ing company that would be operated for the benefit of just Latin American countries and no other place in the world.

It never grew to fruition, but the idea was that we would put up the substantial part of the money and that then it would be governed by a board which would decide what loans would be made and it would be limited to Latin America only.

I said that I did not approve of that for our money; that if they wanted to do it with their money, that was entirely satisfactory to us, but we would put our money into an affair of this kind where we had a management that we had had experience with, as has been pointed out here. As Mr. Talle has pointed out, we have an experienced management that has proved its worth. We would put our money in the hands of an experienced management and operate in that way, rather than start something new with a management we didn't know anything about.

Mr. MULTER. I believe that there has been some talk about trying to create additional incentives for investment of American capital in other countries by granting to them tax exemption of moneys they earn in these other countries on foreign investments. Has there been any official action or policy developed by your Department on that subject?

Secretary HUMPHREY. Just in one respect: We proposed to the Congress last year-we already have in existence the Western Hemisphere Trade Corporation Act, which provides for 14 percentage points less tax on Western Hemisphere trading companies under certain circumstances than applies to income accruing to American companies operating in other parts of the world. We recommended that the rate reduction be extended to income from other parts of the world. The Senate Finance Committee and Congress decided not to adopt it.

That same provision was recommended by the President again this year. Now, what state it is in, I am frank to tell you I don't know; but that is the only tax-relief provision that I think of at the moment. Very frankly, I am opposed to trying to do everything by giving tax relief. Everybody that wants anything done, pretty near, comes in and says, "Let us do it by allowing tax relief," and the first thing we know, if we do that, we will find that only 15 or 20 people pay taxes, and everybody else will have a special out.

Mr. MULTER. Mr. Secretary, I have just been handed a note that you are already 1 hour behind schedule. I do have some other questions. I don't want to keep the Secretary here any longer, in view of the fact he is already an hour late. Is it intended that we continue on the subject this afternoon, Mr. Chairman?

The CHAIRMAN. I would want to get through. We have two other witnesses this afternoon.

Mr. MULTER. May I conclude with this, Mr. Chairman: I think it would be fair to say that you are opposed to the Hoover Commission's recommendations that, at least to the extent of setting up this agency, the Government should get out of the lending field? I don't know whether you are familiar with that recommendation, but the Hoover Commission recommended the Government get out of the lending business.

Secretary HUMPHREY. I don't have in mind the particular Hoover thing you are referring to. I can tell you this very frankly: I think

that our governmental lending must be curtailed, must be controlled further all the time, and that our lending should be largely for the purpose, where it is made, of accomplishing some specific objective, or of developing through private enterprise, development elsewhere.

Mr. MULTER. The Hoover Commission specifically recommended the Export-Import Bank be wound up, and its lending facilities brought to an end.

Secretary HUMPHREY. I don't believe they did that. I may be mistaken, but I haven't seen that recommendation.

Mr. MULTER. Maybe it was the task force that did. It was either the task force or the report.

Secretary HUMPHREY. I don't believe they did it, Mr. Multer. At least I haven't seen it.

Mr. MULTER. At any rate, you are opposed to the Export-Import Bank being liquidated and going out of business?

Secretary HUMPHREY. I would not liquidate the Export-Import Bank at this time; no, sir.

Mr. O'HARA. Mr. Chairman, may I ask one brief question?

The CHAIRMAN. You may ask a question, but the Secretary is an hour behind.

Mr. O'HARA. It will be very brief, Mr. Secretary.

Secretary HUMPHREY. I may send the other committee down to talk to you gentlemen.

Mr. O'HARA. Will the capital of the international corporation come exclusively from the contributions of the various nations, or will it be augmented by marketing securties?

Secretary HUMPHREY. It will come exclusively from the subscriptions at first. At some later time they may prosper to a point where they can sell securities. If they succeed and establish a reputation they may be able to do that. They will start only with money the countries themselves put up.

Mr. O'HARA. Has the international bank been successful in marketing securities?

Secretary HUMPHREY. Yes, sir.

Mr. O'HARA. Do you think it likely that the International Finance Corporation might follow that pattern?

Secretary HUMPHREY. I will say I hope it will be successful enough to do so.

The CHAIRMAN. Mr. Secretary, we are glad to have your views. Secretary HUMPHREY. Thank you very much, indeed. We appre

ciate it.

The CHAIRMAN. Mr. Clerk, what is the House program this afternoon?

Mr. HALLAHAN. The mutual-security appropriation bill is coming up, I understand.

The CHAIRMAN. Do you think we should go on further now or should we come back?

Mr. HALLAHAN. I think there will be 4 hours of general debate on the bill. We could meet this afternoon.

The CHAIRMAN. Suppose we adjourn now to meet at 2 o'clock. (Whereupon, at 12 noon, a recess was taken until 2 p. m. of the same day.)

[AFTER RECESS]

The committee met at 2 p. m., the Honorable Brent Spence, chairman, presiding.

Present: Chairman Spence and Messrs. Brown, Patman, Multer, O'Hara, Davidson, Wolcott, Talle, McDonough, Betts, Hiestand, and Nicholson.

The CHAIRMAN. The committee will be in order.

Mr. Clerk, will you call the first witness?

Mr. HALLAHAN. The next witness is Mr. Samuel Waugh, Assistant Secretary of State for Economic Affairs.

The CHAIRMAN. Mr. Secretary, you may proceed.

Do you have a written statement? If so, you may read it or file it. STATEMENT OF HON. SAMUEL C. WAUGH, ASSISTANT SECRETARY OF STATE, ACCOMPANIED BY HAMLIN ROBINSON

Secretary WAUGH. Mr. Chairman and gentlemen, I have a written statement. It is rather brief. There are some changes in the statement that I made before the Senate committee, so with your permission I will read the statement.

The CHAIRMAN. You may proceed.

Secretary WAUGH. Today I am appearing on behalf of the Secretary of State in support of title II of H. R. 6228 and H. R. 6229, which would authorize the President to accept United States membership in the International Finance Corporation and the Secretary of the Treasury to pay the United States subscription to its capital.

The International Finance Corporation is a collective effort to stimulate economic development through productive private enterprise. The Secretary of State, as a member of the National Advisory Council on International Monetary and Financial Problems, fully concurred in the decision of that Council last November to recommend United States participation in this collective effort. As you know, the President approved the recommendation and made it an important part of the foreign economic policy recommendations which he sent to the Congress last January 10.

I thought I would refer briefly to some of the foreign-policy aspects of the International Finance Corporation, rather than to its organization and operations, of which the committee is well informed.

Since the war the United States has undertaken a number of measures designed to assist and encourage the countries of the free world to rebuild and strengthen their economies. At the same time, we hoped that a substantial flow of private investment would take place. Such investment normally takes with it not only capital but also the technical competence and managerial skills whose absence is frequently a greater bar to economic development than is the lack of capital.

Actually, however, the international flow of private investment funds to many underdeveloped countries has not been spectacular during the 10 years since the war. Furthermore, this investment has tended toward concentration in certain areas and in a limited number of industries. For this there have been many reasons, of which the committee is well aware.

Nonetheless, we in the United States remain firmly convinced that the private-enterprise concept of investment, whereby economic development is financed largely through investment by individuals or private companies, is the soundest basis for sustained economic progress. We have endeavored to foster this concept in many ways, and there is considerable evidence that its basic validity is being increasingly recognized in many countries outside the Soviet orbit.

Our participation in the International Finance Corporation is thoroughly consistent with this objective. The sole purpose of the Corporation is "to further economic development by encouraging the growth of productive private enterprise in member countries." Moreover, during the period when the International Finance Corporation was being discussed and considered, it became apparent that a good many countries were seriously interested in the cooperative effort to that end which it represented. This interest was not confined to the underdeveloped countries wherein the new Corporation is expected to be especially active. Some of the European countries whose economies had been restored with the help of the Marshall plan were interested, and now it appears that practically all of these European countries will become members of the new Corporation. In fact, their combined subscriptions to its capital are approximately equal to our own proposed subscription.

Participation by the United States in a cooperative effort of this kind, whose basic purpose accords with our own convictions and approach to economic growth, is in our opinion consonant with our position of leadership.

The International Finance Corporation is frankly acknowledged to be experimental in nature. It is, in effect, an experiment in the public encouragement of private enterprise, in ways which do not involve the new Corporation in the ownership or management of private enterprise or in the major financial risks of any individual enterprise. If it is successful in this endeavor it will have contributed materially toward encouraging private capital to assume major importance in world economic activity.

Bear in mind, if you will, that the International Finance Corporation will not compete with private capital, nor can it be regarded as a substitute for it. The Corporation will only invest in enterprises in which the private participants put in the bulk of the capital required and accept complete management responsibility. We have some illustrative examples of the ways in which the Corporation will participate with private investors in projects if the committee would find them useful.

I have that written, and we will submit that for the record, Mr. Chairman and gentlemen, if you would like to have it. (The material referred to is as follows:)

INTERNATIONAL FINANCE CORPORATION-ILLUSTRATIVE EXAMPLES OF INVESTMENT

PROPOSALS

The following are illustrative hypothetical examples of investment proposals which might be brought to the International Finance Corporation. In the interest of simplicity all capital requirements in these cases are expressed in terms of dollars rather than in the variety of currencies which would necessarily be involved in actual proposals. In practice, proposals would, of course, cover a wider range of investment fields and present far more variety and complexity in their financial aspects.

These examples do not describe the forms in which the Corporation might make its investments. Under the Corporation's charter investments may be in any form which is appropriate in the circumstances and is permissible under applicable local law, subject to the single restriction that the Corporation may not invest in capital stock, common or preferred. For example, in appropriate cases, the Corporation's investments may take the form, among other things, of ordinary debentures, debentures convertible into stock when held by a purchaser from the Corporation, income debentures, debentures with rights to participate in profits, or a combination of any of them. In each case, however, it is expected that the Corporation will make its investment on terms providing for a financial return commensurate with the risk undertaken.

1. An American textile company wishes to open a mill in a foreign country. The financial requirements are $2 million for imported equipment and $1 million for local expenditure and working capital. Although the company has ample capital and long domestic experience, it is unfamiliar with foreign business and unwilling to risk much in its first venture abroad. It proposes to form a subsidiary in which it is willing to invest $1 million. It asks the Corporation to explore with it the possibility of securing local capital for the undertaking and to provide whatever portion of the remaining $2 million cannot be financed locally.

2. A group of potential investors in a less developed country approach a New York investment banker with a proposal to finance a fish cannery in their country, estimated to cost $3 million. They can raise $1 million, and ask the investment banker to raise the remaining $2 million and to find experienced management. The banker interests an experienced California fishing company which is willing to invest $1 million and to undertake the management if it can get an opportunity to buy control at a later date. The investment banker asks the Corporation to provide a loan of $1 million, offering to give the Corporation debentures convertible into common stock by a purchaser from the Corporation. The fishing company proposes that it be given a first refusal on any sale by the Corporation of its convertible debentures.

3. A European chemical company proposes to start a plant in a less developed country. The company can obtain in its own country all the necessary equipment but it can supply only a portion of the funds required for local currency expenditure abroad. It cannot obtain any equity capital in the underdeveloped country and only a limited amount of loan capital and that at short term. It asks the Corporation to provide a share of the funds required for construction and working capital.

4. A profitable newsprint company in a less developed country wishes to expand its plant, at an estimated cost of $5 million. The owners of the company are willing to put up half of this amount but need outside financing for the remainder. There is available capital in the country, but local investors are not accustomed to purchasing minority stock interests in corporate enterprises. The company believes that if the Corporation invested in the enterprise local investors would also be willing to participate. Accordingly, the company asks the Corporation to explore with it the possibility of raising the required capital locally and, if necessary, to provide any balance of the funds not so raised.

Secretary WAUGH. The fact that the new Corporation will be clearly affiliated with the International Bank for Reconstruction and Development is assurance that its affairs will be conducted in furtherance of its basic purpose and in the best interests of all its members.

Your special attention is called to article I, subsections (ii) and (iii), describing certain nonfinancial activities of the International Finance Corporation. These sections require the Corporation to act as a sort of clearinghouse in bringing investment opportunities together with sources of private capital and experienced management, and to help its member countries create the conditions necessary to the flow of private capital, domestic and foreign, into productive in

vestment.

This committee is aware that the Department of State and certain other agencies of the Government are already carrying on some activi