Foreign Relations of the United States, 1961–1963, Volumes VII, VIII, IX, Arms Control; National Security Policy; Foreign Economic Policy, Microfiche Supplement

395. “Current Economic Developments,” October 10¹

October 10, 1961

ECONOMIC HIGHLIGHTS OF THE FIRST SESSION, 87th CONGRESS

The first session of the 87th Congress, which completed its work September 26th in the longest session in ten years, took action on many measures affecting foreign economic policy. The new Administration’s Peace Corps and Disarmament Agency measures were approved, as was US participation in the Organization for Economic Cooperation and Development. Foreign aid appropriations totaled more than last year but consideraly less than the Administration had asked for, and while authority was granted to make long-term loan commitments in advance of appropriations, the Administration’s request to finance such loans by borrowing from Treasury directly instead of relying on annual Congressional appropriations was rejected. Long-term authority was given for disposals of agricultural surplus commodities under PL–480.

On the trade side, no major legislation was before the Congress, but protectionist sentiment was strong, foreboding a serious Congressional battle when the trade agreements legislation comes up for renewal next session. A host of bills was introduced designed to protect the domestic industries, but very few were passed and none that threatens serious harm in our foreign relations.

Foreign Aid Programs

Aid Program a Partial Victory On the final day of the session, the Congress gave its approval to the foreign aid appropriations bill. The session was marked by lengthy and at times acrimonious debate, particularly over the $7.2 billion in public debt borrowing authority sought by the Administration for long-term, low-interest, dollar-repayable development loans.

The legislation finally enacted grants the President the authority to make long-term commitments in the magnitude requested but does not provide for public debt borrowing authority which has the focus of Administration efforts.

Overall, the President sought $4.8 billion for foreign economic and military aid for FY ’62. Congress authorized slightly over $4.2 billion and finally settled on an appropriation of approximately $3.9 billion. This compares with an appropriation of $3.8 billion for the previous year.

A breakdown of the funds provided for the major items of the foreign aid program is as follows (in millions of dollars).

Category	Requested	Authorized	Appropriated
Development Loans	$1,187	$1,200	$1,112.5
Development Grants	389	380	296.5
Investment Surveys	5	5	1.5
International Organizations	158	153.5	153.5
Supporting Assistance	610	465	425
Contingency Fund	500	300	275
Military Assistance	1,885	1,700	1,600
Administrative	51.55	.50	47.5
Development Research	20	—	—
TOTAL	4,805.55	4,253.5	3,911.5*

*The above tabulation excludes $110 million appropriated for additional investment in the Inter-American Development Bank, $61 million for a subscription to the International Development Association, $30 million appropriated for the Peace Corps, $600 million for Inter-American Cooperation, and $3 million appropriated for Administrative expenses (State). Also reappropriated were unobligated balances of $69.5 million which were not allocated except for $8.9 million for the Contingency Fund.

The new law stresses the importance of sound economic planning for economic and social development in the recipient countries, an emphasis which the President also gave in presenting his program to the Congress. The enabling law provides that assistance shall: be based upon sound plans and programs; be directed toward the social as well as economic aspects of economic development; be responsive to the efforts of the recipient countries to mobilize their own resources and help themselves; be cognizant of the external and internal pressures which hamper their growth; and should emphasize long-range development assistance as the primary instrument of such growth.

Congressional Debate The Congressional Committees devoted most of their questioning of principal witnesses to the Administration’s request for public debt borrowing authority. Acknowledging the need for longer-term commitments and advance planning, the Congress generally took the position that these ends could be achieved without eliminating the traditional surveillance of the Appropriation Committees and their authority to appropriate funds on an annual basis.

Restoration of public and Congressional confidence in the foreign aid program by the introduction of new leadership and by a general organizational overhaul of ICA held a strong second place in the Congressional debate.

Generally speaking, the authorization bill passed by the Senate adhered closely to the original Administration request. The House bill did not. It restored the existing annual appropriations system, struck the Administration’s request for the use of previously unobligated funds, and largely rejected the innovations proposed by the Executive Branch. The Conference Committee, however, produced a bill generally in line with Administration views.

In similar fashion the appropriations bill fared well in the Senate but ran into very rough sledding in the House.

Features of the New Legislation In addition to the expanded program of development lending on a long-term, low-interest basis, the Congress also approved certain measures to induce expanded American investment abroad. Specifically, the President is authorized to issue all-risk guaranties to cover up to 75 percent of the loss of any investment subject to the limitation that no more than $90 million of such guaranties may be outstanding, and further, that no one guaranty contract exceed $10 million. An additional $10 million in all-risk guaranty coverage is provided for investments in housing projects in Latin America. These measures are included as part of a $1 billion guaranty authority assuring protection against political risks (inconvertibility, expropriation and war) which has been broadened to include losses from revolution and insurrection. Political risk coverage is expanded to investments by wholly-owned foreign subsidiaries of US corporations, including their reinvestments of earnings.

The new Agency for International Development (AID) is also empowered to finance up to 50 percent of the cost of surveys of investment opportunities undertaken by private companies. Financing of such surveys may take place only if the private company concerned does not undertake the investment opportunity surveyed. In this case the results of the survey become the property of the US Government which may make them available to other interested firms.

Some existing aid categories are redefined in the new legislation. Specifically, the old Defense Support and Special Assistance categories are amalgamated into Supporting Assistance. Technical Cooperation concepts have been expanded and redesignated as Development Grants. The new legislation also eliminates, transfers, and clarifies several other existing activities. The Section 402 surplus agriculture commodities function is eliminated. Responsibility for administering refugee and escapee activities is deleted from the legislation, and the responsibilities of the Secretary of State for administering the Battle Act are clarified.

The law specifically prohibits assistance to Cuba and authorizes the President to establish and maintain a total embargo upon all trade between the US and Cuba.

The Hays-Douglas amendment to the Mutual Security Act of 1960 has been eliminated. This linked principles of free transit and economic cooperation among nations to US aid. This legislation was aimed at the continued refusal of Egypt to allow transit of ships of all nations through the Suez Canal.

The new legislation provides that “it is the policy of the US to support the principles of . . . freedom of navigation in international waterways.”

AID, the New Agency Congress approved a new organization pattern for the Agency for International Development, with greatly strengthened regional bureaus. With rank equal to that of an Under Secretary, the AID Administrator, Fowler Hamilton, is responsible to the Secretary of State and the President. Congress also wrote into the law a provision which empowers the President, within the sixty days designated for the abolition of DLF, ICA, and the office of the Inspector General, notwithstanding any other provisions of law, to transfer such personnel from these entities to the new AID agency as he determines necessary. Effective September 30, AID was formally established as an agency within the Department of State.

Latin American Aid Program Congress appropriated $500 million to implement the US commitment for the Inter-American Program for Social Progress. Authorization for this program had been granted in the second session of the 86th Congress. Congress this year also appropriated $100 million for assistance in the reconstruction and rehabilitation of Chile as authorized by the previous Congress.

Of the $500 million appropriated for the Social Progress Program, $394 million will be loaned under a trust agreement with the Inter-American Development Bank (IDB) to individual countries to finance improved land use; to facilitate housing for low-income groups, including assistance to institutions providing long-term housing finance; community water supply and sanitation facilities; and advanced education related to economic and social development. Another $100 million of the $500 million, will be distributed by AID, primarily as grants, for education and training programs, public health projects other than water supply and sanitation, and support of Latin Government institutions working toward improved land use, low-cost housing, and improved use of domestic resources. The remaining $6 million will be used by the Economic and Social Council of the OAS to coordinate the projects.

Some controversy attended the question of the interest rates that could be charged by Latin American lenders. A Senate amendment to limit interest to a ceiling of 8 percent on all funds loaned or reloaned was amended to provide that funds shall not be loaned or reloaned at interest rates considered to be excessive by the IDB or higher than the legal rate of interest of the country in which the loan is made.

Peace Corps Gains Permanent Status The Administration bill to give permanent status to the Peace Corps was approved by Congress and signed into law as PL 87–293. An Administration request for $40 million to finance the Peace Corps was authorized by the Congress, but only $30 million was appropriated. Originally set up on a pilot basis by Presidential order on March 1, the Peace Corps had been financed out of the President’s Contingency Fund.

Since its establishment the Peace Corps has drawn more than 13,000 applications from Americans seeking to serve as volunteers. Some 450 of these have completed their training and 369 are currently serving in eight different countries: Tanganyika, Colombia, Chile, Ghana, St. Lucia (West Indies), Nigeria, and the Philippines.

PL–480

Long-Term Authority Granted In keeping with the Administration’s foreign assistance concepts, the President requested and received long-term Congressional authorization for sales for local currency of surplus agricultural commodities in the amendments extending the provisions of the Agricultural Trade Development and Assistance Act of 1954 (PL–480). The Congress added new provisions to the law regarding the sales deposit rate in local currency, the use of loan repayments, and the uses of foreign currencies accruing from the sales of surplus commodities. The Act was also amended to re-define surplus commodities, requiring that such commodities be surplus “at the time of exportation or donation.” The amendments to the disposal law are contained in Title II of the Agricultural Act of 1961 (PL 87–128).

Title I The most significant provision of the revised law grants the President authority to enter into agreements under Title I (sales for local currency) over a three-year period—from January 1, 1962 to December 31, 1964. Furthermore, Congress approved a $4.5 billion authorization for Title I sales, not more than $2.5 billion of which may be committed in any one calendar year. (The Administration had asked for a five-year program and an authorization of $7.5 billion). Authority to make commitments for more than one year is considered important for proper planning and development. In addition, friendly governments have made it clear that they hesitate to approve substantial PL–480 programs if there is no assurance that such programs will be continued for a reasonable time. The revised Act does not provide for the carry-over of unused funds.

Earlier in the session, Congress granted an additional authorization of $2 billion for Title I sales to the original calendar 1961 authorization of $1.5 billion. The added authorization was designed to restore funds previously committed under the $2.1 billion (estimated CCC cost with transportation) multi-year Title I commodity sales agreement with the Government of India.

Title II The amendments to PL–480 also extend Title II for the three-year period and provide for this purpose an annual authorization of $300 million, plus carryover for calendar years 1962 through 1964. (Title II, under Section 201, authorizes the President to furnish emergency assistance to friendly peoples in meeting famine or extraordinary relief requirements and, under Section 202, to grant surplus agricultural commodities to assist in economic development programs of friendly governments or voluntary relief agencies.) The new language of the legislation puts the authorization on a program commitment basis, beginning with calendar year 1961, instead of on a funds expended basis. Congress in July had repealed a section of the Mutual Security Act of 1960 which limited to June 30, 1961 the use of Title II commodities for economic development projects.

Other Amendments An important Administration proposal which Congress approved was the inclusion of authority under PL–480 to use the loan repayments of principal and interest in the same way as newly generated proceeds of sales agreements. The basis on which these local currencies will be made available for use will be delineated in an Executive Order which is expected to be issued soon. Congress also amended Section 104 of the Act, which deals with the uses of foreign currencies, to eliminate the language which had the effect of requiring an appropriation before foreign currencies made available for country use as grants or loans could be used for health, education, nutrition, or sanitation projects. The purpose of the amendment is to make it clear that funds for such developments need not be specifically appropriated by the Congress. All currencies to be applied to projects which are not developmental in nature or are primarily concerned with programs of US agencies (as distinguished from country use) would continue under the appropriation procedure.

Congress rejected some changes the Administration proposed for PL–480. One such proposal called for authorization to permit establishment of “food reserves” located in foreign countries. This was the third time that such a proposal had been rejected by the Congress. Also rejected was a plan to expand Titles II and III. The Administration proposal would have increased disaster relief, economic development and voluntary agency programs by making eligible for donation those products not in the inventory of the Commodity Credit Corporation but declared surplus by the Secretary of Agriculture. The purpose of this proposal was to improve the nutritional balance of our assistance programs.

A number of amendments were passed by Congress which were not a part of the original Administration sponsored bill. One such amendment relates to the exchange rate used for sales deposits in Title I, PL–480 agreements. In the future, the US will have to obtain the same exchange rate for sales deposits as that available to it for official US Government transactions. Under the previous practice, the rate governing PL–480 sales was normally the rate generally applicable to imports. This rate was in some instances less favorable to the US than the rate applying to official US Government expenditures in the country.

Amendments to Section 104 (uses of the local currency sales proceeds) give Agriculture greater authority to use such funds for market development, requiring that not less than 2% of the proceeds of PL–480 sales and loan agreements be convertible into other currencies for this purpose; and permit sales of foreign currencies to American tourists for dollars.

Commodities

Major action in the commodity field concerned lead and zinc, sugar and wool, and called for an investigation of national fuels policy. The Executive in September submitted for Congressional approval a program for the disposal of tin from the national stockpile and hopes for action early in the next session.

Lead and Zinc Subsidy Law Approved. Of the multitude of bills introduced at this session to stabilize the mining of lead and zinc, only one (H.R. 84) became law. It provides for a decreasing scale of subsidy payments over the next four years to small lead and zinc producers (those producers who have produced or sold during the base period ores or concentrates, the recoverable content of which did not exceed 3,000 tons of lead and zinc in any ore year). The Secretary of the Interior is authorized to make stabilization payments to small producers for the sale of newly mined ores or concentrates with payments made only with respect to the metal content as determined by assay. Lead payments are to be made as long as the market price of common lead is below 14.5 cents per pound at a rate of 75% of the difference between 14.5 cents and the average market price for the month in which the sale occurred. Zinc payments are to be made as long as the price of prime western zinc is below 14.5 cents at a rate of 55% of the difference between 14.5 cents and the average market price as outlined above. The total maximum subsidy payment would decrease from a high of $4.5 million in calendar 1962 to $3.5 million in 1965.

The House Ways and Means Committee in the meantime has reported the Baker Bill (H.R. 5193) which would raise substantially the tariffs on imports of lead and zinc. The Administration is opposed to the Baker Bill and others like it because such programs would prejudice the broader interests of the US both in the development of its own economy and foreign trade and in its political relations with other countries, especially such friendly countries as Peru, Mexico, Canada, and Australia. Liberal subsidy payments would only raise lead and zinc production and exert a downward pressure on domestic prices. An increased tariff, on the other hand, would be inconsistent with our general policy of leaving to the machinery set up in the Trade.

1. Economic Highlights of the First Session, 87th Congress. Official Use Only. 9 pp. Washington National Records Center, RG 59, E/CBA/REP Files: FRC 72 A 6248, Current Economic Developments.