated. They won't let us have the money, either, because it will be putting somebody else in competition with them. In a case where it is shown to you conclusively that they cannot get capital at a reasonable rate anywhere in the United States, and they are suffering from a severe cement shortage, and have the raw materials to make it, and it would be a profitable operation, do you think the IFC should put up the money the same as in Arabia?

Secretary HUMPHREY. First, I don't believe what you say is true, Mr. Patman. I don't believe that exists. I personally think that there isn't any place in this country where, if there is a legitimtae opportunity to do business and make money at it, with good management, that you can't get money together to go into that place and do business.

Mr. PATMAN. I will assure you that we will convince you. I know that you don't want to be convinced, but we are going to convince you, and we will be sitting on your doorstep when you get this thing organized and asking you for a loan.

Secretary HUMPHREY. You make it sound so good that perhaps you will induce me to resign as Secretary of the Treasury and go down there in the cement business.

Mr. PATMAN. That could be.

The CHAIRMAN. When you convince him there is no money in Texas, I believe I will try Kentucky.

Mr. Multer?

Mr. MULTER. Mr. Brown is next, Mr. Chairman.

Mr. BROWN. Isn't there oil in that area?

Mr. PATMAN. Yes; there is oil there, but these people don't know anything about cement or steel or many other things. This oil money is in a groove.

The CHAIRMAN. The Secretary said if you are qualified, you are eligible.

Mr. Multer, you have 5 minutes.

Mr. MULTER. Mr. Secretary, will you submit to us a copy of the proposed agreement under which this corporation would be organized? Secretary HUMPHREY. Yes.

Mr. MULTER. Mr. Chairman, when that comes up may we have it made part of the record—the proposed agreement under which this

corporation would be organized? The agreement between the participating countries, that is.

There is no reason why it cannot be supplied?
Secretary HUMPHREY. No reason why it cannot.

(The Articles of Agreement of the International Finance Corporation, referred to above by Mr. Multer, has been printed as H. Doc. No. 152.)

Mr. MULTER. I would like you to tell us what the difference will be between the lending activity of this new corporation and that of the Export-Import Bank and the international bank?

Secretary HUMPHREY. Of course, that is a question you could talk a long time about. I will try to make it very brief and you will understand that that doesn't cover all the detail.

Very briefly, the international bank is a bank that is formed to provide semigovernmental capital, development capital, in underdeveloped countries around the world, under a governmental guaranty of the obligation. The Export-Import Bank is primarily designed to aid the exports and the imports into and out of the United States of America. And those are both banks, and they both are supposed to make loans where there is a reasonable expectation of repayment and at a fixed rate of interest.

The IFC is in the nature of filling a gap that those two institutions cannot supply-in the nature of semiequity capital. It is a semiequity arrangement by which the additional equity capital can be induced to come in behind what are regular standard loans.

Mr. MULTER. You and I know that you may have a working capital loan where there will be reasonable assurance of repayment of it, and also an equity capital loan with reasonable assurance of repayment of it. You used that very phrase. The existing two banks lend only where, and that is one of the requirements of their charters they lend only where there is reasonable assurance of repayment.

Secretary HUMPHREY. That is right.

Mr. MULTER. Are we to understand that element will be excluded from the lending authority of this new corporation?

Secretary HUMPHREY. No, but there are degrees of expectation of repayment. When you buy a bond you want a certain degree of security and expectation of repayment. You buy a stock interest in a company and you have a somewhat different measure. You still want a good security-you don't want to buy into something you think is going to be a failure-but you have a different measure of the security and a different measure of the prospective income, when it might come, how long it might be delayed and all those things in the development of a business.

Mr. MULTER. Is it intended there be a calculated risk to a greater extent than the other two organizations undertake when they make this type of loan?

Secretary HUMPHREY. That is correct, a greater degree of calculated risk and a greater degree of possible profit.

Mr. MULTER. You indicate the interest rate will vary from country to country?

Secretary HUMPHREY. Each thing will have to stand on its own. Mr. MULTER. I wonder if you could tell us why your representative on the Small Business Administration Loan Policy Board has recom

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mended that there be a uniform interest rate throughout this country, even though the rate charged by banks varies from region to region? Secretary HUMPHREY. Well, I suppose that that is really more letting people have an idea of what they can have, and to prevent the claims of favoritism-governmental favoritism, and that sort of thing. That is quite a different field, and it is quit a different purpose. I imagine that is with a view to trying to be as fair as possible all along the line.

Mr. MULTER. Don't you think the same principle ought to apply in this country as we intend to imply in this bill?

Secretary HUMPHREY. No; I don't think you have the varying degrees of risk. Not only that, but those also are loans, not equity investments. This, after all, is

Mr. MULTER. I wish you were right in that. We intended, I am sure when we set up SBA, that there be equity loans, but they are not making them.

Secretary HUMPHREY. An equity loan is a very difficult thing to develop. The amount of risk that you can take, the amount of interest that you can get, have to be weighed together and if you are making a loan which is at a fixed rate of interest, you have to have a lesser risk because you do not have the expectation of earnings to offset losses, so that if you have losses the greater risk you take the higher of your percentage of losses will be.

Mr. MULTER. Therefore, the higher your interest rate should be. Secretary HUMPHREY. And, therefore, the greater your return should be. That is why, with stock, you can afford to take a greater risk than you can with a loan of some kind.

Mr. TALLE. Will you yield?

Mr. MULTER. I have another question on this same subject.

Actually, the reason for setting up this lending agency this way is so that our Government will not get into the business as a stockholder and will not participate in the management?

Secretary HUMPHREY. The reason it is set this way is so that the IFC will not be in a management position. It can be and probably will be an equity position-a convertible debenture-holder position, or something of that kind, but not with management responsibility. Mr. MULTER. I notice you indicate that in some instances the local concern will pay interest only to the extent that it earns enough to pay. So even though there is a greater risk you may actually take less interest. Is that because you are going into a new field, and this is an attempt to build something up in an area where they can't get the money otherwise?

Secretary HUMPHREY. Not necessarily. When you make a loan on which the interest is paid only if earned, you have a higher interest rate than you do if you have a fixed interest rate.

Mr. MULTER. There is a possibility of never getting either principal or interest.

Secretary HUMPHREY. You may not. On the other hand, if you do get it you can get a lot more. Therefore, you can take the risk because if you take 10 and 1 goes sour, you make enough on the others to offset the 1.

Mr. MULTER. I misinterpreted what you said at page 2 when you said securities will bear interest only to the extent that the local concern earns enough to pay it.

The interest rate may be a high rate depending on the risk, yet it will depend on earnings as to whether it will be paid?

Secretary HUMPHREY. That is right. It might be. There are loans made all sorts of ways.

The CHAIRMAN. Your time has expired.

Secretary HUMPHREY. There are loans made that pay where they can, or where the interest accumulates. There are loans that have penalties when that occurs. There are loans that are made easy, say, in convertible debentures where the interest is only paid on the convertible debenture if it is earned, but if it is earned then that debenture becomes very much more valuable, and you can turn that over at a substantial profit to reimburse yourself for losses that you might sustain elsewhere.

Mr. MULTER. Thank you, Mr. Chairman.

The CHAIRMAN. Dr. Talle.

Mr. TALLE. Mr. Chairman.

The uniform rate applies only to direct loans, does it not?

Secretary HUMPHREY. That is right. You are talking about small business?

Mr. TALLE. Yes.

Secretary HUMPHREY. That is right.

Mr. TALLE. We should keep in mind that the uniform rate is restricted to direct loans.

Secretary HUMPHREY. That is right.

Mr. TALLE. Unless I am misinformed, that is standard practice in the Veterans' Administration in lending on insurance policies. Secretary HUMPHREY. That is right.

Mr. TALLE. The same rate is paid all over the country.

Mr. MULTER. Insurance is equal security no matter where he may live or what his earnings may be. Like any insurance company loan, he borrows against the paid-up or cash value of his policy.

Mr. TALLE. Direct loans are made at a standard rate, and I think the two are comparable.

Now, Mr. Secretary, if I may, I should like to read the last paragraph on page 1 of your statement. I think that is sound economics, and very good Amercanism. It has been true since the early days of the Pilgrims at Plymouth. They settled there in 1620 and soon decided to instiute the basic principle called private property and private enterprise. I am quoting:

The International Finance Corporation has been proposed as one way of encouraging new foreign private investment. The IFC is to serve as a catalyst in stimulating private investment. It is not another type of government-togovernment aid. Instead, by assisting private ventures on a business basisand I would like to underscore that

the IFC will give concrete expression to the basic American conviction that economic development is best achieved through the growth of private enterprise.

I certainly would like to give my blessings to that statement, and if we don't follow a policy of that sort we will not encourage borrowers to stand on their own feet.

That is all, Mr. Chairman.

Secretary HUMPHREY. I certainly believe that, Mr. Talle.
The CHAIRMAN. Mr. O'Hara.