to go along with this venture, but they would like to invest only another million dollars, although $3 million are needed, so the IFC would provide the margin of $1 million, or whatever may be required, to make this thing go.

Mr. NICHOLSON. Aren't we sometimes assisting now, when we loan money to foreign countries for certain things that we need in this country?

Mr. TENENBAUM. We don't have a system.

Mr. NICHOLSON. Doesn't the World Bank do that?

Mr. TENENBAUM. No.

Mr. NICHOLSON. Isn't this some kind of a loaning institution that we have for foreign countries?

Mr. TENENBAUM. We don't have such an institution. The ExportImport Bank, for example

Mr. NICHOLSON. What is Mr. Black the head of?

Mr. TENENBAUM. He is the head of the International Bank for Reconstruction and Development.

Mr. NICHOLSON. Isn't this for the same purpose?

Mr. TENENBAUM. To some extent, yes; but the lending activities of the International Bank are limited through the provision that they can only make loans, if they have a government guaranty.

In the case of this example of a textile mill, the chances are that the government would not like to provide a guaranty for such a venture. The tendency is for the governments to give a guaranty, more for general service industries, such as electricity, transportation, and so forth. On the other hand, there are political implications. For example, in a country, if a government would give a guarantyassuming this textile or a paper mill-they might be accused of favoritism. There may be all sorts of implication which make a government guaranty impossible.

There is also the fact, as I have mentioned in my statement, that there are many people who don't want a government guaranty because they feel the governments in these countries will interfere too much. Mr. NICHOLSON. Hasn't this been taken care of by the so-called national plan, and the Marshall plan, and other grants of money?

Mr. TENENBAUM. IFC is supposed to fill a gap. Neither the Export-Import Bank, nor the International Bank are allowed to provide what is generally known as venture capital. The Export-Import Bank and the International Bank, when they make a loan-there is almost a hundred percent certainly that the money can be reimbursed. This new organization is supposed to be promoting business ventures. Mr. NICHOLSON. They want the government to stand behind them; is that right?

Mr. TENENBAUM. No; no. They want the government out of it. For these loans you don't need a government guaranty.

Mr. NICHOLSON. Where does the investment come from?

Mr. TENENBAUM. The investment can come from any of the member countries, which will be members of the bank. For example, let us assume that in a country such as Brazil, or Burma, or India, there is some project, and they don't have enough money of their own but they may have a certain amount of money. They need more. It is possible, for example, that the British may provide some part and some. part may come from the United States. It is possible that all may come from the United States.

Mr. NICHOLSON. From the United States Government?

Mr. TENENBAUM. No; from the United States private investors. The IFC will only provide a marginal amount. Let us go back to this example which I have been giving. Assuming that for a textile plant in Brazil you need $3 million. They have $1 million to put up in local Brazilian funds. Let us say they approach an American textile corporation, and ask them if they would like to go along with them. The company says they would like to go along with them, but they will give them just $1 million. They don't want to put up $2 million. The IFC will have to provide, assuming the investigation of the project substantiates that it is a sound investment, the remaining $1 million. Once this textile plant becomes a going concern, and is. successful, there is a provision in the charter that the IFC has to pull out of it and sell its participation or debentures to private

investors.

Mr. NICHOLSON. Do I understand you want to build a textile mill in Brazil, or some other South American country?

Mr. TENENBAUM. I gave that just as an illustration. You could take any example. You could take a paper mill, or anything.

Mr. NICHOLSON. Do you think that is a good example to bring up before the committee, establishing some business in some foreign country with investors' money from this country to beat our heads off? Mr. TENENBAUM. Yes. It is up to the investors. For example, the American investors will be private corporations. It is up to them, if they feel they can make a profit out of it, but they want to limit their risk. That is their decision. There are many American companies who have already invested abroad.

Mr. NICHOLSON. They have four methods now of reaching this objective, through the World Bank and the bank that Black is the head of, and the United States Government point 4 program. This is still another one of those?

Mr. TENENBAUM. No. It isn't another one. It is absolutely no duplication of what exists. As I mentioned before, the International Bank cannot make any loans unless there is a government guaranty. In this venture there won't be any guaranty necessary. The ExportImport Bank as far as I understand it doesn't have any authority to provide venture capital. The idea of this new institution is to fill a gap in the existing mechanism for foreign investments. For example, as far as I have been told, the World Bank is very often approached with some very sound investment opportunities, but they cannot consider them because the charter prevents them from making a loan. It is a good venture, but they cannot support it because a guaranty cannot be obtained or the people who come with the project do not want the government guaranty in the country concerned.

On the other hand by creating more employment opportunities and increasing standards of living in those countries, you make progress. Mr. NICHOLSON. Do we want to make the standard of living better in some other country?

Mr. TENEBAUM. The increase of the economic activity in any country necessarily increases employment, income, and the general standard of living. It is only in those countries where you have stagnation that people will remain poor. It is just another way of saying that the more people have, the greater the income, the better they are off.

Mr. NICHOLSON. That is all, Mr. Chairman.

Mr. WIDNALL. Mr. Chairman.

The CHAIRMAN. Mr. Widnall.

Mr. WIDNALL. Do you believe that under the proposed International Finance Corporation it would be possible for a country such as Brazil to obtain funds for oil-well drilling?

Mr. TENENBAUM. For oil drilling?

Mr. WIDNALL. Yes.

Mr. TENENBAUM. Well, I think it would be possible.

Mr. WIDNALL. It is very badly needed in that country.

Mr. TENENBAUM. Yes. I want to mention one example out of my own professional experience as a consultant on foreign investments, which illustrates an aspect which has been rather overlooked.

About a year and a half ago I had a very interesting conversation with the president of a leading Western German bank, and, as you know, the Germans have made tremendous strides in Brazil, apparently, more so than any other country. This president of this Western German bank said:

We have exhausted our lending capacity in those countries. We can't go any further. We would like very much, with the tremendous opportunities existing in South America, to have American capital participating in those countries.

If we don't participate in this sooner or later, as the German and European economies will recover, they will look into these possibilities. They will add more export facilities for their own industries, and take the market away from the United States.

If we do it in a partnership, then we are sure of having our interests in those countries represented, if we do it in corporation.

This is also another way of providing capital to the underdeveloped areas of the world, on a business rather than a giveaway basis, as it has been done in the past years. In this way you restore the international system of financing and investments. You ladies and gentlemen of this committee, more than anybody else, are probably very much aware of the fact that there has been great talk of convertibility of currencies. The reason that there was at one time an automatic convertibility of currencies was that because of the flow of foreign investments the convertibility become automatic. Now, because of the war, and the great depression, this thing has broken down. If we, through instrumentalities such as the IFC, provide facilities to get more investments into the world economy, then there won't be any need any more for talking about convertibility because this thing will come about automatically as a byproduct. You can't preach convertibility of currency without creating the conditions for convertibility.

The IFC-I don't say it will be a cure-all. In the report of the Washington Board of Trade we also stated that a hundred million dollars is not enough for a venture of this sort, but we feel it is a first step in the approach to bringing back an automatic self-regulating system of international financing without governmental interference. Mrs. GRIFFITHS. Mr. Chairman, may I ask a question?

The CHAIRMAN. Mrs. Griffiths.

Mrs. GRIFFITHS. In this venture, the American taxpayers are going to put in the investment money, aren't they?

Mr. TENENBAUM. Not entirely.

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Mrs. GRIFFITHS. To a great extent?

Mr. TENENBAUM. $35 million only. The other $65 million will be provided by foreign countries.

Mrs. GRIFFITHS. But if the venture in which they risk the money turns out successfully then we are obligated to get out of it. Did I understand you to say that?

Mr. TENENBAUM. No. This is not exactly it. The $35 million remains in the banking institution, but the IFC, which will put up in each individual venture a certain portion-the marginal portion of the capital-is supposed to sell its participation to private investors. Mrs. GRIFFITHS. Private investors in the foreign countries? Mr. TENENBAUM. To any private investors willing to buy it. Mrs. GRIFFITHS. American investors or foreign investors? Mr. TENENBAUM. Whoever wants to buy it.

Mrs. GRIFFITHS. But the American taxpayer assumes the risk until the venure works successfully?

Mr. TENENBAUM. I would say that the taxpayers of all the countries that are members of this institution assume a certain risk to the extent of the participation of each country, because the $100 million which will be put into this venture will be necessarily public funds, so the American taxpayer assumes the risk up to $35 million. The foreign taxpayers assume it to the extent of $65 million.

Mrs. GRIFFITHS. That is all I want to know. Thank you.
Mr. REUSS. Mr. Chairman.

The CHAIRMAN. Mr. Reuss.

Mr. REUSS. I have a number of questions, including one along the lines Congresswoman Griffiths asked you.

Am I right in thinking that the main thing that the proposed IFC does which the World Bank does not do is to make direct loans to foreign private industries not guaranteed by the government of the recipient country; is that correct?

Mr. TENENBAUM. In a sense, yes, and in a sense, no. They don't make loans to foreign companies. The idea is more in the nature of venture capital. That means that they will participate with foreign capital, and private American capital in the creation of new ventures. That seems to be the idea. It seems to me that a direct loan, just between a foreign company and the IFC-I may be wrong but I think it is my understanding of the charter that this bilateral thing is not foreseen.

Mr. REUSS. Maybe I am not clear on it. Will you tell me exactly what it is that the IFC is supposed to do which the International Bank for Reconstruction and Development cannot do?

Mr. TENENBAUM. If you have a business venture, either agricultural or industrial, in one of the underdeveloped countries, one thing the IFC will be able to do will be to provide funds in participation with other investors-we have to keep that in mind that it will be in participation with other investors.

Mr. REUSS. There is nothing to prevent the World Bank from participating with private investors?

Mr. TENENBAUM. Yes; but the World Bank can only provide the funds on the condition that the Government or its equivalent in the country concerned gives a guaranty. The IFC will not have to obtain such a guaranty.

Mr. REUSS. That was the point I was making. Our minds are together then that the thing that the IFC can do which the World Bark cannot do is to make an investment without securing therefor the guaranty of the recipient government; is that correct?

Mr. TENENBAUM. That is correct.

Mr. BETTS. Will you yield?

Mr. REUSS. Surely.

Mr. BETTS. Would you mind following through to have the witness explain again the difference between loans by Export-Import and IFC?

Mr. REUSS. Yes.

Mr. Tenenbaum, would you explain for the benefit of Mr. Betts and the rest of us the difference between the proposed IFC type of investment and that made by the Export-Import Bank?

Mr. TENENBAUM. Well, the Export-Import Bank cannot provide, as far as I understand it, any venture capital. It means the ExportImport Bank has to make sure that the money it lends will be reimbursed. I mean generally the way it works is that the loan is in a sense given to the American company which ships material abroad and which does not have the financing possibilities to give these longterm credits, so it is a completely different operation altogether. It is not in the nature of venture capital. Basically the operations of the JFC will be somewhat of an investment bank operating in the United States. Supposing you know of oil wells, or you have the title on it, and you don't mave the money to develop them. Then you go to a bank or to some company which has technical know-how, and you work up a deal. The similarity exists in the sense that it is a venture because there is risk involved. Naturally no one would put up money unless there is a reasonable assurance that it would succeed. With the IFC it will be basically the same idea, with the exception that it will be primarily operating in the underdeveloped countries, and that the financial organization will be the IFC, which will provide the marginal capital between the various parties concerned.

Mr. REUSS. Am I right in thinking that whereas the Export-Import Bank is solely a United States operation, that the IFC, like the International Bank for Reconstruction and Development, would be open to membership by a great number of countries?

Mr. TENENBAUM. Yes, sir.

Mr. REUSS. Let me ask you this question, which is the reason I have asked these preliminary questions: Why in the world do you need to set up a very comprehensive, sprawling, and it seems to me expensive bureaucratic arrangement when I should think that the presently constituted International Bank for Reconstruction and Development could perfectly well have its charter amended to permit this additional nonguaranteed function that you are talking about? Why set up a new organization?

Mr. TENENBAUM. In the first place, I don't think that the IFC will involve an expensive administrative setup, because it is going to be an affiliate of the World Bank, and the idea seems to be hat the personnel, with all the experience and know-how which the World Bank already has, will also operate and be working on these things. From an administrative point of view it will be rather inexpensive. In addition, you have the benefit of the technical know-how and expe