STATEMENT OF HON. GEORGE MAGOFFIN HUMPHREY, SECRETARY OF THE TREASURY

Secretary HUMPHREY. Mr. Chairman, I have a written statement. I will be very glad to read it or put it in the record. It is the statement that was made to the Senate committee.

I am very sorry to tell you that I am scheduled to be before another committee of the House at 11 o'clock, so I will go right through this and then be glad to try to answer such questions as I can. Mr. PATMAN. Mr. Chairman, if the Secretary is to leave at 11, I have read his testimony before the Senate committee, and I assume other members who are interested in going into this matter have done the same thing. Why couldn't we ask him some questions? The CHAIRMAN. The Secretary ought to have an opportunity to say whatever he pleases about the bill, and if you could make a statement in regard to your position on the bill we will be glad to hear it. Mr. PATMAN. Maybe he will be willing to come back. Of course, we have conflicts with other committees often, but they expect to wait for us just like we wait for them sometimes.

Of course, if the Secretary would rather come back, that would be a different thing.

The CHAIRMAN. Mr. Secretary, you may make a statement in regard to the bill, if you desire.

Secretary HUMPHREY. I will present this statement, then, if I may. President Eisenhower on May 2 recommended action by the Congress to authorize United States membership in the proposed International Finance Corporation. I am here this morning to support the President's recommendation. Appropriate bills, H. R. 6228 and H. R. 6229, have been introduced in the House, and are pending before your committee. A similar bill, S. 1894, recently passed the Senate.

As you know, the IFC will be an international effort to cooperate with private capital in both the capital exporting and the capital importing countries to set up new enterprises, or in some cases expand or modernize existing enterprises, particularly in the less-developed countries of the world.

In recent years there has been a great deal of discussion here and abroad about the need for more investment in such countries. They are anxious to secure capital, to build up their economic development, and to raise the standards of living of their people. This is an objective with which the United States Government has always had great sympathy. Increased capital investment will aid the growth of world trade, and thus be beneficial to us as well as other countries. Private American investors are today placing new capital abroad and reinvesting their earnings from previous investments abroad at about twice the rate of loans made by the International Bank and the Export-Import Bank. This private investment, however, has been largely concentrated in a few lines-oil, mines, and, to a lesser extent, various manufacturing and merchandising enterprises. It has also been pretty heavily centered in Canada and some countries in Latin. America and in the Middle East. These investments have played an important part in developing the countries involved. But a more diversified form of investment would contribute significantly to the progress of the less-developed countries.

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-to-government aid. Instead, by assisting private ventures on a business basis, the IFC will give concrete expression to the basic American conviction that economic development is best achieved through the growth of private enterprise.

The IFC will, we hope, generate an increased flow of private capital not merely by providing financial support but also by giving additional confidence to American and other firms that are interested in going abroad but are deterred by lack of knowledge and experience. I am convinced that there are many companies, mostly middle-sized and small firms, that will engage in overseas operations if they can get IFC participation, but which would not do so solely on their own. I also believe that the proposed clearinghouse function of the IFC, bringing investment opportunities in capital importing countries to the attention of potential investors in the more advanced countries, may prove to be a very important service.

The Corporation will perform a different job from that now being done so well by the Export-Import Bank and the IBRD in financing trade and economic development. The two banks do not advance venture capital. They make loans at fixed rates of interest and agreed schedules of amortization. Before the banks make loans they must have reasonable assurance of repayment. Moreover, in the case of the International Bank, the guaranty of the government of the country concerned is required for each loan. The IFC, on the other hand, will provide venture capital on flexible terms and will operate without government guaranty.

The IFC will not compete with private capital. Its job will be to join with private partners in financing productive enterprises. These partners may be local firms or they may be foreign investors, or both. The private interests will supply the management and the bulk of the capital for each enterprise, while the Corporation will furnish only the margin needed to complete the financing. Where private capital can do the whole job, the Corporation will not enter into the financing at all.

When the IFC project was first talked about, investment in equities was one of the proposed methods of operations. We in the Treasury did not think it would be desirable or feasible for an international governmental Corporation to invest in common stock and to take the management responsibility which stock ownership entails. The present plan has eliminated the equity investment and management features. The administration believes this is a great improvement and supports the project fully in its present form.

Although the Corporation will not hold stock, it will advance capital in various forms appropriate to new enterprises. Its investments in some instances may take the form of obligations with set interest rates, and in others with income dependent upon the earnings of the local concern. This may mean, sometimes, that securities will bear interest only to the extent that the local concern earns enough to pay, and in other instances it may mean that the Corporation will participate in additional earnings over and above a fixed rate. It may also take obligations which could be converted into stock when sold to private

investors by the IFC. The particular form of securities will have to be tailored to the special problems of the particular investment. In all cases it will be expected that private investors will provide the major share of the capital as well as take management responsibility. Moreover, the IFC is not intended to be an international holding company. When an enterprise gets on its feet and the Corporation finds that it can advantageously sell off its investment, it will do so. It will use the proceeds for investment in new enterprises. In this way a capital of $100 million, which the governments are now asked to provide, will be turned over, we hope, many times in the course of the coming years.

The Corporation will come into existence after 30 countries, with subscriptions of at least $75 million, have accepted membership. All subscriptions will be paid in full in gold or dollars. The United States subscription is slightly over $35 million. This amount has been included in the President's budget. Forty-seven countries have informed the International Bank of their intention to initiate the necessary steps to become members, and 15 of these have already signed the articles of agreement, subject to legislative approval.

The IFC, though financially independent of the International Bank, will be affiliated with it. The Bank's Board of Directors will serve as the Board of Directors of the Corporation. The bank's president will be the Corporation's Chairman. Thus the Corporation will have the benefit of the experience and sound judgment which have distinguished the management of the Bank; operating economy will also be assured.

The provisions of the Corporation's articles of agreement are based largely on the relevant provisions of the bank's articles. The legislation proposed for United States membership follows substantially the provisions of the Bretton Woods Agreements Act, which were worked out 10 years ago in this committee.

The Corporation is not an answer to all the problems facing the private investor going abroad. Much will depend upon the attitudes of the host countries to new private investment. We hope the Corporation will be able to influence these countries to take favorable attitudes toward investors. While no governmental guaranty of its investments is desirable or will be requested, the Corporation obviously can operate in any country only if the government is favorable to its activities and to other private investments. In substance, it will operate under the same conditions as private investors do in these countries.

In the present state of international affairs, it is vital that the United States and the other capital exporting countries maintain good economic relations throughout the free world. This should be done as far as possible by the investment of private capital. While the International Finance Corporation is an experiment, it offers a worthwhile chance to increase the role of private investment. I hope that this committee will give favorable consideration to the proposed legislation.

That is the statement which I believe covers most of the points that are involved in this matter.

The CHAIRMAN. How many countries are eligible to subscribe? Secretary HUMPHREY. All that are members of the International Bank are eligible.

The CHAIRMAN. Fifty-six?

Secretary HUMPHREY. Fifty-six countries.

The CHAIRMAN. How many have you now?

Secretary HUMPHREY. I think it is 47, in addition to the United States, have favorably considered, and 15 I think have signed subject to legislative approval.

The CHAIRMAN. What would the subscription of those 15 amount to? Would that be sufficient to begin business?

Secretary HUMPHREY. No. It doesn't begin business until it has $75 million. There has to be $75 million signed up before it begins operations.

The CHAIRMAN. It seems to me this is not entirely a new idea. The last administration was in favor of this theory. Mr. Truman in his point 4 program advocated that very religiously.

Secretary HUMPHREY. This same idea has been discussed for a considerable time in various ways. I think the detail of just how it would be accomplished is a little different than has ever been proposed. One of the principal objections previously held to it was that a governmental body should not get into the management of local enterprise elsewhere. That is provided for here so that we do not have governmental management.

The CHAIRMAN. The purpose is to develop the underdeveloped areas and increase the standard of living, on a self-supporting basis? Secretary HUMPHREY. That is the broad purpose.

The CHAIRMAN. I will ask the members if they have any questions. Mr. Brown?

Mr. BROWN. No questions.

The CHAIRMAN. We will limit questioning to 5 minutes on the first round.

Mr. Patman?

Mr. PATMAN. Mr. Secretary, this is a very interesting proposal to me. In fact, I have no desire to oppose it, but I do want to ask you questions for the record that I think are important, based upon considerable study that I have made of the record so far.

I have read your testimony before the Senate committee and the Senate committee's report, and also statements made by Dr. Burgess, and others, concerning this proposal, and I think the record should be complete. I do not expect to oppose it provided we can get the record to show exactly what is intended and what is going to be done, and what is not going to be done.

It is my understanding that the Export-Import Bank now has available about $2 billion of uncommitted lending authority; is that right? Secretary HUMPHREY. The Export-Import Bank?

Mr. PATMAN. Yes, sir.

Secretary HUMPHREY. About $1.5 billion.

Mr. PATMAN. The World Bank had about $2.2 billion?

Secretary HUMPHREY. Something like that.

Mr. PATMAN. Which could be increased up to about $7.2 million more, if necessary.

Would a private banking group such as a newly organized American Overseas Finance Corporation be expected to participate with the IFC in financing new enterprises abroad?

Secretary HUMPHREY. They might. That would depend entirely upon what sort of an arrangement was worked out.

Mr. PATMAN. Have you, in getting and formulating your plans, discussed this with those who organized this new American Overseas Finance Corporation, like Mr. McCloy, Mr. Dodge, Mr. Rockefeller, and others?

Secretary HUMPHREY. They presented what they were going to do. We discussed with them what they were going to do, but I don't know that we have ever discussed the International Finance Corporation with them. They may never have anything to do with each other, and they may. It would all depend on what happened.

Mr. PATMAN. These articles of agreement are a matter of public record any place? I notice in the President's message they are, but have they ever been embodied in a bill that was composed or any of the proceedings of the Senate?

Secretary HUMPHREY. I don't know.

Mr. PATMAN. Do you know, Dr. Burgess?

Mr. BURGESS. They are in the Senate hearing report.

Mr. PATMAN. Under these articles of agreement, the IFC is given power to guarantee securities, in which it has invested, in order to facilitate their sale; is that correct?

Secretary HUMPHREY. What?

Mr. PATMAN. They are permitted to guarantee the securities of a concern that you are trying to help?

Secretary HUMPHREY. That is right.

Mr. PATMAN. In order to facilitate the sale of those securities, is there any limit to the amount that you will guarantee?

Secretary HUMPHREY. I don't think there is any fixed limit, no.

Mr. PATMAN. These 56 countries that you speak of, the United States is one of them?

Secretary HUMPHREY. That is right.

Mr. PATMAN. Will the people in all countries be allowed to participate in this IFC?

Secretary HUMPHREY. I think anybody that wants to participate where capital is not available, where it is desirable to build up backward areas to carry out the spirit of the program, they can present an application.

Mr. PATMAN. That would include in the United States?
Secretary HUMPHREY. I think so.

Mr. PATMAN. If there is an area in the United States where they are lacking in basic materials-critical materials—and capital is not available to produce these materials, would capital from this IFC be available for that purpose?

Secretary HUMPHREY. I see no reason why it couldn't legally, but I would think that it would be rather difficult in some respects. You might find such a place, but there are many other places in the world. where you would be much more apt to find a situation that would require it.

Mr. PATMAN. I know, but we would have as much right here as other countries?

Secretary HUMPHREY. That is right. As far as the right is concerned, there is no difference.

Mr. PATMAN. I have in mind a cement shortage. Just this morning I received from the Federal Reserve Bank of Dallas a statement that there is a severe shortage of cement in the Southwest, in many places. I have known about it. It is really in the black market. There