lllllllllllllllllllllllllllIIIllllllIIIIIll LM095466 ’ Reorganization Pr To Foreign Foreign Military S Department of State Agency for International Development Department of Defense BY THE CQMPTMLUER GElVERA%, OF THE UNITED STATES . . COMPTROLLER GENERAL OF THE UNITED SATES WASti!NGTON, D.C. 2irE48 B-172311 Dear Mr. Chairman: In response to your request of May 11, 1971, we have analyzed the administration?s proposed reorganization of the foreign aid and foreign military sales programs. This report discusses the results of our analysis; identifies cer- tain areas in which the reorganization proposals may fall short of, or do not expressly address, findings and recommendations resulting from past GAO reviews; points up certain issues arising from the pro- posed legislative changes; brings up several matters for consideration by your Committee and the Congress; and suggests legislative language to remedy, or give legislative emphasis to, a number of the matters discussed. The administration’s reorganization proposals were based on (1) the recommendations of the Presidential Task Force on International Development of March 19, 1970, and (2) the analysis of those recorxmen- dations by the National Security Council and by an Office of Management and Budget steering group. To expedite release of the report, we have not followed our usual practice of submitting a draft report to the interested agencies for written comments. We believe that the contents of this report would be of interest to committees and other members of Congress. However, release of the report will be made only upon your agreement or upon public announce- ment by you concerning its contents. Sincerely yours, SL h?& Comptroller General of the United States The Honorable J. William Fulbright, Chairman 1 Committee on Foreign Relations J United States Senate 50 TH ANNIVERSARY 1921- 1971 COMPTROLLERGENERAL'S REORGANIZATION PROPOSALS RELATIVE TO FOREIGN REPORTTO THECOMMITTEE AID AND FOREIGN MILITARY SALES PROGRAMS ONFOREIGNRELATIONS Department of State ?i! UNITEDSTATESSENATE 2 Agency for International Development I'? ,: Department of Defense B-172311 7 / DIGEST -_--_- WHYTHEREVIEWWASMADE The Chairman, Senate Committee on Foreign Relations, on May 7; .1971, re- quested that the General Accounting Office (GAO) undertake a thorough qn_'lysis of the administration's proposed reorganization of the foreign aid and foreign military sales programs. The Chairman requested also that GAO identify potential problem areas with the existing legislation on the basis of GAO's general experience and recommend remedial legislation when applicable. (See p. 5.) I To expedite release of this report, GAO did not follow its usual prac- tice of submitting a draft to the interested agencies for comment. FINDINGSANDCONCLUSIONS In essence the reorganization proposals provide that --the United States assume a supporting role rather than the present directing role in international foreign assistance matters, --the United States become more competitive with respect to arms sales, --new basic authorities and organizational entities be established to separate the different types of U.S. foreign assistance according to purpose, --the President be given greater flexibility in both the economic and the military foreign assistance programs by eliminating or modifying many of the legislative restrictions in existing legislation and --the authorization authority and sources of funding for assistance be expanded. (See p. 7.) The Department of State would have --less day-to-day operating control, but continued responsibility for foreign policy control, over development assistance programs; --increased control to the extent of being fully responsible for econom ic supporting assistance and public safety programs ; and Tear Sheet ---_ --basically the same policy control but an enhanced capability for op- ; erating control over military assistance, foreign military sales, and : humanitarian assistance programs. (See p. 35.) I I The Congrsss' authority and responsibility undm the reorganization pro- II posaZs wouZdbe aZtered by: --Establishment of a Government corporation having authority to secure financing by borrowing from the public and the Treasury. (Such car- porations would tend to dilute congressional control over public ex- penditures.) ,. --Departure from the practice of providing for congressional approval of the proposed corporation's charter. --A proposal to authorize, by Presidential determination, the cessation of all monitoring and auditing activities for terminated or suspended programs, including those of the legislative branch. --Deletion of express recognition of the legislative branch's right to information with respect to development and humanitarian assistance programs. (See p. 54.) The scope of legislative restrictions would be narrowed. Waivers would be narrowed in number but broadened in significance. Recognizing the limitations in attempting a summarization of such extensive legislation, we have designated the following areas of change. Carried over Modified Deleted New 1 Waiver Restrictions authorities 677 583 98 13 107 ; ; In certa-in areas the reorganization proposals may fall short of, or do not i expressly address, findings and recomnendations resulting from past GAOre- ; views, such as: II --The need for formulating program aims in the recipient country in terms which are objectively measurable. (See p. 56.) --The question of whether assistance resulting from preferential trade agreements and arrangements and from debt reschedulings should be treated as foreign assistance. (See pp. 59 and 64.) --The need for improved methods and criteria for assessing a recipient country's capability of contributing agreed resources for U.S.- supported activities. (See p. 65.) --A proposal to restrict U.S. payment of foreign taxes and to require i recipient payment of transport costs of U.S.-donated surplus commodi- ; ties and equipment. (See pp. 68 and 69.) I I I I I I I i . --The need for sctecific management attent!‘on to the use of local cur- 1 rency resources and particularly to the use of stich rescurces i;n lieu of dollar assistance. (See p. 71>) --The need for improved monitoring and evaluation of the performance of the international institutions to which the United States makes financial contributions. (See p. 76,) I I Specific issues arising from the proposed legislative changes include: --Certain modifications in the definition of value that might allow recovery of less than the full cost of military sales. --New authority for military barter transactions that could lead to nonappropriated assistance. --Need for application of the advanced certification requirement to the proposed excess articles program. --Need to exp lore the propriety of the proposal to permit sales of articles to prime contractors for foreign resale. --The possibi lity that the proposed exemption from contract. law regula- tions might allow exemption from foreign mili.tary contract provisions. --Possible U.S. absorption of losses from military sales transactions terminated by foreign customers. --Need for clarification with respect to guaranties and disposal of foreign currency recipts under the supporting assistance program. --Need for clarification on the administration of existing loans and for provision to repay the debt to the U.S. Treasury for certain out- standing loans. --Possible need to ensure that funds are sufficient to meet all development-lending operating costs. j RECOhWENDATIONS OR SUGGESTIONS Legislative language to remedy, or give legislative emphasis to, matters 66, 69, 70, is 72, discussed outlined 74, 75,on and pages 77. 25, 32, 33, 49, 50, 58, 61, 62, 63, 64, 65, : MATTERSFOR CONSIDERATIONBY THE COMMITTEE I Two basic uncertainties arise from the proposed U.S. shift from a I directing to a supporting role in international development matters. I The first is whether international development organizations have the I capability and will be willing to assume the directing role envisioned for them, including the increased funds and the functions of planning, I I Tear ~- Sheet I I I I negotiating, avd -:oni+nrlna. which would be shifted from U.S. agencies. ' : The secwd is xhet:hcr the l1.S. emDhasis on social progress and reform I would be dro;qed ~?r wl~ld rw..c ive significantly decreased emphasis under I international organizaticn leadership. (See pp. 14 to 16.) I I I The proposed development program lacks a clear demonstration of the basis I on which the program is justified and of what can be expected realisti- I cally from the program. (See pp. 17 to 21.) I I I Currently both a need and an opportunity for establishment of allocation I and evaluation standards exist. I A basic principle underlying both past I and proposed U.S. development assistance programs is that a recipient I country should receive assistance in relation to the level of develop- I 1 ment effort and sacrifice that it is making in its own behalf. Common I standards, however, have not been developed for measuring and evaluat- I I ing these factors. (See pp. 22 to 26.) ! I As far as can be determined, neither the present nor the proposed system I I for establishing the type and nature of U.S. assistance to individual I recipient countries provides for exploring or developing formally the I , pros and cons or the estimated costs and benefits of various alternative I assistance packages. (See PP. 26 to 28.) I I I There is a need for considering whether the increasing recipient debt- I service problems invalidate the argument for loan as opposed to grant I I assistance. (See pp. 29 and 30.) I I GAO believes that foreign aid program justifications to the Congress I I should be expanded to present (1) collective information on all U.S. as- sistance programs and resource flows to recipient countries and (2) a I comprehensive, unified plan for each separate program--not in relation I to a single year but in terms of ultimate U.S. goals and purposes. I (See pp. 39 to 34.) I I I I i I I I I I I I I i i I 1 I I I I I 1 I i I 1 I I Contents Page DIGEST 1 CHAPTER 1 INTRODUCTION 5 2 GENERAL COMPARISONOF EXISTING AND PROPOSED FOREIGN AID AND FOREIGN MILITARY SALES PRO- GRAMS 7 Summary of basic changes 7 Policy changes 7 Changes in basic authorities 9 Organizational changes 10 Other changes 11 Matters for congressional consideration 14 Potential ramifications of proposed development policy shift 14 Uncertain development program ra- tionale and goals 17 Need for establishment of allocation and evaluation standards 22 Foreign aid structure not conducive to consideration of optimum assis- tance mix 26 Need for considering whether increas- ing recipient debt-service burden invalidates argument for loan as opposed to grant assistance 29 Proposal for expansion of program justifications to the Congress 30 3 COJ?lPARISONOF DEPARTMENTOF STATE CONTROLOF POLICY AND OPERATIONSUNDER EXISTING AND PRO- POSED PROGRAMS 35 Nature and scope of changes 35 Security assistance 37 Development assistance 38 CZAPTER . Page 4 COiMPARISONOF EXISTING AND PROPOSEDEEGISLA- TIVE RESTRICTIONS AND WAIVER AUTHORITIES 40 Nature and scope of changes in restrie- tions and waivers 40 Restrictions and waivers-development assistance 41 Restrictions and waivers-security as- sistance 43 Some issues arising from proposed legis- lative changes 48 Modification in definition of "value" might allow recovery of less than full cost of military sales 48 New authority for MAP barter trans- actions could lead to additional nonappropriated assistance 48 Need for application of advance cer- tification requirement to excess defense articles 49 Need to explore provision on sale of defense articles to prime contrac- tors 50 Exemption from contract law regula- tions might permit exemption from foreign military sales contract provisions 50 Proposed change might lead to U.S. absorption of losses from military sales transastions terminated by foreign customers 51 Clarification needed on guaranties and disposal of foreign currency receipts under supporting assis- tance 51 Need for clarification on adminis- tration of existing loans and Pub- lic Law 480 program 51 Possible need for provision to repay debt to Treasury on outstanding loans 52 Possible need to ensure sufficiency of funds to meet all development lending operating costs 52 CHAPTER Page 5 EFFECTS ON CONGRESSIONALAUTHORITY,AND RE- SPONSIBILITY ARISING FROM PROPOSEDFOREIGN ASSISTANCE LEGISLATION 54 Effect of corporate structure 54 Curtailment of auditing rights for se- curity assistance 55 Proposed legislation does not reflect legislative right to access to infor- mation 55 6 CONSISTENCYOF PROPOSEDREORGANIZATIONWITH GAO FINDINGS AND RECOMMENDATIONS 56 Program planning and evaluation 56 Need for formulating program aims in objectively measurable terms 56 Should U.S. preferential trade be treated as having a foreign aid component? 59 Should debt rescheduling be treated as a form of foreign assistance 64 Need for improved methods and crite- ria for assessing country capability for contributing agreed resources for U.S.-supported activities 65 Program execution 68 Proposed restriction on payment of foreign taxes 68 Proposal for recipient payment of transport costs of U.S.-donated surplus commodities and property 69 Management of U.S. owned or controlled local currency 71 Need for increased management atten- tion to use of local currency re- sources 71 Need for use of U.S. owned or con- trolled local currency in lieu of dollar assistance 72 Assistance to international organizations 76 Need for improved monitoring and evaluation of performance of inter- national oxanizations 76 APPENDIX Page 'I Letter dated 24ay7, 1971, from the Chairman, Senate Committee on Foreign Relations 81 II Estimated annual dollar receipts for fiscal years 1971 to 1980 from interest and prin- cipal repayments on loans in AID portfolio as of J&e-30, 1971 83 III Section-by-section comparison of restrictions and waivers of existing and proposed for- eign assistance legislation 84 ABBREVIATIO2JS --- AID Agency for International Development CIEP President's Council on International Economic Policy DOD Department of Defense FAA Foreign Assistance Act FMSA Foreign Military Sales Act GAO General Accounting Office GNP gross national product IBRD International Bank for Reconstruction and Develop- ment ICA International Coffee Agreement IDC International Development Corporation IDHAA International Development and Humanitarian Assis- tance Act ID1 International Development Institute ISAA International Security Assistance Act ISDI Inter-American Social Development Institute military assistance program MSA Military Sales Act OPIC Overseas Private Investment Corporation UNDP United Nations Development Program COMPTROLLER GENERAL'S REORGANIZATION PROPOSALS RELATIVE TO FOREIGN REPGRTTO THE COMMi-TTEE AID AND FOREIGN NILITARY SALES PROGRAMS ON FOREIGNRELATIONS Department of State UNITED STATES SENATE Agency for International Development Department of Defense B-172311 DIGEST ------ WHYTHE REVIEW WASMADE The Chairman, Senate Committee on Foreign Relations, on May 7, 1971, re- quested that the General Accounting Office (GAO) undertake a thorough analysis of the administration's proposed reorganization of the foreign aid and foreign military sales programs. The Chairman requested also that GAO identify potential problem areas with the existing legislation on the basis of GAO's general experience and recommend remedial legislation when applicable. (See p. 5.) To expedite release of this report, GAO did not follow its usual prac- tice of submitting a draft to the interested agencies for comment. FINDINGS AND CONCLUSIONS In essence the reorganization proposals provide that --the United States assume a supporting role rather than the present directing role in international foreign assistance matters, --the United States become more competitive with respect to arms sales, --new basic authorities and organizational entities be established to separate the different types of U.S. foreign assistance according to purpose, --the President be given greater flexibility in both the economic and the military foreign assistance programs by eliminating or modifying many of the legislative restrictions in existing legislation and --the authorization authority and sources of funding for assistance be expanded. (See p. 7.) The Department of State Would have --less day-to-day operating control, but continued responsibility for foreign policy control, over development assistance programs; --increased control to the extent of being fully responsible for economic supporting assistance and public safety programs; and I --basically the same policy control but an enhanced capability for op- ' erating control over military assistance, foreign military sales, and humanitarian assistance programs. (See p. 35.) The Congress' authority and responsibility under the reorganization pro- posals would be aZtered by: --Establishment of a Government corporation having authority to secure financing by borrowing from the public and the Treasury. (Such cor- porations would tend to dilute congressional control over public ex- penditures.) --Departure from the practice of providing for congressional approval of the proposed corporation's charter. --A proposal to authorize, by Presidential determination, the cessation of all monitoring and auditing activities for terminated or suspended programs, including those of the legislative branch. --Deletion of express recognition of the legislative branch's right to information with respect to development and humanitarian assistance programs. (See p. 54.) The scope of legislative restrfctions would be narrowed. Waivers would be narrowed in number but broadened in significance. Recognizing the limitations in attempting a sununarization of such extensive legis lation, we have designated the following areas of change. Carried over Modified Deleted New Restrictions 67 58 10 Waiver authorities 7 3 7: 7 In certain areas the reorganization proposals may faZZ short of, or do not expressZy address, findings and recommendations resuZting from past GAOre- views, such as: --The need for formulating program aims in the recipient country in terms which are objectively measurable. (See p. 56.) --The question of whether assistance resulting from preferential trade agreements and arrangements and from debt reschedulings should be treated as foreign assistance. (See pp. 59 and 64.) --The need for improved methods and criteria for assessing a recipient country's capability of contributing agreed resources for U.S.- supported activities. (See p. 65.) --A proposal to restrict U.S. payment of foreign taxes and to require recipient payment of transport costs of U.S.-donated surplus commodi- ties and equipment. (See pp. 68 and 69.) 2 ' --The need for specific management attention to the use of local cur- rency resources and particularly to the use of such resources in lieu of dollar assistance. (See p. 71.) --The need for improved monitoring and evaluation of the performance of the international institutions to which the United States makes financial contributions. (See p. 76.) Specific issues arising from the proposed legislative chaizges include: --Certain modifications in the definition of value that might allow recovery of less than the full cost of military sales. --New authority for military barter transactions that could lead to nonappropriated assistance. --Need for application of the advanced certification requirement to the proposed excess articles program. --Need to explore the propriety of the proposal to permit sales of articles to prime contractors for foreign resale. --The p;ssibili t y that the proposed exemption from contract law regula- tions might a 1 low exemption from foreign military contract provisions. --Possible U.S. absorption of losses from military sales transactions terminated by foreign customers. --Need for clar i fication with respect to guaranties and disposal of foreign currency recipts under the supporting assistance program. --Need for clarification on the administration of existing loans and for provision to repay the debt to the U.S. Treasury for certain out- standing loans. --Possible need to ensure that funds are sufficient to meet all development-lending operating costs. RECOMMENDATIONS OR SUGGESTIONS Legislative language to remedy, or give legislative emphasis to, matters discussed is outlined on pages 25, 32, 33, 49, 50, 58, 61, 62, 63, 64, 65, 66, 69, 70, 72, 74, 75, and 77. MATTERS FOR CONSIDERATIONBY THE COMMITTEE Two basic uncertainties arise from the proposed U.S. shift from a directing to a supporting role in international development matters. The first is whether international development organizations have the capability and will be willing to assume the directing role envisioned for them, including the increased funds and the functions of planning, negotiating, and monitoring, which would be shifted from U.S. agencies. ' The second is whether the U.S. emphasis on social progress and reform would be dropped or would receive significantly decreased emphasis under international organization leadership. (See pp. 14 to 16.) The proposed development program lacks a clear demonstration of the basis on which the program is justified and of what can be expected realisti- cally from the program. (See pp. 17 to 21.) Currently both a need and an opportunity for establishment of allocation and evaluation standards exist. A basic principle underlying both past and proposed U.S. development assistance programs is that a recipient country should receive assistance in relation to the level of develop- ment effort and sacrifice that it is making in its own behalf. Common standards, however, have not been developed for measuring and evaluat- ing these factors. (See pp. 22 to 26.) As far as can be determined, neither the present nor the proposed system for establishing the type and nature of U.S. assistance to individual recipient countries provides for exploring or developing formally the pros and cons or the estimated costs and benefits of various alternative assistance packages. (See PP. 26 to 28.) There is a need for considering whether the increasing recipient debt- service problems invalidate the argument for loan as opposed to grant assistance. (See pp. 29 and 30.) GAO believes that foreign aid program justifications to the Congress should be expanded to present (1) collective information on all U.S. as- sistance programs and resource flows to recipient countries and (2) a comprehensive, unified plan for each separate program--not in relation to a single year but in terms of ultimate U.S. goals and purposes. (See pp. 39 to 34.) 4 CHAPTER 1 INTRODUCTION This report is in response to a May 7, 1971, request of the Chairman, Senate Committee on Foreign Relations,that the General Accounting Office undertake a thorough analysis of the administration's proposed reorganization of the for- eign aid and foreign military sales programs, giving partic- ular attention to the following subjects. --A general comparison of the existing programs with the proposed programs, including changes in policy and operations. (See ch. 2.) --The degree to which the Department of State, under the proposed legislation, would have both policy and operating control over the new programs, with emphasis on military aid and foreign military sales. (See ch. 3.1 --The extent to which restrictions and existing legis- lation are deleted, modified, or carried over to the proposed legislation. (See ch. 4.) --The extent to which the President's waiver authority with respect to these restrictions is deleted, modi- fied, or carried over, (See ch. 4.) --The extent to which the Congress' authority and re- sponsibility are altered or otherwise modified by the President's proposal. (See ch. 5.) --Those aspects of the proposals which may fall short of, or be inconsistent with, our findings and rec- ommendations. (See ch. 6.) We also were asked to identify potential problem areas on the basis of our experience with the existing legislation and to recon-mend remedial legislation when appropriate. The subsequent chapters of this report contain the re- sults of our analysis of the specific matters outlined above, In addition, in chapter 2, we have identified a 5 number of broad observations, synthesized from our general experience and acquaintance with the foreign aid program, which are offered for the consideration of the Congress. The President's reorganization proposals were based on (1) the recommendations of the Presidential Task Force on International Development of March 1970 and (2) the analysis of those recommendations by the National Security Council and by an Office of Management and Budget steering group. The National Security Council analysis and the documentation of the steering group were not available to us. Our analysis was made during the period May through September 1971. In accordance with arrangements made with the Committee staff and to expedite release of the report, we have not followed our usual practice of submitting a draft report to the interested agencies for comment. 6 CHAPTER2 GENERAL COMPARISONOF EXISTING AND PROPOSED FOREIGN AID AND FOREIGN MILITARY SALES PROGRAMS This chapter (1) compares the basic policy and opera- tions of the existing foreign aid and foreign military sales programs with those of the proposed programs and (2) identi- fies certain matters, suggested by our general experience with the existing programs, which are offered for the con- sideration of the Congress. SUMMARYOF BASIC CHANGES In essence the new foreign aid reorganization proposals provide that (1) the United States assume a supporting role rather than the present directing role in international for- eign assiseznce matters, (2) the United States become more competitive with respect to arms sales, particularly in Latin America, (3) new basic authorities and organizational entities be established to separate the different types of U.S. foreign assistance according to purpose, (4) the President be given greater flexibility in managing both the economic and the military foreign assistance programs by eliminating or modifying many of the legislative restric- tions in existing legislation (see ch. 41, and (5) the au- thorization authority and sources of funding for assistance be expanded. The specific changes involved are discussed in more detail below. Policy changes Conceptually foreign assistance serves two basic func- tions --transferring resources and providing a basis for a donor to advise on the policies of a recipient. The most basic change inherent in the proposed reorganization re- lates to the latter function. The planned change is for the United States to assume a supporting rather than a di- recting role in international foreign development assistance matters. This is to be accomplished by: 7 --Channeling an increasing share of development assis- tance through multilateral institutions as rapidly as possible. The announced goal is to phase out the bilateral loan portionlof U.S. foreign assistance by the end of the 1970's. --Relying increasingly on multilateral institutions for assessing assistance requirements, for monitoring recipient country performance, and for negotiating with recipients for necessary policy changes. --Deemphasizing the U.S. practice of assisting recip- ients to chart their developmental programs. --Moving in the direction of acting primarily as a financier of technical assistance rather than as a participant. --Discontinuing the development of annual assistance program plans and lending levels for each recipient country. --Shifting from day-to-day, or "cradle to grave," supervision of U.S .-financed activities to periodic evaluations. --Closing out or substantially reducing the U.S. in- country AID missions. A second basic change in policy inherent in the pro- posed reorganization relates to the military sales program in Latin America and Africa. The change involved is a shift from the policy of restricting the amount of military sales and restricting the sale of sophisticated weapons to a policy of competing with the European countries who are now supplying such hardware to the Latin American and African countries. 1 Announced by the Administrator, Agency for International Development (AID),in January 1971. 8 Other planned basic policy changes include eliminating the lender-of-last-resort concept1 for development loans and providing military salesonmore concessional terms with the objective of moving from grants to concessional sales to harder term sales. Changes in basic authorities The International Development and Humanitarian Assis- tance Act (IDHAA) and the International Security Assistance Act (E&A)--the new legislation designed and proposed to replace the Foreign Assistance Act (FM) and the Foreign Military Sales Act (FMSA)--separate the different types of foreign assistance according to purpose. ISAA basically serves to consolidate into one legisla- tive package military grant assistance, cash sales, credit sales, economic supporting assistance, and public safety assistance. ISAA contains the provisions for economic sup- porting assistance which are now in part 1 of FAA, the pro- visions relating to military assistance which are in part 2 of FAA, and the provisions for foreign military sales and guarantees which are in FMSA. ISAA also authorizes the President's Foreign Assistance Contingency Fund which, like the contingency fund in part 1 of FAA, makes available funds for unforeseen requirements in the areas of security, development, and humanitarian assistance. IDHAA contains the provisions for development loans, technical assistance, American schools and hospital programs, and voluntary contributions to international organizations. It provides for combining the existing, separate worldwide and Latin American authorities for development loons. tech- nical assistance, and housing guarantees. 'This concept provides that a U.S. development loan be made only if financing cannot be obtained in whole or in part from other free-world sources, including private sources in the United States, on reasonable terms. 9 Organizational changes The primary organizational changes under the proposed reorganizations include: --Liquidating the existing Agency for International De- velopment. --Creating an International Development Corporation (IDC) to take over the development loan program. --Creating an International Development Institute (IDI) to perform the technical assistance function, --Creating the position of Coordinator of Development Assistance, reporting directly to the President, to be Chairman of the Boards of IDC, IDI, and the exist- ing Overseas Private Investment Corporation (OPIC) and to serve on the board of the existing Inter- American Social Development Institute (ISDI) to be renamed the Inter-American Foundation. IDC and ID1 are to be managed by a board of directors and a board of trustees, respectively, and are to have pro- posed memberships as follows: Chairman Coordinator of Coordinator of Development Development Assistance Assistance Member Secretary of Secretary of State State Member Secretary of the President of IDC Treasury Member President of IDC President of IDI Member President of ID1 One or more pri- vate citizens Member Private citizen Member Private citizen --Creating an Executive Coordinating Committee, con- sisting of the chief executive officers of IDC, IDI, OPIC, and ISDI, under the chairmanship of the Coordi- nator of Development Assistance. 10 --Creating the following positions and new organiza- tional entities within the Department of State: 1. The position of Coordinator of Security Assis- tance (Under Secretary level) which will coordi- nate two bureaus, one to administer the economic supporting assistance program (including public safety programs) transferred from AID, the other to administer military assistance and foreign military sales. 2. A new bureau under an Assistant Secretary of State to administer humanitarian assistance programs. With regard to military assistance and sales, the re- sponsibilities of the Secretaries of State and Defense un- der the reorganization proposal are essentially the same as those under the existing legislation. The chart on page 13 visually outlines the existing and proposed organizational structures and lines of responsibil- ity for foreign aid and foreign military sales. Other changes Other basic changes involved in the reorganization proposal include: --Authorizing IDC to borrow from the Treasury or from the public for its lending operations. --Authorizing IDC use of certain loan repayments cur- rently earmarked by FAA for deposit to the Treasury. (See app. II for estimated extent of such repayments during the 1970's.) u,. --Increasing military assistance and sales ceilings for Latin America and Africa. --Increasing the ceiling on surplus military equipment which can be granted without charge to appropriated funds. 11 --Authorizing the use of a range of development loan terms. --Increasing the maturities for foreign military credit sales. --Authorizing the IDC, IDI, and American schools and hospital programs for 3 years. --Authorizing the total amount needed to fulfill the U.S. grant commitment to the Indus Basin Development Project rather than annual authorizations as in the past. Appropriations still would be sought annually. 12 . . PROPOSED ORGANIZATION Ilb?‘CII,tL ’ CC”hC _Oh SFCIIR TI . PRESIDENT r"Tci'.*T ?NAL C.‘,%C. ECO~OL; c POL CY J I =3RE GN DOL CY GU:DANCE FORE 5’4 DOL CI GUIDAhCE iEC?ETARY ------__- --------_ ^- I COORD NATOR EXECUTIVE DEVELOPMENT COHMTTEE _ COORDsNATORAW _ IDC #Ci CHAIRMAN OF THE 3PlC ‘SD, BOARDS IDC ID1 OPlC POLiCY GUIDANCE SUPERL’lS,ON I ---- -ANDD&RMiNATioN OF f COUNTRY LEYELS 1 I 1 BUREAU OF BUREAU OF ASS!STAkT POLITICAL ECONOYIC SECRETARY FOR BOARD BOARD BOARD MILITARY SUPPORTING *“MAM’TARi46 #DC D, C’ c AFFAIRS ASSISTANCE ASS STANCE CDEFG AB SC 3 TV -55 STANCE HUMANITARIAN ASSISTANCE DEVELOPMENT ASS STANCE CEYELCFUEhT COORC ‘.A-% ii ;I*. ‘S AS MEMBER OF lSDl BOARD OF DIRECTORS OhLY COR PURPOSES OF M _ TAR I ASS STA.kCE AND SALES CURRENTORGANIZATION NATIONAL COVNCIL ON SECURITY - PRESIDENT INTERNATIONAL COUNC!L ECONOMIC oOLICY I J r---&~--Fo”r”“L”“““““--, ,: my- FOREIGNPOLICYGUIDANCE _ 4 SECRETARY I . STATE DEFENSE I I I ADMINISTRATOR AGENCY FOR INTERNATIONAL ECONOMIC INCLUDING I SJPPORT’NG ASSISTANCE MlLlTARY ASSISTANCE LM ’ / ] ANDVOLUNTARY AGENCIES HUMANITARIAN ASSISTANCE RESPONSIBLE FOR INTEGRATION OF ECONOMIC AND MILITARY ASSISTANCE “A I D ADMINISTRATOR ALSO SERVICES AS CHAIRMAN OF THE OPIC BOARD OF DIRECTORS AND AS A MEMBER OF THE ,SD, BOARD OF DiRECTORS DEVELOPMENT ASSISTANCE HUMANITARIAN ASSISTANCE A TECHMICAL COOPERATION H DISASTER AND REFUGEE RalEF B AMERICAN SCHOOLS AND HOSPITALS I SUPPORT OF VOLUNTARY AGENCIES C DEVELOPMENT LOANS SECURITY ASSISTANCE D BORROWlNG AUTHORITY J CONTINGENCY FUND E HOUSING GUARANTIES K ECONOMIC SUPPORTING ASSISTANCE iINCLUDING PUBLIC SAFETY F INTERNATIONAL ORGANIZATIONS IYOLUNTARY CONTRlBUTlONl L MILITARY ASSISTANCE PROGRAM M FOREIGN MILITARY SALES CREDITS AND GUARANTIES THE ABOVE CHARTS EXCLUDE THE UNITED STATES REPRESENTATIVES TO INTERNATIONAL FINANCIAL INSTITUTIONS THESE REPRESENTATIVES RECE \E THE’R ‘NSTRUCTION FROM THE SECRETARY OF THE TREASURY WHO IS ADVISED IN THESE MATTERS BY THE NATIONAL ADVISORY COUrVClL ON ,NTERNAT,ONAL MONETAR, 2.,X, F’NLNC,AL POLlClES. 13 -HATTERS FOR CONGRESSIOML - CONSIDERATION Following are certain broad observations, synthesized from our general experience and acquaintance with the for- eign aid program, which we are offering for the consider- ation of the Congress in dealing with the subject reorgani- zation proposals or other foreign aid matters. One basic justification given for the decision to place increasing reliance on, and resources with, interna- tional development organizations is the administration's judgment that the Congress, through its control of appro- priations and its supervision of the Department of the Treasury-- to which the U.S. representatives to interna- tional financial institutions report--can assure itself that such organizations' programs and policies make effec- tive use of U.S. resources and those of others. The Con- gress may wish to consider both the advisability and the means of giving legislative emphasis to the needs outlined below, to promote such assurance. Potential ramifications of proposed development policy shift The proposal that the United States move from its pres- ent directing role in international development affairs to a supporting role (by relying increasingly on international development organizations for assessment of aid require- ments, assisting recipients in charting their development programs, negotiating for necessary policy changes, super- vising development activities on a day-to-day basis, and monitoring performance) involves two basic uncertainties that the Congress may wish to examine into and consider. These uncertainties are (1) whether international de- velopment organizations have the capability and will be willing to assume the directing role envisioned for them and (2) whether the traditional and proposed U.S. emphasis on social progress and reform--the structural and distri- butional modernizations --will drop out of operations or will receive significantly decreased emphasis under inter- national organization direction. 14 . . U.S. doctrine traditionally has provided that, for U.S. development assistance to be effective, it must be de- signed to serve as a catalyst. As such it is to cause and/or permit a recipient country to mobilize a muc'h 1arpJer and accelerated development effort as a means of achieving a significant speedup in economic productivity and in so- cial and political progress. The end results are intended to be significantly larger incomes, more equal distribution of the national income, and an elevated standard of living for the citizenry of the recipient country. Foreign aid is recognized as never being more than part of the total resources available for development in a recipient country. In the absence of the will or the capa- bility of the recipient country to undertake an accelerated development effort, assistance may merely replace the do- mestic resources that otherwise might be available; it may make easier the flight of domestic capital from the country; it may postpone the initiation of necessary but politically difficult internal measures; or it may end up in the pocket of the corrupt. Recognizing these factors, the United States has main- tained extensive staffs in-country to assist the recipient in charting its development program, to develop comprehen- sive U.S. program plans, to negotiate with the recipient for necessary policy changes, and to maintain day-to-day supervision together with continuous monitoring of develop- ment activities in the country. In contrast international development organizations have been project oriented and have not maintained the field staffs necessary for compre- hensive programming, day-to-day consulting with the recipi- ent government, or continuous monitoring of recipient devel- opment activities. Certain development authorities have cast doubt on both the willingness and the capability of international development organizations to effectively perform the func- tions now performed by the United States. We asked execu- tive branch officials about what understandings or agree- ments had been reached with international development or- ganizations with respect to their assuming many of the functions now performed in the international capital assis- tance area by the United States. 15 We were informed that the U.S. decision to rely in- creasingly on international development organizations to perform the functions traditionally performed by the United States and to act as conduits for U.S. development program funds had been based not on understandings or agreements with the organizations but rather on the judgment that the evolution of the organizations during their existence sug- gested their appropriateness and ability to assume the pro- posed leadership role and that, with U.S. help, the organi- zations would be able to develop the necessary capacity to do the whole job of development assistance. Both existing and proposed U.S. development programs have asserted that improving the standard of living and the environment of the citizenry in the recipient country is the ultimate U.S. developmental objective. Accordingly U.S. doctrine holds that substantial and steady social prog- ress and reform must accompany economic development ef- forts. A question arises as to whether this emphasis on social equity and development would be vulnerable to de- creased attention under international development organiza- tion management, With the exception of the United Nations Development Program (UNDP) and a small Organization of American States Development Fund, the existing international development organizations are banks, Traditionally the capital assis- tance loans of these organizations have had to meet cost- benefit and related tests of bankability. In the social development field, sufficient long-term data have not always been available to show how proposed projects can meet such tests. Moreover social-development- type projects-- health activities, literacy campaigns, low- and medium-cost housing, population control activities, etc ,--tend to be more controversial and often require more politically difficult self-help measures. In this regard authorities have recognized that international development organizations are currently less effective than the United States in enforcing such self-help requirements. Uncertain development program rationale and goals The proposed development program lacks a clear demon- stration of t'he basis on which the program is justified and of what can be expected realistically from the program. We believe that many of the identified problems relating to U.S. foreign development assistance programs are directly relatable to the problem of uncertainty of the U.S. motives for, and basic goals of, such programs. In our opinion, a clearer picture of program rationale and of intended program goals is a prerequisite not only for effective administration but also for a responsible as- sessment of results. We believe that, without a reasonably clear rationale and definite aims, such aid is certain to be increasingly questioned by the Congress and by the pub- lic, which will rightly want some measurable evidence that their investments in such aid are sound and warranted. Traditionally justification for U.S. foreign aid has tended to change with each administration. One administra- tion justified the program as being both essential to U,S. security and important to U.S. prosperity. Another adminis- tration justified the program on more altruistic grounds, pointing out that the United States should help poor na- tions not because it would promote U.S. prosperity but be- cause it would be right, Still another administration rea- soned that U.S. responsibility to the developing nations was the price for maintaining U.S. power and influence. Academic authorities also have expressed divergent views on the question of whether, and/or the extent to which, the U.S. foreign development assistance program should be motivated altruistically or in terms of U.S. ben- efit, The proposed program is justified as being necessary to promote world peace. The underlying premise is that the prospects for world peace will be enhanced if the two thirds of humanity who live in lower income countries can see Rope for development. Development is identified as adequate food, shelter, education, and employment. The program pro- posal does not demonstrate the validity of this premise by 17 , . using past program experience to Show either (1) the corre- lation between external assistance inputs and improvements in recipient countries‘ food, shelter, education, or employ- ment availabilities or (2) the correlation between such de- velopment and the political stability or peaceful interna- tional behavior of the recipient, In this regard the Pearson Commissionlpointedout that a country's development was no guarantee of either. With respect to program goals, the reorganization pro- posal--which redesigns the program for the decade of the 1970's--does not address or specify specifically what re- sults are sought or what results can be expected from the program. The proposal does specify that the general goal is to assist in building an equitable political and eco- nomic order in the world. We note that the United States has about 8-l/2 percent of the free world's population of 2.5 billion but about 40 percent of the free world's income. If all free-world countries were to achieve a per capita in- come equaling that in the United States--pursuant to this general goal-- the United States would have 8-l/2 percent of the free world's income. In a different perspective increasing recognition is being given to the fact that the world's population is in- creasing at a geometric rate--if recent trends continue, the worldss present population of 3.5 billion will double in the next 30 years-- and to the question of the level of population that the worldss resources and potential produc- tive capacity will support assuming world resources are fi- nite and can support only a finite population. Some authorities have estimated that, if the standard of living now enjoyed in the United States is used as the standard, the world's resources and potential productive capacity can support no more than the present world popula- tion. Others have estimated that a population of up to 30 billion can be supported at a near-starvation level, 1Partners in Development: Report of the Commission on In- ternational Development (Lester B. Pearson, Chairman) to the International Bank for Reconstruction and Development (IBRD), 1969, p+ 7. . The probable degree of equity change, the degree of improvement in standards of living, or other results de- sired or expected from the U.S. development program are not specified. The United States 7ias, however, endorsed the ob- jective of the International Development Strategy of the Second United Nations Development Decade, which calls for a growth rate in gross national product (GNP) in less de- veloped countries of 6 percent annually. During the 1960's U.S. assistance to less developed countries, excluding debt rollovers and assistance result- ing from preferential trade arrangements, totaled more than $54 billion, or about 64 percent of the assistance made available by developed countries to developing countries. Results experienced during the decade showed that the GNP of developin, 0 countries (1) grew at a faster rate (5.5 percent) than during the preceding decade (4.8 percent) and (2) grew at a somewhat faster rate than that of devel- oped countries (4.8 percent). The population of the devel- oping countries, however, also grew more rapidly than that of the developed countries. As a result the gap in per capita GNP between developing countries and developed coun- tries further widened during the decade, as shown below. INDEX I960=100 180 I ---Lr- PERCAPITAGROSSWTIONAL PRODUCT AVERAGE ANNUAL GROWTH RATE 1 I - - -I 1960 70 I 160 LESS DEVELOPED In terms of world economic equity, the distribution of the free ::orld's income ai the beginning and at the end of the decade was as follows:1 1960 1969 Percent of Percent of Free- Free- Free- world Free- world world PoPu- world PoPu- income lation income lation Less developed countries 16.2 70.2 16.7 72.7 Developed countries: United States 43.9 9.1 41.6 8.5 All others 39.9 20.7 41.7 18.8 83.8 29.8 83.3 27.3 --100.0 100.0 100.0 100.0 There is no comprehensive set of statistics reflecting the aggregate progress or retrogression of housing, health, education, or employment conditions in the developing coun- tries during the past decade. As discussed on page 24, we believe that the equity problem--the question of whether the benefits of economic growth and development are accruing basically'to small affluent groups or are being distributed equitably--has received insufficient attention by U.S. for- eign assistance managers. We believe also that the lessons of the past decade point up the acute need for greater precision in identify- ing what is sought, demonstrating w'hy it is sought, esti- mating what is expected, and analyzing what is achieved from the U.S. foreign development assistance program. (See pp, 22 to 26 for a discussion of the need for the development of criteria and standards for measuring relative develop- ment progress.) 1 Statistical data of this nature are subject to numerous qualifications and represent rough estimates or approxi- mate orders of magnitude rather 'than precise statistics. All data are based on constant 1969 prices. 20 A fundamental effort to clarify program rationale and to identify attainable goals in mea&abie terms, combined with rigorous and periodic assessments of goal attainment, would provide a basis for comparing cost inputs with achievement outputs and for demonstrating the measurable results from investment in the development program. This, in turn, would narrow substantially the range of current uncertainty with respect to program achievements and would provide the Congress and the public with a more tangible basis for weighing the relative merits of investing in the program during the coming decade. 21 Need for establishment of allocation and evaluation standards A basic principle underlying both past and proposed U.S. development assistance programs is that a recipient country should receive assistance in relation to the level of development effort and sacrifice that it is making in its own behalf. Standards establishing a common basis for mea- suring and evaluating a recipient country's performance and development progress, however, have not been developed. Thus this principle has not been translated into criteria that can be applied consistently. In view of the plan to channel an increasing share of U.S. development resources through international development organizations and to encourage these organizations to assume more leading roles in charting the development course of re- cipient countries, we believe that the need for the develop- ment of such standards is an important requisite for effec- tive and equitable allocation of resources. Recognizing that the United States has pioneered in the development of a number of assistance concepts, including concessional lending, use of surplus agricultural commodi- ties, nonproject and other assistance, and Peace Corps as- sistance, we believe also that the opportunity and circum- stances currently exist for the United States to pioneer in promoting the development of generally acceptable allocation and progress evaluation standards, Allocation standards It generally is recognized that the total volume of aid today is not adequate to provide all the resources which the developing countries can use productively for their develop- ment. Thus there is a need for criteria by which develop- ment assistance can be effectively and equitably allocated. The Congress has provided, in existing legislation, that the allocation of U.S. development assistance resources be tailored to the relative level of development effort and sacrifice that a recipient country is making in its own be- half, The proposed legislation provides for continuing this legislative policy. 22 ’ . U.S. development assistance has been used in recent years for both development and nondevelopment purposes. A considerable amount of development assistance has been used to promote a variety of short-term political purposes, such as (1) protecting U.S. economic and military interests, (2) influencing recipients' foreign policy views, and (3) buying time for new regimes to consolidate their positions and to formalize their programs of action. The proposed IDC and ID1 are to be separate instruments less closely tied to the nondevelopment influence of the existing program, With respect to those development resources used for development purposes in the past, U.S. program managers gen- erally have outlined the principal changes that characterize economic and social development and the nature of public policies believed necessary to promote and secure such changes, They have not developed, however, explicit perfor- mance criteria --nor have international development organiza- tions --which can be applied consistently among assistance recipients to serve as an effective and equitable basis for allocating development aid. The administration's proposal provides for channeling an increasing share of development assistance through in- ternational development organizations, In the past these organizations have been concerned largely with the transfer of capital for particular projects, technical assistance, and preinvestment work. As such they have not developed (1) a capability for continuous examination into practices and policies that bear on the effectiveness of the recipi- ent's development program as a whole, although evidence is available that IBRD is moving in this direction, or (2) al- location criteria for tailoring development assistance to the level of country performance. It is questionable whether it would be reasonable to expect international development organizations of the one- country-one-vote type to relate the level of aid to the level of country performance or to terminate assistance for the lack of performance, without clear and generally ac- cepted standards, For these reasons we believe that there is a need for allocation standards and that the opportunity and 23 ’ circumstances exist for the United States to pioneer in pro- moting the development and acceptance of such standards. Progress evaluation standards The ultimate development purpose implicit in both the existing and the proposed legislation relates to accelerat- ing improvements in the standard of living of the citizenry in recipient ccuntries. Little, if any, attempt has been made by U.S. program managers, however, to evaluate the im- provement, retrogression, or acceleration of such change in the standard of living of the citizenry of recipient coun- tries or to correlate such changes with external assistance inputs. U.S. evaluation efforts generally have focused princi- pally on the shorter term results. We have found that the equity problem-- the question of whether the benefits of eco- nomic growth and development are accruing basically to small affluent groups or are being distributed equitably--has re- ceived insufficient attention by U.S, foreign assistance program managers. U.S. program managers use GNP growth, recognizing its limitations, as a basic yardstick to gauge a recipient#s economic development progress, The GNP growth rate measures increases in total national production and, through this, the changes in the resources which each country has avail- able over time for consumption, investment, and exports, on which both growth and welfare depend. Use of the GNP growth as a basic progress gauge has several limitations, including: --The GNP index neglects the fact that many, if not most, of the forces that bear heavily on GNP may not be within the immediate control of the recipient country government, --The GNP index does not give visibility to the impact of such external factors as weather or world-market prices. --The initiation of basic institutional or distribu- tional reforms by the recipient government may have little impact on the short-run per capita GNP growth, --The average per capita GNP growth masks the very un- even income distribution and the large gaps between the rich and the poor in many countries, With respect to the evaluation of social progress in developing countries, little systematic study and analysis of means of evaluating such progress, particularly on an ag- gregate basis, has been performed to date. U.S. program managers have not developed or established standards for ob- jectively measuring social progress. Generally existing U.S. guidance states that: --Income distribution and land ownership should become more equitable, --Recipient governments should be increasingly respon- sive to the needs for education,housing, health and sanitation, employment, and general welfare facilities. --There shoud be a trend toward increasing protection for civil rights and toward greater popular partici- pation in national affairs. --Taxation should move toward greater equity as well as toward increased yields. In addition to lacking standards, the evaluation of re- cipient social progress is limited by the lack of a wide variety of data necessary for determining what public pro- grams have accomplished. We also have noted that U.S. pro- gram managers have not developed action programs either to identify the nature of the data needed or to set in motion the actions necessary to gather such data, although there are varied information-gathering programs conducted by U.S. agencies and by international organizations. If the Committee concurs that there is a significant need for the development of generally accepted allocation and progress evaluation standards, it may wish to give leg- islative emphasis to this need, possibly by adding the fol- lowing paragraph to section 404 of the proposed IDHAA. (d) The Congress declares that, in view of the lack of generally accepted allocation and progress 25 evaluation standards which wortld permit consistent application among the developing countries, there should be a comprehensive U.S. effort to secure the development, and general acceptance by international financial institutions, of such standards in the near future, Foreign aid structure not conducive to consideration of optimum assistance mix We have observed that the present system for establish- ing the type and nature of assistance for individual recipi- ent countries does not provide for formally exploring or developing the pros and cons, or the estimated costs and benefits, of various alternatives as a means of developing an optimum assistance mix, This does not mean that alternatives are not considered at many stages of the program formulation and review process for an individual recipient country, But available evidence shows that this consideration seldom has been backed up by a systematic comparison of the estimated costs and benefits of each course under consideration. For example, recent planning guidance in one region9 relating to development loans, technical assistance, economic supporting assistance, Public Law 480 sales and donations, and guaranty programs, points out that significant changes in the mix (i.e., increasing the resource input of one agency or program and offsetting it with a corresponding decrease in the resource input of another agency or program) of assistance programs in a given country should not be considered because the responsible agencies have not yet de- veloped a system which will permit interagency or interpro- gram trade-offs. The reorganization proposals do not change the number of U.S. foreign assistance programs but do increase, as dis- cussed on page 10, the number of agencies administering these programs. We were unable to find, as a part of the reorganization proposals, evidence of plans for requiring formal and systematic consideration of interagency or inter- program trade-offs as a means of establishing an optimum U.S. assistance mix for a given country. 26 . . The lack of formal and systematic analysis of program alternatives is a reflection of the fact that the United States has not one program of foreign assistance but a num- her of separate instruments of assistance and a number of different administering agencies. Under the proposed re- organization the agencies and the programs for which they have varying degrees of responsibility are as follows: Development loans Coordinator ot Deveiopment Assis- Technical assistance tance TDC, -5.. OPIC, and ISDI) Contributions to international organizations 'note a) Guaranty programs Economic supporting assistance Humanitarian programs Public Law ia'0 sales and donations programs Preferential trade arrangements Military assistance 'grant aid, cash sales, Department of State and credit sales) Guaranty programs Capital subscriptions to international organi- zations (note a) Contributions to international organizations 'note a) Military assistance (grant aid, cash sales, Department of Defense and credit sales) Capital subscriptions to international organi- Department of the Treasury zations (note a) Contributions to international organizations (note a) Department of Agriculture Public Law 480 sales and donations programs Peace Corps Peace Corps programs Export-Import Bank Export-Import Banir programs aUnder the reorganization proposal, IDC is to be responsible for the day-to-day su- pervision of the program of contributions to international organizations (I-kited Nations Group, IBRD and affiliated agencies, and the regional development ban's). The Secretary of State is responsible for management of U.S. contributions to in- ternational organizations (except for international financial institutions) and for supervision and direction of U.S. representation to these organizations. The Secretary of the Treasury is responsible for the supervision and direction of the U.S. executive directors in the international financial institutions. The Secretary of the Treasury is, in turn, advised on these matters by the National Advisory Council on International Monetary and Financial Policies. The difficulty of developing methods for estimating the costs and benefits of various assistance program alter- natives is not to be minimized. Noting, however,that the United States is in its third decade of experience in plan- ning programs to promote accelerated development in devel- oping countries and that relative to need there is a recog- nized scarcity of U.S. assistance resources, we are of the 27 opinion that the need is compelling and the time opportune for creating a system which requires and permits interagency and interprogram trade-offs as a means of reducing the cost and of optimizing the impact of available foreign assistance resources for a given country. 28 Need for consickrinp whether increasii recipient debt-service burden invalidates argument for loan as opposed to grant assistance In view of the increasing debt-service problems of the developing countries, the question arises as to how realistic and practical it is to provide most external assistance to these countries as loans rather than as grants. On the other hand, if the basic argument for providing capital assistance as loans rather than as grants continues to be valid, why should such argument not be equally valid for technical as- sistance, which traditionally has been provided largely on a grant basis? Since some current aid is used,in effect, to permit re- payments of earlier loans, little progress can be expected toward dct-eloping the recipients' economies, AID is re- quired, under existing legislation (sec. 201(b)), to provide loans only when there are reasonable prospects of repayment. The prospects of repayment, however, generally tend to be based on an assumption that additional aid will be forthcom- ing from the United States or other donors. There are, of course, sound arguments for preferring loans to grants, and the Congress generally has been in fa- vor of loan assistance. Having the original aid returned with interest is the obvious advantage of loans, and there are undoubtedly advantages in having the recipient assume such a responsibility rather than be in the position of an indigent receiving charity. There are also problems associ- ated with furnishing assistance on terms different from those of other donors, particularly when there are consor- tium arrangements. Nonetheless it seems somewhat misleading to the Con- gress and to taxpayers for annual requests for aid authori- zations and appropriations to stress the high proportion of loans at the same time that the projected debt-service ca- pacity of the developing countries is limited and debt re- schedulings and rollovers are becoming more prominent. (See p. 64.) In effect loan appropriations have been used to pro- vide grant-type assistance through the use of long-term grace periods, concessional interest rates, and resched- ulings of loan payments. 29 It appears that the increasing severity of the situation may necessitate the reassessment of the validity of the basis for loan as opposed to grant assistance, as well as the va- lidity of the foundation for the determination made each time that there are reasonable prospects of repayment. Proposal for expansion of program justifications t,o the Congress Development is recognized as a long-term endeavor. Tra- ditionally foreign assistance program presentations have in- volved a short- term focus. Past experience has shown that (1) congressional officials have not always expressed faith and confidence in foreign assistance programpresentations and (2) assistance program presentations have not always included comprehensive information, on program motives and progress. In addition, the several separate programs and instruments of U.S. assistance are justified individually. This results in the absence of collective data relating past and proposed ag- gregate resource flows with the changes that have resulted or are expected to result from such flows. For these reasons we believe that there would be merit in a system of program presentation which would present (1) collective information on all U.S. assistance programs and resource flows and (2) a comprehensive, unified plan for each separate program-- not in relation to a single year but in terms of ultimate U.S. goals and purposes3 strategy and financing requirements for achievement of such goals, and progress reporting on achievements--for the overall program, for each recipient country, and for each region if a program segment was directed toward a region (e.g., the Indus Basin and the Central American CoimmonMarket). We propose that program presentations to the Congress include, among other things: With respect to goal definition and achievement strategy --A definitive statement, for the program as a whole, of both the short-term and the ultimate program goals stated in measurable terms, together with the planned strategy, financing estimates, and time frame for achievement of the stated goals. 30 . --A definitive statement, for each recipient country, of both the short-term and the ultimate development goals which have been and are to be supported by the United States, stated in measurable terms, together with the planned achievement strateg;r, budget estimates, and time span envisioned for individual programs and final phaseout. With respect to resource flows -An analysis of the total U.S. resource transfers to and from each assistance recipient, including economic and military assistance loans and grants; military cash sales; Public Law 480 commodity sales and dons- tions; assistance resulting from preferential trade arrangements; export loans; debt repayments; debts re- scheduled; and net private industry sales, purchases, capital repatriations, and profit remittances. With respect to progress reporting --A measurement of aggregate program achievements with aggregate program goals and with cost inputs. --A measurement of the extent of long-range acceleration of economic, social, and political development in each recipient country receiving U.S. development assis- tance and its comparison with the level of accelera- tion anticipated by the United States or by interna- tional development organizations. --A comparison of recipient country development perfor- mance with established performance standards and with levels of performance anticipated by the United States or by international development organizations. The need for each item above, except for aggregate re- source flows, has been discussed in other sections of this report. The basis for these needs is outlined below. Development, to a large extent, is a function of invest- ment. The most important ingredient in investment is capi- tal. A developing nation may obtain capital for development internally through increased domestic savings and expanded 31 trade surpluses or externally through loans and grants or private investments from other countries. Similarly a country's capital resources may be depleted by investments of capital abroad, repayinents of external debts, trade deficits, and remittances of profits or capital by foreign entities. The United States has a variety of programs which result in the transfer of resources to or from recipients; ieepg various loans and grant programs, Public Law 480 commodity sales and donations, military cash sales, export loans, as- sistance resulting from preferential trade arrangements, debt reschedulings and repayments, and private industry transac- tions. Present foreign aid program justifications to the Congress do not provide informtion on collective and net U.S. resource transfers to recipient countries, In view of the importance of capital to the development process and of the numerous U.S. programs and activities re- sulting in resource transfers to and from assistance recipi- ents, we believe that the increased visibility that such in- formation would provide would be of great benefit to the Con- gress in its deliberations and decisions on foreign assis- tance authorizations and appropriations, If the Committee agrees with the above proposals, it may wish to consider adding the following provisions to section 409 of ZDM, (c) Annual program justifications offered to the Con- gress for any program authorized by this act will include but will not be %in5ted to: --A definitive statement of both the short-term and the ultimate program goals stated in measurable terms and within given time frames and a state- ment of estimated financing requirements. --A definitive statement of both the short-term and the ultimate development goals supported by the United States and/or by international deve'aopmznt organizations in each recipient country or re- gion, stated in measurable terms, together with 32 estimated total resources transfers, financing plans, and the time span envisioned for final phaseout of U.S. assistance to the country. --A comparison of aggregate program achievements with stated program goals and with total costs in- puts. --A schedule, for each recipient country, showing the total U.S. resource transfers to and from the country, including U.S. assistance loans and grants; military cash sales; Public Law 480 com- modity sales and donations; assistance occurring from preferential trade arrangements; export loans; debt repayments and reschedulings; and pri- vate industry sales, purchases, capital repatria- tions, and profit remittances. --A measurement of development achievements for each recipient country and a comparison of such achievements with U.S.-supported short-term and ultimate development goals in the country and with aggregate U.S. resource inputs. --A comparison of each recipient's short-term per- formance with established performance standards and with anticipated levels of performnce. --An analysis of the extent of each country's long- range acceleration of economic, social, and po- litical development. Similarly the following items could be added to section 51(a) OfISAA. (4) A defi nl't ive statement of both the short-term and the ultimate program goals stated in measurable terms. (5) A defi ni t ive statement of both the short-term and the ultimate U.S. program goals in each recipient country, stated in measurable terms, together with the time span Gxvolved and an estimate of the data envisioned for final phaseout of program activities. 33 (6) A comparison of each recipient's past program achievements with stated program goals and with program inputs. 34 . . CHAPTER3 COMPARISONOF DEPARTMENTOF STATE CONTROL OF POLICY AND OPERATIONSUNDER EXISTING AND PROPOSEDPROGRAMS This chapter outlines the changes in the role of the Department of State in controlling policy and operations of U.S. foreign assistance programs. The nature and scope of these changes, insofar as they could be ascertained, includ- ing the relationship of the Department to other existing or proposed agencies, is discussed. In summary, under the proposed reorganization, the De- partment of State is to have (1) less day-to-day operating control but continued responsibility for foreign policy con- trol over development programs, (2) increased control to the extent of being fully responsible for economic supporting assistance and public safety programs, and (3) basically the same policy control but an enhanced capability for operating control over military assistance, foreign military sales, and humanitarian assistance programs. NATURE AND SCOPE OF CHANGES The administration noted that the role of the Secretary of State, in providing foreign policy guidance for security assistance, would change little from the present arrangement whereas such guidance on development assistance would stress the longer range emphasis of such development programs and their divorce from shorter term political and military con- siderations. With respect to security assistance, the proposed role is as follows: --The statutory division of responsibilities between the Secretaries of State and Defense on military as- sistance and foreign military sales programs essen- tially would be unchanged and authority for final ap- proval would remain with the Secretary of State. This authority would be extended, under the proposed legislation, to cover supporting assistance (including public safety programs). 35 --The capability of the Department of State to control the policy and operations of security assistance would be enhanced, according to the administration, by the creation of a Coordinator of Security Assis- tance at the Under Secretary of State level and by the inclusion of supporting assistance as well as military assistance and sales under Department of State control. --The planning of security assistance programs, includ- ing military assistance,would be more integrated by a recently formed Planning and Analysis Staff, com- posed of civilian and military experts, which would be made directly responsible to the Coordinator. --Foreign military sales, including commercial sales, still would be subject to final approval by the De- partment of State which would coordinate its deci- sions with the Departments of Defense and the Trea- sury. With respect to development assistance, the proposed role is as follows: --IDHAA stipulates that the Secretary of State provide foreign policy guidance to the Coordinator of De- velopment Assistance and to each of the present or proposed assistance organizations in part through Department of State representation on each of their boards. --Department of State representation to international organizations and its advisory role with respect to U.S. representatives to international financial in- stitutions remain essentially ,unchanged. Additionally, humanitarian assistance, refugee and disaster relief, and support of voluntary agencies, would be administered by a new Department of State bureau headed by an Assistant Secretary of State. This would centralize the coordination of such assistance which is presently car- ried out through numerous Federal offices. 36 . . Security assistance The statutory division of responsibilities between the Secretaries of State and Defense with respect to military assistance, economic supporting assistance, and foreign mili- tary sales is the same under proposed and existing legisla- tion. This authority should be extended to cover economic supporting assistance (including public safety programs). ISAA, section 3(b) stipulates the responsibility of the Secretary of State for "the continuous supervision and gen- eral direction" of these programs, including the responsi- bility for deciding whether there will be any such program for any particular country, and combines the legal language of FAA, section 622(c) and FMSA, section 2(b). Administration officials have noted that,although the new legislation proposes no change in this division of re- sponsibilities, it will provide for strengthening the means by which the Secretary of State can fulfill these responsi- bilities. Controlling policies and operations of foreign military sales involves not only the Departments of State and Defense but also the Department of the Treasury. The Department of State determines whether any individual sale is to be ap- proved and in what amount, its consistency with foreign pol- icy and pertinent legislation, and the assurance of full in- teragency coordination on these matters. Primary responsi- bility for the control of military exports rests with the Bureau of Politico-Military Affairs; within the Bureau, com- mercial transactions are processed by the Office of Munitions Control and Foreign Military Sales and by the Office of Mili- tary Assistance and Sales. A new Coordinator of Security Assistance at the Under Secretary level, to be located in the Department of State, would devote his time solely to these programs and would re- port directly to the Secretary. In turn the present Bureau of Politico-Military Affairs and a new Bureau of Economic Supporting Assistance incorporating the present AID structure for this function (and for public safety programs) would re- port directly to the Coordinator. 37 A recently created Flanning and Analysis Staff, pres- ently operating under the Bureau of Politico-Military Af- fairs, would come under the office of the Coordinator. Com- posed of military and civilian specialists, planners, econ- omists, and systems analysts, this staff would prepare the integrated country analyses necessary for projecting the optimum level and mix of security assistance resources and the potential impact upon the recipient country. The Depart- ment of Defense would continue, however, to have primary ad- ministrative responsibility for administering military as- sistance and foreign military sales. In addition, a new Inspector General of Foreign Opera- tions, directly responsible to the Secretary of State, would review both security and development assistance programs for their consonance with U.S. foreign policy, Administration officials have noted that these organi- zational changes will strengthen and build upon the improve- ments in interdepartmental cooperation on security assistance while enhancing the capabilities of the Department of State to maintain policy control over them. Development assistance IDHAA stipulates that the Secretary of State provide foreign policy guidance to the Coordinator of Development Assistance and to each of the present or proposed organiza- tions administering development assistance programs. The Secretary of State is a member of the President's Council on International Economic Policy (CIEP) and, in the absence of the President, the Chairman of CIEP, CIEP will have an op- erations group, chaired by the Deputy Under Secretary of State for Economic Affairs, which will discharge some of the coordination functions. A Department of State representative will sit on each organization's board. The Coordinator will maintain liaison with CIEP. It is not clear, however, what authority the Secretary of State will have, ,under his role of providing foreign pol- icy guidance, in overriding any development assistance pro- posal in the light of pressing foreign policy considerations. Administration officials have noted that the coordination between development and security assistance will be provided 38 by the two coordinators, the Secretary of State, CIEP, the National Security Council, and ultimately the President, Under existing arrangements the Under Secretary of State has the responsibility for coordinating economic and military assistance. Assistance plans for individual coun- tries initially are drawn up by the country teams with in- puts from field representatives of the Departments of State and Defense as well as from AID and other agencies. In the case of Latin America, the AID and State bureaus actually are combined and headed by the Assistant Secretary and Coor- dinator of the Alliance for Progress. U.S. representatives to the international financial in- stitutions will continue to be responsible to the Secretary of the Treasury. The Department of State will continue its membership on the National Advisory Council on International Monetary and Financial Policies which provides advice to the Secretary of the Treasury on his instructions to U.S. repre- sentatives to these financial institutions. 39 CHAPTER4 COMPARISONOF EXISTING AND PROPOSED LEGISLATIVE RESTRICTIONS AND WAIVER AUTHORITIES This chapter compares existing and proposed legislation for changes in legislative restrictions and Presidential waiver authorities. It contains a summary of the nature and scope of these changes and an identification of some issues arising from such changes which we feel warrant the particu- lar attention of the Congress. A section-by-section com- parison of restrictions and waivers in existing and proposed legislation is included as appendix III. NATURE AND SCOPEOF CHANGES IN RESTRICTIONS AND WAIVERS The restrictions and related Presidential waiver au- thorities contained in existing legislation on U.S. foreign assistance are greater in relation to security assistance than to development assistance. This is also true under the administration's reorganization proposals. IDHAA contains no separate section on general restrictions, such as sec- tion 620 of the Foreign Assistance Act of 1961, as amended. ISAA,on the other hand, does contain such a section although such restrictions have been reduced in number. We have noted from this comparison of existing and pro- posed legislation that the scope of legislative restrictions in their effect on U.S. assistance programs has been nar- rowed although that for waiver authorities has been broad- ened. Recognizing the difficulty of defining in all cases just what constitutes a restriction and the difference in effect of changes in major versus minor restrictions as well as other necessary qualifications, we have designated in the following table the number of areas in which such changes have occurred. Carried over Modified Deleted New Restrictions 67 58 98 10 Waiver authorities 7 3 13 7 This appears to be a reflection of the administration's pur- poseful separation of shorter range U.S. national security objectives from assistance designed to achieve socioeconomic development objectives and to provide greater administrative flexibility. The inherent difficulty in defining the word "restric- tion" led us to adopt the approach whereby a limitation on the use of authority and on the scope of authorized activity (as opposed to a dollar limitation) or a requirement of ac- countabili:y provided by the existing and proposed legisla- tion would be considered a restriction. In effect this ex- pands the inclusiveness of the term which otherwise might be confined to those provisions explicitly using the word "restriction" or similar terms. In like manner the scope of Presidential waiver author- ity is greater under the generic as opposed to the narrower use of the term. Such authority can be exercised by such means as Presidential determinations, findings, or certifi- cations; the fulfilling of conditional requirements by some- one other than the President; and by other means. Moreover any given restrictive provision may be made up of several interrelated restrictions, A deletion or ad- dition in any one of these situations may well represent a modification in net effect. Restrictions and waivers--development assistance The statutory restrictions on development assistance of FAA of 1961, as amended, have been substantially reduced. One general restriction on development assistance, contained in the proposed IDHA& has been incorporated into a defini- tion of "friendly foreign countries and areas," which modi- fies several FAA restrictions on assistance to Communist countries or to those severing diplomatic relations. Added to the proposed definition is the authority for the President 41 . . . to waive its restrictions when he finds such waiver to be in the national interest. Those general restrictions of FAA (section 620) relat- ing to the furnishing of assistance to countries which (1) take no action on recognized outstanding debts to U.S. cit- izens, (2) plan aggressive acts, (3) permit mob destruction of U.S. property, (4) seize U.S. fishing vessels, (5) are in default of loan payments, or (6) are in arrears on their obligations to the United Nations have been deleted as far as development assistance is concerned. (For their rela- tionship to security assistance, see pa 45. Exceptions include modified versions of the prohibi- tions on furnishing assistance to countries expropriating U.S.-owned property or unnecessarily diverting development resources to military purposes. These have been made con- siderations for the approval of development loans. Separate worldwide and Latin American authorities for development loans, technical assistance, and housing guar- anties have been combined. Restrictive provisions on con- ditions of eligibility, self-help, and terms of assistance in the programs have been substantially modified or elimi- nated. The same holds true for assistance to international organizations and programs although the 40-percent limita- tion on the U.S. contribution to UNDP has been carried over. Authority for programs relating to population growth has been combined with that for technical cooperation, and the restrictions on such population assistance generally have been carried over. Provisions covering proposed borrowing authority, ex- panded reflows from program funds under predecessor legis- lation, and the establishment of corporate structures to administer the assistance program have been added as well as a 3-year authorization request. Titles V, VI, VII, VIII, IX, and XI of FAA have been deleted in their entirety. These are: Title V Development Research Title VI Alliance for Progress 42 Title VII Evaluation of Programs Title VIII Southeast Asia Multilateral and Regional Programs Title IX Utilization of Democratic Institutions in Development Title XI Food Production Targets and Reports IDHAA, chapter 3 draws into one chapter on humanitarian assistance the FAA provisions on (1) disaster and refugee relief and (2) support of voluntary agencies. The restrictions contained in chapter I of part III of FAA, as they relate to development assistance, have been largely deleted. Among these are the provisions covering procurement outside the United States, the annual appropria- tion of foreign currencies, patents and technical informa- tion, the use of Government-owned excess property as assis- tance, the transfer of funds between accounts, the comple- tion of plans and cost estimates for loans and grants of over $100,000 and for capital projects of over $1 million, and the termination of assistance by concurrent resolution. (For such restrictions in ISAA, see pp. 45 and 46.) The administrative provisions of chapter 2 of part III of FAA, insofar as they apply to development assistance, have been modified or deleted to conform to the organiza- tional changes proposed by the administration. (See p. 10.1 Some of the restrictions within these provisions which have been deleted are those covering the language and area com- petence of personnel, the provision of public information, the termination of assistance upon the expiration of a 35- day period during which the Congress or GAO was denied ac- cess to certain information, required information to be con- tained in annual appropriation requests to the Congress, and the separate authorization and appropriation of administra- tive funds. Restrictions and waivers--security assistance Unlike the proposed development assistance legislation, ISAA does contain a section on general restrictions. ISAA 43 deletes or changes many of the restrictive provisions of FAA, FMSA, and other acts. Not repealed, however, is the so-called Cooper-Church amendment on Cambodia--section 7 of the Special Foreign Assistance Act of 1971 (Pub. L. 91-652). The Reuss amendment to section 1 of FMSA, expressing the sense of the Congress on aid to repressive military regimes, has been extended to cover all security assistance although its related waiver authority has been deleted as "legally unnecessary." FAA conditions of eligibility on defense articles and services provided under the military assistance program (MAP) have been extended to cover the provisions of such articles and services under all forms of security assistance (ISA, sec. 31). A Presidential determination (ISAA, sec. 34(h)), however, has been added to provide a means to lift the otherwise mandatory termination of assistance to countries which violate those conditions (FAA, sec. 505(d)). The authority of FAA (sec. 610) to transfer funds be- tween accounts has been extended under ISAA (sec. 24(b)) to all forms of security assistance, increasing the maximum transferable from 10 to 20 percent of any single fund and deleting the ZO-percent limit on the amount by which any single fund can be increased. The X-country limitation on supporting assistance con- tained in FAA (sec. 401) has been carried over but does not apply to public safety programs which will be supported by these funds. The 40-country limitation on military assistance loans and grants contained in FAlla (sec. 504) also has been carried over but will not apply to barter transactions newly autho- rizedunderthe authority of ISAA (sec. 34). The ceiling on the aggregate amount of excess defense articles which can be granted in any fiscal year without charge to appropriated military assistance funds has been raised from $300 million at acquisition cost (provisions of the FMSA amendment of 1971, sec. 8, Pub. L. 91-672) to an amount equal to the expected availability of such articles for that fiscal year (IS& sec. 34(f)). An amount of $660 million (acquisition cost) is proposed for 1972. 44 Exceeding the ceiling would require an expenditure of mili- tary assistance funds equal to 33-l/3 percent of the arti- cles' acquisition costs. The required certification (FAA, sec. 509) of a recip- ient's capability to effectively utilize defense articles having a value in excess of $100,000 has been carried over. The authority of the Secretaries of State and Defense to waive that requirement has been combined and carried over. This certification does not apply to barter transactions or to excess defense articles. Terms and conditions on sales credits and guaranties have been modified and made more concessionary, including provisions for refinancing and foreign financing, lower in- terest rates, authority for an extended maturity date, and authority to alter the terms and conditions of outstanding credits, Of the general restrictions in ISAA (sec. 421, the ma- jority are modified versions of specific prohibitions con- tained in FAA (sets. 620 and 504) and one is new. Two of the modified FAA (sec. 620) restrictions have parallel re- strictions in FMSA. Several related Presidential waiver authorities have been deleted as have the applicable restric- tions. The proposed restrictions relate to furnishing as- sistance to Communist countries, economically advanced countries, countries with which we do not maintain diplo- matic relations, or countries which seize or fine U.S. fish- ing vessels. Also included are restrictions on assistance to developing countries diverting development resources to military purposes and a prohibition on providing sophisti- cated weapons systems to less developed countries, A new provision relating to illicit drug control traffic has been added. Some of the deleted restrictions of FAA (sec. 620) relate to Cuban compensation for confiscated U.S. property, countries having recognized long-outstanding debts to U.S. citizens, countries planning aggressive acts or permitting mob destruction of U.S. property, and assistance to the United Arab Republic. The aggregate ceiling on foreign military sales credits and guaranties has been modified to exclude from counting against the ceiling guaranties on the sale of outstanding . .- promissory notes. In addition, the amount has been raised from $340 million for fiscal years 1970 and 1971 to $582 million for fiscal year 1972. The regional foreign military sales ceilings (ISAA, sec. 44(a)) on Latin America and Africa have been raised from $75 million and $40 million to $150 million and $60 mil- lion, respectively. The $25 million ceiling on military assistance to T&tin America and Africa, as set forth in FAA (sets. 507(a) and 5081, has been retained,, The ceiling applies, however, to the value of programmed defense articles for each region whereas formerly it applied to all military assistance to Africa. The conditional prohibition on further military as- sistance to Latin America has been deleted. FAA (sec. 6171, stipulating that assistance could be terminated by concurrent resolution unless sooner terminated by the President, has been deleted. The 12-month limitation on the availability of funds for terminated assistance has been carried over, and new authority has been added to reim- burse any agency for out-of-pocket losses on suspended or terminated security assistance transactions--including for- eign military sales. Presidential waiver authorities in FAA (sec. 633) on all laws (other than the Renegotiation Act of 1951, as amended (50 U.S.C. app. 1211 et seq.>>, governing contracts and expenditures and on the NGtrality Act (54 Stat. 4) have been extended to cover all forms of security assistance (ISAA, sets. 63(d) and (e>). The authority to waive the holding of civilian offices by military personnel has been carried over to ISAA (sec. 72(j)). Required reports and presentation documents on the various forms of security assistance have been consolidated under section 54 of ISAA. In addition, the administration stated its intention of supplying certain other information which would not be legally required under section 54. The FAA (sec.634(c)) provision which prohibits the use of funds after the expiration of a 35-day period in which a requested document has not been provided to a 46 ‘. . congressional committee or to GAO has been carried over to ISAX (sec. 55). A new provision (ISAA, sec. 69(b)) autho- rizes the President to order the cessation of any monitoring or auditing activities of any agency with respect to any terminated or suspended assistance under this or predecessor legislation when he determines that the residual U.S. Gov- ernment interest in such assistance no longer warrants such activities. . 47 SOME----- ISSUES1_-- ARISING FROM PROPOSED -- LEGISLATIVE -- CK4NGES -~ Following are some issues arising from the proposed changes in foreign assistance legislation which we believe warrant particular attention and consideration. The order of discussion is not intended to reflect any relative sig- nificance or ranking of importance. Modification in definition of '%alue" might allow recovery of less than - full cost of mil&tary sales This modified definition of s%alue9' in ISAA (set, 4(m)) might, in our opinion, allow for the sale of defense arti- cles at a price insufficient to recover all costs to the U.S. Government. The definition is based on FAA (sec. 644(m)) which cov- ers military assistance. This definition has been extended to cover foreign military sales transactions in ISAA, Defense articles sold out of U,S, stocks but still in use by the U,S. Forces could, under this definition of value, be priced below the replacement costs to the U.S, Government, In addition, prices to be charged for reimbursing sup- plying agencies for aircraft, ships, plant equipment, or any other major item (except excess defense articles) could be negotiated with no set minimums, which would effectually au- thorize the Secretary of Defense to waive recovery of full cost and which would result in an undisclosed amount of grant aid. New authority for MAP barter transactions could lead to additional nonappropriated assistance MAP barter transactions authorized under the provisions of ISAA might lead to the establishment of a de facto revolv- ing fund which would finance military assistance outside of any appropriated amounts. This possibility is raised be- cause of the following observations. 48 --MAP recipients theoretically would be able to barter U.S. defense articles received in prior years (in- cluding excess defense articles on a grant basis) for new defense articles (sec. 34(a)). --Defense articles received in repayment of such a transaction then could be utilized again as security assistance gsecB 65(b)), There is some question on whether the above would be prevented by the requirement of section 34(b)(2) that, un- less the Fresident consents to other disposition, defense articles provided on a grant or loan basis be returned to the United States when no longer needed for the purpose for which they originally were furnished. In view of the uncertainty on the ramifications of barter transactions, the Committee may wish to request a clarification of intent on this matter from the administra- tion. Need for application of advance certification reguirement to excess defense articles ISA4 (sec. 34(g)(l)) continues the requirement for ad- vance certification of the recipients! capability to utilize defense articles having a value of $lOO,OOO or more. Excess defense articles, even such high-cost items as aircraft, would continue to be exempt from such certification if their value (i.e,, the cost to the Government to repair, rehabil- itate, or modify such articles as defined under ISAA, sec. 44) Cm> Cl11 were less than $100,000. We believe that a recipientfs capability to utilize such articles is important regardless of whether or not they are excess. The Committee may wish to consider including a specific reference to such excess defense articles in this provision. Ihis could be accomplished by the following insertion in ISAA Qsec, 34Cg)Cl)), After the phrase "no defense article having a value in excess of $100,000,~~ insert the parenthetical phrase #l(in- eluding excess defense articles valued at acquisition cost)." 49 Need to explore provision ---- on sale of defense articles to prime contractors ISAA (sec. 62(f)(l)) '1s new and authorizesthe acquisi- tion and sale of defense articles to prime contractors for incorporation into end-items for commercial sales to foreign countries. Under such circumstances the Department of De- fense (DOD) might well become a party to such commercial transactions, which would enable private enterprise to com- pete in the international arms market with the assistance of public funds, ISAA (sec. 62(f)(2)) is also new and authorizes the negotiated sale of excess spare parts to U.S. suppliers to support defense articles previously acquired by foreign countries or international organizations. Under this sec- tion there is no limitation on the final negotiated price to the contractor and no provision for the screening of such parts by the General Services Administration under the General Administration and Property Act. Like section 62(f)(l) this could be used to promote commercial sales. Therefore we believe that the Committee may wish to more fully explore the intent of these provisions. Exemption from contract law regulations might permit exemption from foreign military sales contract provisions The exemption, provided by ISAA (sec. 63(d)), from all laws but one which governs contracts may well have the ef- fect of allowing foreign military sales contracts to be made without regard to the restrictions on such contracts in section 37, The similar provision of FAA (sec. 633(a)) did not apply to foreign military sales. If the Committee should desire to preclude this pos- sibility, the following suggested language might be inserted in ISAA (sec. 63(d)), After the words "the functions authorized under this Act," insert the parenthetical phrase "(with the exception of foreign military sales)." 50 Proposed change might lead to U.S, absorption of losses from military sales transactions terminated by foreign customers The proposed ISAA, section 69(a) refers to losses sus- tained by the Government on terminated or suspended foreign military cash sale transactions regardless of who initiated the termination or suspension. It might well be reasonable to expect Government absorption of losses on U,S.-initiated terminations. Cash sale contracts, however, generally have required foreign customers to pay all termination costs when they terminate the transactions. This provision may authorize exceptions to this general practice. The Committee therefore may wish to more fully explore the propriety of what appears to be a departure from past practice in this regard, Clarification needed on guaranties and disposal of foreign currency receipts under supporting assistance ISAA (sec. 35) authorizes grants, loans, guaranties, and barter and reimbursement transactions (including cash, credit, and foreign currency repayment terms). There are no provisions which cover the disposal of foreign currency re- ceipts from supporting assistance, other than those accruing to the recipient through the sale of commodity grants. Also there are no provisions whieh govern the administration of supporting assistance guaranties. We believe that a clarification is needed on the dis- posal of a131 such foreign currency receipts, an any guar- anty fees, on the amounts to be guaranteed, and on the source of funds to pay claims, Need for clarification on administration of existing loans and Public Law 480 program IDHAA (primarily sets. 209(b) and 210(b)(3),(4)) pro- vides for the transfer and use of receipts from an expanded list of loans authorized by predecessor legislation. It is not clear, however, which organizational entities will ad- minister these loans. The benefit of the income on sound loans could be obtained in some cases without assuming the risk of loss. On the other hand, the liability of unsound loans could be assumed by an entity supposedly operating on a businesslike basis. No provision, moreover, covers the intended transfer or administration of Public Law 480 loans from AID. We believe that a clarification is desirable, showing which organizational entities will administer such past loans, will assume the risks associated with such loans, .and will administer the various Public Law 480 programs and their related security and development assistance programs. Possible need --I for provision to repay debt to Treasury -- on outstanding loans Some presently outstanding foreign assistance loans were made from funds borrowed from the U.S. Treasury, and the receipts on such loans were earmarked to repay that debt. IDHAA (sets. 209 and 210) would put the dollar receipts from such loans into the proposed IDC revolving fund and would have no provision to repay the Treasury. The Committee may want to consider the alternatives of an explicit authorization to forgive this debt to the Trea- sury or to authorize the use in section 210(d) of the re- volving fund capital to repay the debt associated with what- ever loans are transferred to it. Possible need to ensure sufficiency of funds to meet all development lending operating costs IDHAA (sees. 210(d)(l) and (2)) prohibits the use of the proposed IDCqs revolving-fund capital account to meet administrative and operating expenses and to service the debt on borrowings. These are to be paid only from the fund's income account. There is no requirement, however, for ensuring that IDC will always be self-sufficient in this regard or that it will cover all such operating costs. Theoretically a preponderance of future lending at or near the authorized rate of 1 percent per annum could lead to a situation in which the level of the income account would be insufficient for meeting authorized expenses. 52 We believe that the Committee may wish to inquire into the desirability of ensuring the sufficiency of funds in this account and of meeting from this account all related expenses, including the total cost to the Government for all funds provided for lending purposes. 53 . .’ CHAPTER 5 .--- EFFECTS ON -- CONGRESSIONAL@I'HORI~ AND RESPONSIBILITY ARISING FROH PROPOSEDFOREIGN ASSISTANCE LEGISLATION This chapter deals with potential effects in certain areas of congressional authority and responsibility relating to foreign assistance programs. Included in the chapter are discussions on the effects of the proposed corporate struc- ture, the curtailment of auditing rights for security assis- tance, and the omission from IDHAA of a provision for legis- lative access to information. EFFECT OF CORPORATESTRUCTURE The proposed IDHAA provides authority for the President to create a federally chartered corporation or corporations for carrying out the purposes of IDHAA. This authority would be used, according to the administration, to establish IDC which would have authority to borrow from the Treasury or from the public. It would be a wholly owned Government corporation subject to the provisions of the Government Cor- poration Control Act, as amended (31 U.S.C, 841 et=.), and would place the full faith and credit of the U.SrGovernment behind the obligations it would issue and sell. Over the years we generally have held the view that any potential net advantage to the Government in more efficient and economical operation of authorized activities under a corporate structure must be clearly demonstrated and weighed against what we believe to be the tendency of such corpora- tions to dilute congressional control over public expendi- tures. In our opinion, the public interest is better served through annual reviews by the Congress and by affirmative ac- tion on planned programs and financing requirements. This review normally is accomplished through hearings culminating in affirmative action on authorization and appropriation re- quests. The question of the relative advantages of a corporate structure is made even more important in this instance be- cause there is no provision in IDHAA for congressional 54 . . . approval of the proposed IDC's charter. The Ci,ngress may wish to consider whether a departure from this standard and the establishment of a corporation to implement these pro- grams can be justified in this case, CURTAILMENT--OF AUDITING RIGHTS FOR SECURITY ASSISTANCE- Another area of concern to us, with respect to congres- sional authority and responsibility, is a new section 69(b) of ISAA which authorizes the cessation, upon Presidential determination, of any monitoring or auditing activities of any agency with respect to assistance furnished pursuant to ISAA or predecessor legislation when that assistance is terminated or suspended, Under such circumstances GAO pos- sibly would be precluded from supplying information on such programs to the Congress even upon congressional request. We question whether the Congress would want to approve such authority in respect to the legislative branch. PROPOSEDLEGISLATION DOES NOT REFLECT LEGISLATIVERIGHT TO ACCESS TO INFORMATION FAA (sec. 634(c))which spells out the right of congres- sional committees and GAO to access to executive branch in- formation on U.S. foreign assistance, barring an exercise of Presidential executive privilege, has been excluded from IDHM. Consequently any denial of access in reference to development assistance information would not entail the pos- sible penalties provided for in existing legislation or re- quire the exercise of executive privilege. A discussion of problems in gaining access to executive information on Government programs abroad, in respsnse to a February 1971 request by the Chairman, Senate Committee on Foreign Relations, was transmitted to the Committee under separate cover (B-163582, September 10, 1971). 55 . I’ -CHAPTER 6 -Cc’?h(.‘+.: T('TFNCy OF PROPOSEDREORGANIZATION ._.__ W'6'IH GAO FINDINGS AND RECOMMENDATIONS This chapter outlines certain areas in which the pro- posed reorganization of the foreign aid and foreign military assistance programs may fall short of, or be inconsistent with, findings and recommendations from past GAO reviews, These reviews have evolved from our initial efforts of iden- tifying specific weaknesses in management controls and op- portunities for economy and efficiency in operation to more comprehensive management reviews of selected program seg- ments, including evaluations of the U.S. management of con- tributions to international organizations and broader based reviews and evaluations of program effectiveness, using se- lected countries and functions as units of focus. The issues identified below are organized into the fol- lowing four general categories. --Program planning and evaluation. --Program execution. --Management of U.S. owned or controlled local cur- rencies. --Assistance to international organizations. PROGRAMPLANNING AND EVALUATION Need for formulating program aims in objectively measurable terms We believe that a significant opportunity exists for improving the planning and evaluation process as it relates to U.S. development aims in individual countries, During a number of reviews involving U.S. development programs in individual countries *or regions, we found that . . certain U.S. program objectives, goals, and targets1 lacked the specificity necessary to permit objective measurement and evaluation of program results over a period of time. We therefore sought to determine whether this condition was generally common in U.S. assistance programs. In 1971 we made a test check of selected fiscal year 1972 programming documents for development programs in six countries receiving relatively large amounts of U.S. development assistance. We found that, in a majority of cases, program objectives and goals had not been stated in objectively measurable terms and had not included a time frame for accomplishment but that a planning system had been instituted for, and im- provements made in, formulating noncapital assistance activ- ity targets in terms measurable over a period of time. Of a total of 259 development objectives and goals reviewed, about 13 percent were stated in objectively measurable terms and 16 percent had a specified time frame for accomplishment. The Congress has demonstrated a continuing interest in the problem of evaluating program performance when for- eign aid funds are involved. One of the primary findings of the Foreign Operations and Government Information Sub- committee, in its report (H. Rept. 1849) issued August 5, 1968, related to the need for specific priorities and goals on the part of AID. Section 621A of FAA of 1961, as amended (22 U.S.C. 2381a), added by the Congress in 1968, calls for the strengthening of AIDas management practices by the use of advanced management techniques and the establishment of a modern programming, planning, and budgeting system with built-in implementation and evaluation capabilities, The proposed IDI-IAA of 1971 is silent on this matter except for the provision that assistance is to be administered in a mature and businesslike manner. 1 Terms of reference are as follows: "objective" is used to mean the intermediate or final program purpose, "goal" is used to mean an element in a plan to accomplish a stated objective, and "target" is used to mean an element in a plan to accomplish a stated goal. 57 . .’ We believe that this is an area in which additional legislative emphasis may be warranted. Therefore the Con- gress may wish to consider adding language along the fol- lowing lines to section 409 of the proposed IDHAA of 1971. (c) The President will take the measures necessary to ensure that all objectives and goals of the assis- tance programs established pursuant to this act are formulated in terms which are objectively measurable over a period of time. 58 Should U.S. preferential trade be treated as having a foreign aid component? U.S, preferential trade-- commodity trade assistance-- is not now treated as having a foreign aid component. Whether it should be is a matter we believe that the Con- gress should consider in view of its nature and magnitude. Commodity trade assistance --a form of foreign aid linked to imports of specific commodities--is provided by the United States to the less developed countries primarily through the operations of the United States Sugar Act and the International Coffee Agreement (ICA). Sugar and coffee assistance qualify as foreign aid be- cause they entail a transfer of resources from the United States to other countries on concessional terms. In the case of sugar, foreign quota holders are able to sell sugar in U.S. markets at prices generally substantially above world prices, In the case of coffee, exporting countries sell at prices which are above those likely to have pre- vailed in the absence of ICA. Since demand for both com- modities is inelastic, earnings of foreign sugar quota holders and coffee-exporting countries are higher than they otherwise would be. Resources are therefore transferred from U.S. consumers to countries selling sugar and coffee in U.S. markets. There are several significant distinctions between commodity trade assistance and the more traditional forms of U.S. aid. For example, commodity trade assistance is subject only to limited congressional review and control; it is made available independently of comparative self-help, performance, and balance-of-payments requirements; and its amount must be estimated and agreed upon. Also, for the most part, commodity trade assistance is transmitted through commercial channels whereas traditional foreign aid is trans- mitted through the donor government. We believe that the Congress may wish to consider, in view of the magnitude of commodity trade assistance, whether it desires to maintain such distinctions in authorizing U.S. foreign assistance. It may, for example, wish to consider whether the foreign aid component should be an explicit 59 objective of the underlying legislation and treaty for com- modity trade assistance and to what extent the conditions or restraints applicable to aid financed through direct appropriations should be applied to commodity trade assis- tance. We believe also that the Congress may wish to give specific consideration to the magnitude of U.S. commodity trade assistance when approving executive branch foreign assistance budget requests. Finally we believe that an increased portion of the assistance granted in connection with U.S. participation and that of other countries in ICA should be utilized for diversification of the recipient countries' exports or for other development purposes, In 1969 we made a special study as a means of measuring the magnitude of U.S. commodity trade assistance (B-167416, October 23, 19691, The following sections summarize our basic findings. Assistance provided through United States Sugar Act In 1967 world net exports of sugar were 15.8 million metric tons. Only about 42 percent of this total was traded in the free market. Most sugar exports are marketed through preferential arrangements which give exporters prices higher than free-market prices. We estimated that U.S. sugar assistance averaged be- tween $290 and $342 million a year during the period 1965 to 1967. Inclusion of sugar assistance would have increased total U.S. foreign economic assistance levels 7 to 9 per- cent during the period. Such sugar assistance is given to 31 countries, of which most are developing countries. We found that no explicit attention was paid to the use that recipient countries made of sugar assistance despite the sums involved. Sugar assistance is made available inde- pendent of comparative self-help, performance, and balance- of-payments requirements, The major reasons for the dis- tinctions between traditional forms of U.S, aid and commodity trade assistance are that commodity trade assistance is linked to patterns of production,it is transmitted through commercial channels rather than governmental channels, and the basic legislation and treaty for commodity trade assis- tance does not make foreign aid an explicit objective, If appropriate legislative action is taken to make foreign assistance an explicit objective of the United States Sugar Act, the Congress may wish to consider inclu- sion of the following paragraph under the general and admini- strative provisions (pt, II, ch.1) of IDHAA. The President is held responsible for (a> reaching agreements with developing countries who receive assis- tance through the United States Sugar Act on the use of such assistance, (b) ensuring that such assistance is utilized either for specific developmental projects or for the furtherance of general development objectives, and cc> providing the Congress with information on the amounts and the recipients of assistance granted in conjunction with the United States Sugar Act and on the use that these countries have made or intend to make of such assistance. Assistance granted in conjunction with International Coffee Agreement The United States accounts for more than 40 percent of world coffee imports. In our 1969 study we estimated that U.S. assistance granted in conjunction with ICA averaged about $314 million annually --an amount equal to about 8 per- cent of official U.S. aid disbursements. The major recipients of such assistance were Brazil, Colombia, Mexico,A.ngola, Ethiopia, and Uganda, The proposed legislation is silent regarding assistance granted in connection with ICA. In view of the magnitude of such assistance and the desirability of considering total development resources avail- able to each recipient country, we believe that the Congress may wish to give specific consideration to the extent of such assistance when deciding on foreign aid program levels. To provide for the availability of data on the levels and . .- recipients of such assistance, the following section is proposed for inclusion under the general and administrative provisions (pt. II, ch. 1) of the proposed IDHAA of 1971. The President is responsible for advising the Congress, during the annual foreign assistance budget presentation, of the amounts, by country, of economic assistance granted in conjunction with U.S. participation in the International Coffee Agreement. Need to increase the portion of coffee assistance earmarked for development purposes The 1968 ICA represented a modest beginning in the di- rection of planning for the effective utilization of coffee assistance. A diversification fund was established to help coffee-exporting countries to diversify their exports. @-JY a small fraction of the approximately $600 million in world- wide coffee aid,however, will be used to finance the fund. Coffee exports will be taxed at 60 cents a bag in excess of 100,000 bags of exports. Assuming that annual coffee assistance is at about the level which prevailed in prior years, only slightly more than 1 percent of it will be ear- marked for development. The agreement further provides for an increase in the export tax to $1 a bag upon approval by a two-thirds major- ity of the International Coffee Council. An increase to the maximum of $1 a bag would result in an estimated 2 per- cent of the total mual coffee assistance being earmarked for development purposes. The Congress, in view of the magnitude of assistance granted in conjunction with ICA and in recognition of the need for developing nations to take maximum self-help mea- sures, may wish to give legislative emphasis to the desir- ability of securing a greater earmarking of the subject as- sistance for development purposes. This could be done by adding the following paragraph to the general and adminis- trative provisions (pt. II, ch. 1) of the proposed IDW of 1971. 62 . . It is the sense of the Congress that the United States will, in cooperation with the other signatories of the International Coffee Agreement, attempt to increase the tax on coffee exports to $1 a bag, the maximum permis- sible under the present agreement. Further, if it be- comes necessary to negotiate another agreement, the United States will, in cooperation with other importing countries, attempt to raise the tax rate to an amount Which will allocate a higher fraction of total coffee assistance to a diversification or development fund. 63 Should debt rescheduling be treated as a form of foreign assistance We believe that the Congress may wish to consider whether the rescheduling of loan repayments is a form of foreign assistance. We believe that, if they are so con- sidered, the extent of such rescheduling each year should be reported to the Congress during the annual foreign assis- tance budget presentation. We believe that, when the United States amends foreign loan agreements to postpone their due dates, this, in ef- fect, constitutes a form of aid. By not requiring the re- payments to be made when due, AID is allowing the country to utilize AID funds elsewhere in the economy. Further, we believe that it is somewhat misleading to the Congress and to the public for annual requests for aid authorizations to stress the high proportion of loans when, at the same time, the debt-servicing capacity of developing countries is lim- ited and when debt reschedulings are becoming routine. A GAO review of AID loan programs revealed that, in the past, substantial sums were not repaid due to agreements between AID and the borrower to reschedule loan repayment dates. During 1970 the United States undertook debt- rescheduling negotiations with four countries: India, Indo- nesia, Ghana, and the United Arab Republic. Agreements have been reached with India and Indonesia for the resched- uling of $8.6 million and $215.6 million, respectively (B-133220, September 11, 1969). A review of the proposed IDHAA of 1971 and the proposed ISAA of 1971 did not disclose a provision requiring IDC or DOD to notify the Congress of the rescheduling of loan re- payments. Accordingly, in view of the substantial sums involved, the implications as to the future repayment capacities of the borrower and as to the possible foreign assistance im- plicit in debt reschedulings, the Congress may wish to con- sider requiring that debt rescheduling be considered as a form of aid. This could be done by inserting the following provision in section 207 of the proposed IDHAA of 1971. 64 (h) The Congress will be advised during the annual for- eign assistance budget presentation of the resched- uling of interest or principal repayment dates on loans made by the International Development Cor- poration or its predecessor agencies, Also the following provision could be inserted in section 51 of ISAA of 1971. Cd) A statement of the rescheduling of interest or principal repayment dates on loans made under this act e Need for improved methods and criteria for assessing country capability for contributing agreed resources for U.S.-supported activities Our experience has demonstrated that a need exists for improved methods and criteria for assessing a country's capability for contributing agreed-upon resources for U.S.- supported activities. We also believe that increased moni- toring or other means are needed to ensure that U.S. re- source releases are more closely meshed to the recipient's provision of agreed-upon resources. During our reviews we noted numeroils instances in which an aid-recipient country failed to provide the resource con- tribution which previously had been agreed to. For example: --In a 1967 report we found that AID, in progrming equipmat and vehicles to PO African countries, had not recognized that the recipient countries were unable to maintain and effectively utilize the ewip- nent and vehicles. Limited use and poor perfomance were gaera1l.y due to an insufficient Ember of oper- ators and mechanics, Iinited mairntenance facilities and spare parts, md too low a level of reeipient- country budgetary support (B-160789, -May 18, 1967). --in a 1969 report on assistance provided to Nigeria, we found that, in most of the AID technical assis- tance projects reviewed4 the Nigerian Government had not met its manpower or funding commitments and 65 thereby delayed project performance. We found also several cases in which project agreements containing substantially the same provisions had been negotiated year after year even though the host country consis- tently had not met its obligations to the projects (B-167677, August 14, 1969). --In a 1970 review in Ecuador, we found that the in- ability or unwillingness of the country to provide agreed-upon contributions to U.S.-supported develop- ment activities was a problem of longstanding dura- tion. Although the proposed IDHAA of 1971 contains a number of references to the recipient countryas contributions to U.S.-assisted projects, we believe that further emphasis is needed. The proposed ISAA of 1971 is, for the most part, silent regarding project planning standards. In recognition of the importance of recipient-country participation in and contribution toward U.S.-assisted de- velopment and security assistance programs, the Congress may wish to consider including some or all of the following requirements in section 401 of the proposed IDHAA of 1971 and section 42 of the proposed ISAA of 1971. (i> The President, prior to entering into assistance agreements requiring a resource contribution from the recipient country, (1) will conduct studies to determine the level and type of resource contribu- tion that the recipient country realistically can be expected to provide, (2) will reach agreement, on the basis of these studies, with the recipient country on the level and type of contribution that the country will provide, (3) will include in any contract or other written agreement the specific details relating to the recipient country's re- source contribution, (4) will make disbursements incrementally on the basis of the percentage of cost incurred to the total estimated project costs of projects receiving U.S. assistance and requiring recipient-country contributions, and (5) will peri- odically monitor and evaluate, in accordance with the terms of any agreement or contract, the 66 -. . performance of the recipient country regarding its resource contribution and will maintain at all times the right to withhold future U.S. assistance if the recipient country fails to supply the re- sources previously agreed to. 67 PROGRAMEXEGUTION Proposed restriction on navment of foreign taxes We believe that it is inappropriate for the financial burden of a foreign tax to be passed on to the United States in connection with its foreign assistance activities. During a 1969 study we found that the United States and various governments had arranged, generally by agree- ment or understanding, for U.S. purchases in a country, as well as supplies and equipment that the United States im- ports into a country, to be granted exemption from taxes and import duties. During a review of military programs in selected countries, however, we found a discernable degree of resistance by some foreign governments in honoring their commitments (B-133267, January 20, 1970). In six countries studied we found that the United States had incurred costs of many millions of dollars for payment of direct and indirect taxes, Such taxes were paid in connection with leases of property, rentals of family housing, local procurements, and imports of supplies and equipment. They involved real property taxes, local or municipal taxes, business and trade taxes, excise taxes, and import taxes. We concluded that most of the resistance was due to (1) a lack of clear understanding by both parties as to the intention of the agreements, (2) a lack of development of mutually agreed-upon implementing procedures, and (3) taking of positions which protected the national interest of the country involved. Neither the proposed legislation nor FAA of 1961, as amended, contains a restriction against the payment of for- eign taxes. The Mutual Security Act of 1951 (ch. 479, 65 Stat. 384) precluded the use of funds authorized for European programs for the payment of foreign taxes. The prohibition was carried forward in connection with infra- structure programs in the Mutual Security Act of 1954 and was law for almost a decade but was not included in FAA of 1961. 68 In view of the substantial sums which could be in- volved, we believe that an expression of congressional pol- icy is warranted. Accordingly we suggest that consider- ation be given to adding the following paragraph to section 42 of the proposed ISAA of 1971. (h) It is the sense of the Congress that funds granted under the provisions of this act should not be used for the payment of foreign taxes, whether di- rect or indirect. Also we suggest adding the following paragraph to section 405 of the proposed IDKAA of 1971. cm> It is the sense of the Congress that funds granted under the provisions of this act should not be used for the payment of foreign taxes,whether di- rect or indirect. Proposal for recipient payment of transnort costs of U.S.-donated surnlus commodities and property Cur experience has caused us to conclude that payment for transportation costs on U.S. shipments of donated sur- plus properties and surplus agricultural commodities should be made by the recipient country when the country is fi- nancially able. A 1967 GAO review of payments by the United States of costs for shipping donated food abroad through nonprofit distribution agencies showed that only four of 107 countries receiving donated American foods had contributed toward the ocean freight costs. The question of whether foreign coun- tries could or should pay ocean freight costs had been con- sidered only in isolated cases by U.S. assistance officials. Cur study indicated that the potential savings to the United States could be significant. A 1971 review reveals that the United States, in the 4 years since the issuance of our 1967 report, has continued to pay significant amounts for ocean freight costs and that few recipient-country contributions had been received to de- fray ocean freight costs of donated commodities, 69 Section 203 of Public Law 480, as amended by the Food for Peace Act of 1966, states that the Commodity Credit Gorporationl may pay ocean freight charges to designated ports of entry, Also the proposed IDHAA of 1971, section 303, authorizes the President to pay transptirtation costs of such assistance. The proposed legislation is silent with respect to requiring financially able recipient coun- tries to pay the ocean freight costs of donated food and surplus properties. The legislation does, however, recog- nize the need for recipient countries to participate in the financing of other U.S. grant-financed activities. In view of the potential significant savings involved, the Committee may wish to consider adding the following sentences to section 303 of the proposed IDHAA of 1971. Recipients of U.S. -donated surplus agricultural com- modities and excess or surplus property which are fi- nancially capable are required to assist in the pay- ment of the transportation costs for said items. Ac- cordingly the President shall establish criteria for determining financial capability and shall require financially able countries to assist in the payment of these costs unless the President determines that pay- ment by the United States is necessary to accomplish the purpose of this act. 1 Commodity Credit Corporation funds are made available to AID for the paying of ocean freight charges, 70 . . . MANAGEMENTOF U-S. OWNEDOR CONTROLLED LOCAL CURRENCY Need for increased management attention to use of local currency resources Our experience under existing legislation has demon- strated that U.S. assistance program managers have not given adequate management attention to the use of local currency resources generated as a result of dollar-financed commodity import programs. Such local currencies do not represent ad- ditional resources; only the dollar-financed imports that generate them are additional. They do, however, represent a claim against a country's domestically available resources and, as such, constitute an important tool of assistance to be used to improve the total pattern of a countryss resource 'use. We have conducted a number of reviews involving AID's utilization of its local currency resources. The results of these reviews have demonstrated that, in general, U.S. program managers have not (1) allocated the funds or exer- cised adequate control over the use of the funds to ensure that they are used in accordance with previously established priorities or where the greatest needs have existed and (2) adequately monitored projects funded with local currency re- sources to ensure the timely and proper completion of these projects. For example: --During a 1968 review in Colombia, we found that sub- stantial sums had been allocated to the various eco- nomic and social sectors in Colombia; however, the allocation of these funds did not follow, to a high degree, established priorities. We also found that, in a number of the projects, U.S. program managers had not adequately monitored the progress (B-161798, July 8, 1968). --During a 1970 review of local currency made available to the Republic of Vietnam, we reported that (1) large sums had been released before the actual need for these funds existed, (2) f acilities had not been constructed on a timely basis primarily because U.S. program managers had not established an adequate system of inspection, and (3) few postaudits of expenditures made or reported by Viet- nam had been conducted (B-159451, July 24, 1970). Although the proposed IDHAA of 1971 (sec. 206) states that "development assistance must be *** administered on a mature and business-like basis," it is silent regarding the administration of projects financed with U.S. owned or con- trolled local currency resources, We believe that, on the basis of our experience under the existing legislation, legislative emphasis encouraging increasing management attention to planning and monitoring the 'use of local currency resources is warranted. Accord- ingly we suggest that consideration be given to adding the following paragraph to section 405 of the proposed IDHAA of 1971. (1) Foreign currency which is owned or otherwise con- trolled by the United States and which is available for development purposes will be utilized, to the maximum extent possible, in accordance with estab- lished development priorities. Activities or proj- ects financed, in whole or in part, by U.S. owned or controlled foreign currency will be periodically evaluated, and additional allocations of said for- eign currency for such activities or projects will be based on positive findings of satisfactory im- plementation of such activities or projects. Need for use of U.S. owned or controlled local currency in lieu of dollar assistance We believe that, in providing assistance to developing countries, U.S. owned or controlled local currencies should be utilized in lieu of dollars to the maximum extent pos- sible. S,uch 'use would res,ult in either “dollar stretching" or "dollar savings." We believe also that, when dollars are used to finance local costs, the Congress should be so ad- vised in the annual foreign assistance budget presentations. 72 During a number of different reviews, we continued to find numerous cases in which U.S. owned or controlled local currency resources could have been but had not been used in lieu of dollars. A review was conducted in 1969 and in- cluded 10 project loans to four South American countries. This review revealed that many millions of dollars were to be converted into local currency even though U.S. owned or controlled local currency either was available at the time of the loan or became available prior to disbursement (B-146820, October 24,1969). We concluded that the failure to use local currency in lieu of dollars resulted from (1) the reluctance of the bor- rower to accept local currency instead of dollars, (2) AID's desire to provide balance-of-payment support, and (3) the frequent earmarking of local currency funds for other pur- poses. In this regard we noted that these earmarked funds were for projects and programs for which there was no imme- diate need for funds, GAO found that these funds were owned by the aid- recipient country and that agreement would have to be reached with the recipient to use the funds for AID-financed projects, We recognize that the recipient country may be reluctant to use these currencies for AID projects, particularly after the program loan agreement has been signed and the loan funds are available for disbursement. In view of the fact that the demands on foreign assistance resources usually ex- ceed the limited resources that are available, however, we believe that greater consideration should be given to using counterpart funds instead of dollars to finance the local costs of AID projects and that loan agreements which provide for the conversion of loan dollars to local currency should state specifically that any AID-related local currencies that become available will be used in lieu of such dollar conversions. The proposed IDEAA of 1971 (sec. 405(h)) authorizes the President to utilize excess currencies to carry out the pur- poses for which funds are authorized under the act. The proposed legislation, however, does not establish the prin- ciple that U.S. owned or controlled local currency should be used in lieu of dollars wherever practicable. 73 The proposed ISAA of 1971 is silent regarding the 'use of both excess foreign currencies and other local currency funds owned or controlled by the United States in lieu of dollar assistance. Section 35 of the proposed act, however, does provide for U.S. control over the proceeds obtained from the sales of commodities which were furnished to coun- tries on a grant basis. Therefore, in view of the potential for reducing dollar financing and the resultant positive effect on the U.S. bal- ance of payments, we offer for consideration the following paragraphs for inclusion in section 405 of the proposed IDHAA of 1971. (i> Whenever practical, and particularly for any U.S.- sponsored activity within a developing country re- quiring only local resources, U.S. owned or con- trolled local currencies are to be used in lieu of dollars. (j> Each corporation, agency, department, or instrwnen- tality created under this act, together with the Overseas Private Investment Corporation and the Inter-American Foundation, will, at the time of its annual budget request, provide the Congress with the amount of dollar assistance utilized for local currency costs during the preceding year, When local currency is either in excess of current U.S. needs or otherwise available at the time of the use of dollars for local costs, a full explanation will be provided as to why the local currency was not a suitable substitute for the dollar portion of said assistance. (k) Dollar loan agreements, which result in the accrual of local currency to a country receiving assistance under the provisions of this act, will provide for the 'use of said local currency by the United States and, at the option of the United States, for its use as a substitute for that portion of s,ubsequent U.S. dollar assistance scheduled to be converted into local currency. 74 Also the following paragraphs maIT be added to section 35 of the proposed ISAA of 1971. (f) In furnishing assistance under this act, U.S. owned or controlled local currencies will be used in lieu of dollars whenever practicable and particularly for any IJ.S .-sponsored activity wf.Lhin a developing country requiring only local resources. w Dollar loan agreements, which result *of local currency to a country receiving in the accrual assistance ,under the provisions of this act, will provide for the use of said local currency by the United States and, at the option of the iJnited States, for its use as a substitute for that portion of subsequent U.S. dollar assistance scheduled to be converted into local currency. We also suggest inclusion of the follovin,p_ paragraph to sec- tion 51 of this act. cc> A table showing the amount of dollar assistance ,utilized for local currency costs during the pre- ceding year and, when local currency was either in excess of current U.S. needs or otherwise available, a full explanation as to why the local currency funds were not used in lieu of the dollar portion of said assistance. 75 ASSISTANCE TO INTERNATIOXAL ORGANIZATIONS Need for improved monitoring and evaluation of performance of international organizations We believe that, on the basis of our experience under the existing legislation, there is a need for improved mon- itoring and evaluation of U.S. development assistance chan- neled through international organizations. We have con- ducted a number of reviews of U.S. participation in these organizations, and the following observations are based on our work in this area. --The executive branch has not obtained the information or has not developed the necessary procedures to make an adequate analysis of the proposed programs and ac- tivities of the international organizations. There- fore it has no firm basis for making informed judg- ments, except in very broad terms, as to what the organizations plan to do with U.S. contributions (B-168767, March 18, 1970). --The data submitted by the organizations' administra- tors and the procedures followed in the appraisal processes provide little or no opportunity for member governments to exercise an effective voice over the direction of the programs (B-166780, July 8, 1969). --Both the United States and the international organiza- tions have ,recognized the need for evaluations of the activities of the international organizations, and both have taken some specific steps to meet this need, Although some progress is being made in this area, we believe that the evaluations currently being performed are not sufficient in scope and coverage to be of much assistance to U.S. officials in making independent judgments relative to the efficiency and effectiveness with which international organizations' projects and programs are being carried out. We believe that ample evidence exists to show that the organizational structures and operational methods of some international organizations have not kept pace with the marked changes which have occurred in the scope and nature 76 =. . of their programs. In this regard there is increasing criticism of poor planning, bad management, lack of coor- dination, and overlapping of activities. The executive branch has announced its desire to chan- nel all U.S. bilateral lending resources through interna- tional organizations by the end of the 1970's. Because of these circumstances we believe that special legislative emphasis on the extent of executive branch over- sight may be warranted. We believe that significantly in- creased oversight is necessary both as a means of ensuring that such resources are used effectively in accordance with U.S. foreign assistance objectives and as a means of showing the Congress and the American public the demonstrable results of U.S. development assistance programs. Accordingly the Congress may wish to consider the following revision to sec- tion 217 of IDHAA of 1971. (d) The President will obtain from international organi- zations receiving U.S. assistance all necessary in- formation to permit analysis of the effectiveness of their programs. (e> An analysis of the effectiveness of the performance of international organizations in each country will be presented to the Congress in conjunction with the appropriation requests for these institutions and will be prepared in accordance with the gen- erally accepted standards of measurement to be de- veloped pursuant to section 404(d) of this act.l 1This is based on favorable congressional action on the standards of measurement contained in ch. 2 of this report. (See pa 25.1 77 APPENDIXES WlLLlAr.4 B. SPONG. JR.. “A. COMMITTEE ON FOREIGN RELATiONS WASHINGTON. D.C. 20510 B-172311 fhe Honorable Elmer 3. Staats Comptroller General of the United States Washington, D. C. Dear Mr. Staats: On April 26, I introduced, by request, two Administration bills aimed at implementing President Nixon's proposed reorganization of our foreign aid and foreign military sales programs. The purpose of this letter is to request the General Accounting Office, in cooperation with the staff of the Senate Foreign Relations Committee, to undertake a thorough analysis of these legislative proposals. As you know, the Committee on Foreign Relations is the authorizing Committee for this legislation in the Senate and the GAO's analysis would greatly facilitate the Committee's consideration of the proposed changes, We believe your analysis wiil offer a iiew dimension to our consideration of these Executive Branch proposals. Such an analysis would be particularly helpful if it was to cover the following subj'ects: First, a general comparison of existing programs with those that are proposed, including changes in policy and operations. Second, the degree to which the State Department, under the proposed legislation, would have both policy and operating control over the new programs, with emphasis on military aid and foreign military sales. Third, the extent to which restrictions in existing legislation are deleted, modified or carried over to the proposed legislation. Fourth, the extent to which the President's waiver authority with respect to these restrictions is deleted, modified or carried over. Fifth, the extent to plhich the Congress' authority and responsibility APPENDIX I . ’ arc altered or oLher;visF: modified by the President's proposals. And, sixth, those aspects of the pro- posals which may fall short of, or be inconsistent with, past findings and recommendations of the General Accounting Office. In making its analysis, I hope your staff will feel free to point out potential problem areas, as suggested by experience with the existing legisla- tion and to recommend remedial legislation where it is deemed appropriate. The Committee has not yet fixed dates for hear- ings on foreign aid but there is a good possibility that they may begin about mid-June. Sincerely yours, piiii%$? .. Chairman 82 APPENDIX II FOR FISCAL YEARS 1971 TO 1980 IW)?: iN!EREST AND PRINCIPAL XEPAYKFX'I'S ON Il)rli<!; 31.660.1 $122.7 $143.8 $154.6 $160.1 $159. 5 $169.2 $178.5 $188.3 $195.5 $187.9 2,178.3 130.2 A107 8 -.& 140 0 lb5.3 2Ol.Q L237 0 -2L.b 264 0 286.0 312.0 335.0 Treasur: receipts (110t presently a.ailable to AID) (noLe 1~): interest $ 152.0 $ 18.6 S 22.0 $ 20.9 $ 20.7 $ 12.4 $ 11.2 $ 12.0 $ 12.8 $ 12.4 $ 9.0 Principal 549.8 68.2 45 . 4 -49.3 50.9 54.0 53.q 53.0 60.0 60.0 fE.O $ : :;z-&:. 701 8 $ -= 86 .%L 8 s p_7,3 $ -7k.z $ 7&.6 $ >&4. $ 64,z s a:*> .--- $222- $.?A.+ j j:.:q Receipts available io AID (note c): tn:erest 51,508.l $104.1 $121.8 $133.7 $139. 4 $147.1 $158.0 $166.5 $175.5 $183.1 $178.9 Principal 1.628.5 62.0 62.4 90.7 114.4 147.0 184.0 211.0 226.0 A252 0 279 -A 0 $34.5136 '- 6 S@j-+L. $1~4~2. - ._-- $_?24,4 $253@- q?&& s342,p 5X7>,> W$&5_ %35,sJ %5_7_,9 aData supplied by AID. %his includes Inter-American Social and Economic Program loans (administered by AIDI, loans by predecessor agencies (except development loan fund and MSA loans, 1954 to 19611, loans extended by the Economic Cooperation Administration and MSA specifically for the expansion of mining facil- ifies, and the Economic Cooperation Administration borrowings from the Treasury which were re- loaned mostly to the European countries and their territories during the Marshall Plan period. 'includes development loans, Alliance for Progress loans, development loan fund liquidating account, supporting assistance and contingency fund loans, and MSA loans (1954 to 1961). 83 SECTION-BY-SECTION Cot'iPARISON OF RESTRICTIONS AND WAIVFES OF EXISTING AND PROPOSED FOREIGN ASSISTANCE LEGISLATION % Introduction Using the tables z The following tables are offered as a tool for comparison purposes The numbers of the legislative sections being compared are shown in H only. Minimal comment on each change and the omission of some restric- the two left-hand columns. Unless otherwise noted the section numbers 1 ions and requirements were necessary to keep the comparison to manage- of existing legislation refer to FAA of 1961, as amended. For conve- z ,~ble size. As a result such comments should not be viewed as legally nience it should be noted that the section numbers of S-1656 run from Lrutlloritative in language or totally comprehensive in detail. 101 to 502. The section numbers of S-1657 run from 1 to 84 for title I. Organization The lettered columns under the headings "restrictions" and "waivers" represent: 'The subject-by-subject organization of these tr.lles represents a C--carried over compromise between the differing formats of existing and proposed M--modified legislation. Within each subject area the tables follow the section D--deleted sequence of existing acts, including amendments to those acts, and N--new then add new provisions which may not have exi$ting legislative counterparts. References are made to more detailed discussions of Comments on each comparison give the subject of the provisions certain provisions appearing elsewhere in this report. covered and, where needed, an abbreviated explanation of the legisle- tive change. Provisions with no restrictions or waiver authorllies A guide to the subject organization of the tables will be found on have been included to provide continuity. the next page. z. Note: The difficulty in defining the word "restriction" led us to adopt the approach whereby the scope of activities authorized by the legisla'tion (ex- eluding dollar amounts which are subject to change), limitations on the use of that authority, and related requirements of accountability would be considered restrictions. In effect this expands the inclusiveness of the term. The same approach applies to Presidential waiver authority. Moreover any given restrictive provision may be made up of several interrelated restrictions. A deletion or addition in any one of these situa- tions may well represent a modification in net effect, In this context a number of restrictions have been combined under one entry which may not necessarily list each restriction contained therein. Subject Organization -- of Tables -_ Development and humanitarian assistance -Security assistance Foreign Assistance Act of 1961, as amended: Foreign Assistance Act of 1961, as amended: Development loans Supporting assistance Technical cooperation Contingency fund Housing guaranties Military assistance Overseas Private Investment Corporation Special Foreign Assistance Act of 1971 Development research Foreign Military Sales Act, as amended Alliance for Progress Provisions of the Foreign Military Sales Act Amendment of Evaluation of programs 1971 Southeast Asia multilateral and regional programs Utilization of democratic institutions in development General and administrative~__ Evisions --- of __- FAA Programs relating to population growth Food production targets and reports General provisions International organizations and programs Administrative provisions Assistance to countries having agrarian economies Miscellaneous provisions Joint commissions on rural development New provisions Inter-American Social Development Institute Humanitarian assistance DhVELOPMENT AND HLRIANITARIAN ASSISTANCE ~- -m-c-. 7 ~~?2~__;TX :;71 1= sECrlC “UMBER EXISTING comments --PROPDIEO - _____-- FAA - S-1656 101 102 101 ,tatements of policy. 8 I-! Develop w ment loaIls _--- 2OTGJ Dvelopment loan fund deleted. z 201 (b) tmphasis on long-range plans deleted. ,H ZOl(b)(l 207(a) consideration on loan financing available from other sources modified in language--carried over in essence. ZOl(b)(Z 207(c) consideration of soundness of project and of borrowers' capacity to repay modified in language--carried over in essence. 201 (b) lhe following development Loan approval considerations have been deleted. (3)-(9) (a) Loan activity will contribute to FAA purposes. (b) Activity is consistent with others and will contribute to long-range objectives. (c) Extent of recipients' response to economic, political, and social concerns of the people and self-help measures. (d) Effects on U.S. economy. (e) Progress of recipient toward role of law, etc. (f) Recipients' Steps to improve climate for private enterprise. (g) Contribution of activity to self-sustaining growth. 03 201 (b) 20-country limitation on development loans deleted. m 201 (c) Prohibition on use of transfer authority and other special authority to reduce availability of loan funds deleted--no longer needed. 201 (d) 208(a) Restrictions on terms and conditions of loans modified. 201 (e) Restriction ?n the earmarking of funds deleted. (Note: See sets. 206 and 207 of S-1656.) 201 (f) Requirement for Presidential determination deleted. Three-year authorization request. 202 La) 209(a) Requirement for 50 percent of funds to be for encouragement of private enterprise deleted. 202 (b) Long-range commitments provision deleted. 202 Cc) Reports to the Congress on long-range commitments deleted. 202 (d) Use of unobligated balance of development loan fund deleted. 203 209(b) Source of reusable dollar reflows from prior assistance loans expanded. 204 Development loan committee provision deleted. 205 Restriction on transfering 10 percent of loan funds to World Bank group, or Asian Development Bank deleted. 206 Regional development in Africa provision deleted. 207 FAA purposes of development assistance deleted. 208 Enumerated self-help criteria deleted. DEVELOPMENT AND HUMANITARIAN S-G; LZ -----..-_ ASSISTANCE .~ .5_.- - -: -- ._ _. ___. -- --.< 7 _ .- -- COlNTlellt~ ---__ --~ 209 Multilateral and regional programs provision deleted. 206 Narcotics traffic provision added. 207 Adequate loan proposal and effect on environment are new considerations. !OB(b)(c Authorization for loan technical services and shipping differential grants added. !09(c)(d Borrowing authority added. 210 Revolving Fund--restrictions added on sources and uses of funds. Technic :;I 1 cooper 211(a) ;!03W(b Considerations deleted, Required termination of assistance upon Presidential finding of adverse effect on U.S. economy deleted. 211(b) Restriction on capital assistance to less developed countries in earlier stages of development deleted. 211(c) Authorization and restrictions on peaceful atomic energy programs deleted. 211(d) !03(a) $10 million limitation on assistance to research and educational institutions in the United StateA deleted. 211(e) Food production priority deleted. 212 !05(a)(b Authorization. 213 Atoms for peace provision deleted. 214(a) (b) 204 Requirement that American schools and hospitals abroad must be founded by U.S. citizens carried over. 214(c) (d) Requirement on allocation of assistance to schools and hospitals according to House and Senate reporls de- leted. 215 Authorizatjon and restrictions on loans to small farmers deleted. 216 Provision on voluntary agencies. See section on humanitarian assistance, page 91. 217 Authorization and reporting requirement on study of used equipment as assistance deleted. 218,21! 220 Programs of protein concentrates, prototype desalting plant, and peaceful communication deleted. 201 Statemellt of purpose. 202 Operating principles--required Presidential considerations added. HousingZuarantie 221 211(a) Requirement that housing orojects be self-liquidating deleted. DEVELOPMENI AND HLWANITAEIAN ASSISTANCE _~__------- -. :- L-T --y--77-. =r=- =. -_ -------- . ._.. -~ 7 NUMBER PROPOSEr Comments 221 211(d) ~lling on face amount of guaranties--worldwide (now combined with Latin American ceiling). 222(a)(b. 211(a) astrictions on types of projects, eligible intermediate institutions, unit price, etc., modified. 222(c) 211(d) iling on face amount of guaranties--Latin America (now combined with worldwide ceiling). 223(a) 211(b) lranty fees carried over. 223(b) 213(a) valving fund carried over. 223(b) 213(b) seal year limitation deleted. Exemplary language on expenses deleted. 223(c) 213(b) ,quirement for first source of funds for liabilities arising from guaranties issued under authority repealed by FAA of 1969 deleted. 223(d) 214 edge of full faith and credit of United States carried over. 223(e) 212 lthorization for no-year appropriation carried over. 223(f) strictions on maximum interest allowable to eligible investor deleted. 223(g) .esident authorized to amend, implement, and administer all guaranties made since FAA of 1961. 223th) rohibition on payment in cases of fraud or misrepresentation by claimant deleted. oa 223(i) hree-year authorization for continuance of housing guaranty programs deleted. 02 a Proposed sctions are a” ndments to exi ting set tions. Title IV 502(a)(l: (2) 'w title--FAA,title IV becomes the Overseas Private Investment Corporation Act. Title IV 502(a)(3. ~urguage change on "friendly developing countries and areas" added. Title IV 5U2(a) (14) c,znumber sections (new section numbers not used here). 231 502(a)(4 .Lmitations on the undertakings of OPIC are carried oVer (reference to AlD deleted). 232 ,PIC capital provision carried over. 1 233(a) itructure of OPIC carried over. 233(b) 502(a)(5 )<sletes AID Administrator as Board Chairman; Authorizes the President to designate new chairman. All restrictions on membership of the Board carried over. 233(c) 'resident of OPIC appointed with advice and consent of the Senate. 233(d) xecutive Vice President appointed with advice and consent of the Senate. --. DEVELOPMEN AND HUMANITARIAN -_-_.- ASSISTANCE-.-. .-. --. - 1 . 5 _ - _ . _ - Adds new subsection (e) on experts, consultants, and retired officers similar tu FAA, ‘.ecr loli 626. 1.1 nti tat 7 C,rl’, on the types and maximum members of allowable contracts deleted. Restrictions on assumption of liabilities in the case of multinational corporarlun~ cdrrlrd over. Restriction on total insurance available to any single inveslor carried over. 234(b) Limitation on guaranties to 75 percent of loan investments or total project ~l,ve\tmenl cat-lied over. Fnvestn Limitation on total guaranties avallable to any single investor carried over (l(, prr~el~t ol total .~~tll~or~/<~dJ. Prohitition on acquisition or retention of corporate stocks carrled over. ProhibitIon on loans for extractlve enterprises carried over. 234(d) Prohibition on surveys for extractive enterprises carried over. lmvestn 234(e) Special activities provision carried over. 235 Restrictions on contingent liability and fractional reserve carried over. Provisions for congressional approval for investment insurance and guar.illty program> and author I za: ior carried over. Restrictions on reserve funds carried over. 236 Authorization and restriction on income and revenuez canled over--addition\ made for certain admlnis(ratlor: 00 expenses. u, 237 Restrictions and requirements relating to conduct of insurance and guaranty programs carried over. 238 Restrictive definitions on “investment, expropriatioilh, el:glt.le i~~esl.or” and “predecesbor guarar,ty author- i ty” carrled over. New subsection (e) defines “frierjdly foreign courltrie? atd area5 ” for the purpo: cs of LIU' <act; is the same as section 410 (a) of S-1656 and modifies the rorrrspondlng prohltition 01 FAA. 234(a) ( Cc) Corporation Cootrol Act provision carried o’ier. 239(d) Authorized corporate function.: carried over. 239(e) Frovislon for internal auditlug by Auditor C,we~-~l of AJD deleted. New subsection (c) stipulate? that “lhe Board shall provide for adequate internal financial control, includ- ing internal auditing.” Restrii tions on compensatiwl of Adwwry Counsel memters carried over. 239 New sutsect.ions (g) and (11) added un use ot otllex agencies and on accowt’. ror letters of commitmeIlt and for disbursement. Limitations on aKrirultura1 credit and self-help comun~ty developmen projecl~ in Latin America carried over Required reports to the Congress carried over. B Development research section repealed. 2 Alliance for Progress authorizations for loans, technical assistance, and housing guaranties have been com- H bined with the worldwide authorizations. All specific references, distinct authorizations, and restrictions on the Alliance have been deleted. Repealed. Southeast Asia multilateral and regional programs repealed. Utilization of democratic institutions in development repealed. Emphasis on research and requirement for training repealed. Countries receiving such assistance no longer need be friendly. In contrast to ISAA this would allow assistance to Communist countries. Other restrictions on providing such assistance carried over. Separate authorization ceiling deleted. Funded under technical cooperation programs. Requirement for food Production targets and reports to the Congress repealed. Requirement for the President to determine such assistance to be in the national interest deleted. Restriction stipulating that Indus Basin loans be at same interest rate as that for bilateral loans de- leted. 40-percent limitation on U.S. contributions to UNDP carried over. Prohibition on Cuba carried over. Restriction on assistance to the United Nations Relief and Works Agency and Palestinian refugees deleted. Provision for agreements to allow Comptroller General to audit internationally administered funds estab- lished solely by the United States carried over. Fiscal year limitations deleted on overall authorization. No-year authorizations for Indus Basin loans and grants carried over. Prohibition on assistance for voluntary manpower programs deleted. t DEVELOPMENT AND HUMANITARIAN ASSISTANCE __.- -. ;~~~__ _ ~. ._ --.=c -7 - .-. .-.- - 302(d) United Nations Childrens Fund authorization deleted. 302(e) United Nations Relief and Works Agency authorization deleted. 303 219 Requirement that other programs be administered to compensate for relief from 50-50 ShIpping urlder JI,JII Lx.11 programs deleted. 304 Sense of the Congress provision on United Nations peacekeeping, deleted. Note : Compa;rison of g assistance and contingency fund (pt. I, chs. 4 and 5) will Follow comparison on rcmallllng sectiw: uf ~LJ?. part and 0th sed provisions covering development and humanitarian assistance. ARrariad economi+ 1 1 1 1 I I 1 Emphasis on assistance to countries having agrarian economies deleted. Authorization and restrictions on support of Joint Commissions 01, Rural Development deleted. exis? ngsect FAA o f 1069 Title I 502(b) 401 ‘%( To be renamed “Inter-American Foundation.” i 401(e)(4) 502(b) Provision carried over. Corporation to determine the manner in which its ohligatlon~; and expel~ses are to he incurred and paid. Foundation president to be appointed by the Hoard. Dual conpenbation provision on experts and consultant 5. Provisions carried over. Restrictions carried over, including prohibition on ptofits and capital stock and subjection to Corporation Control Act. Requirement that voluntary agencies be registered and appruwd carried over. Statement of Purpose--humanitarian assistance--added. Disaster and refugee relief must be furnished no later than 1 year after disaster or famine. Authorization provi siou added. SECURITY ASSISTANCE -.,2---z=- -- -___ --- --: :~~~~-~ “UMBER -- PROPOSED comments S-1657 Supporti 9 assis- tance 401 35 (a) uthority for providing supporting assistance carried over. 401 35 (b) P-country limitation carried over--does not apply to public safety programs. 402 ‘roviso on budgeting local currency in Vietnam and on fairness of exchange rate deleted. 403 iense of the Congress provision on special account for U.S. refund claims against Vietnam deleted. Contings cy fund 451 (a) SAA Tit1 :an now be used for military assistance and foreign military sales in addition to assistance authorized bY 1 1 part I of the FAA. 451 (b) SAA Tit1 leporting requirement carried over, Report will be addressed to the Congress, however, not to Specific’ CoII- I2 gressianal committees. Mllitar)l assis- tance \k, 501 itatement of policy deleted. h) 502 32 (a) 'urposes for which defense articles and services may be utilized carried over. 503 31 (a) secipient countries no longer need to be "friendly." 503(a)(d 34 (a) sarter transactions authority added. (See pp. 48 and 49.) 504 34 (d) LO-country limitation carried over for loans and grants only; does not apply to barters. 504 Z(e)(Z) 'revision modified by (1) modified list of countries eligible to receive sophisticated weapons under sales program now eligible to receive such weapons under iX4P. (See FMSA, sec. 4.) (2) Example wording "missile system or jet aircraft" deleted. (Reporting requirement in sec. 52(a) of S-1657.) Presidential waiver carried over. 504 (b) 24 (a) iequirement that funds for MAP compete equally with funds for other WD programs would be extended to all se- curity assistance "where appropriate." 505 (a) Conditions of eligibility on defense articles extended to cover all forms of security assistance. (1) (2) 31 (b) 505(a) Restriction on continuous observation and dispositon of MAP granted or loaned defense articles carried over. (3)(4) 34(b) Does not apply to barter transactions. 505(b) 34(c) Restriction that defense articles be used for free-world defense deleted to allow assistance to neutrals. Requirement that the President determine importance of recipients' defense capability to U.S. security deleted. 505(c) 34(e) Sentence added to requirement for reduction of concessional assistance to allow progressive use of sales. - SECURIn ASS ISTANCE .~~~z~---- - .. .-- -zxzz T _ _--; _--- _ _ ~ L 4s WAIVERS ” CM 0 II c.cxuwnts _---- 34(h) Presidential waiver added to formerly mandatory termination of assistance ro countries violating restrictlo* ,I dD on use of defense articles and services. 34(i) Requirement for recipient agreement on use of Public Law 480 title I sales proceed,, for common dclei,he ~‘:firr I& 5G5 23 Special authority carried over. Reporting requirement in section 52 of S-lh5i. Ceiling amount carried over tut no longer appltes to specific fiscal years. 507 (a) 44(b) $25 million ceiling on military assistance defense articles to Latin America car1 :cal over 507 (b)(c 32(b) Restrictions on military assistance to Latin America modified 1.~7 deletion 01 reterwlce !o joir,: pla.;rii!,# wd deletion of conditional prohibition on further assistance wi; h accompanying Pre~ldenf~ol waiver. In effect this raises the ceiling on such assistance. 507(d) ~ $10 million ceiling on assistance for Latin American coastal deteuse deleted. 508 32(b) Conditional prohibition on military assistance to Africa cllanged IO statement of “ptimarv emphasis.” Presidential determination allowing waiver of conditions deleted. 44(b) $25 million ceiling on assistance Lo Africa charged from covering all military assistance to vowring value 01 defense articles as in the case of Latin America. Reporting requiremen: deleted. Requirement for certification of recipients’ capability to effetrtvely utilize defensr articles worth over SlOO,OOO carried over. Does not apply to barter t.ransactlons. 509(b) Authority for Secretary of State and Secretary of Defense to waive ahove ccrtificarion requiremelit conl.illetl and carried over. Restriction on number of foreign military st.udents allowed LO t,e trained ilk the Ullited States deleted. Foreign )lilitary a es I the For&R” Assis~arjce 1 Chapter j?l 1 I ‘- These provisions repealed. Prohibition on use of funds to reimburse any U.S. agency for transfer of U.S. defense articles to Korea not repealed. Requiremepr that authorized assistance be provided within the limitation of FAA applies only to the transfer of defense articks to Korea. 3- Prohibition on U.S. ground combat troops and advisors in Cambodia carried over. Prohibition on construing assistance LO Cambodia as a U.S. commitment to defend that country carried over. Ll ! ! ] Note: Sections 5, G(a), and 0 are amendments to FM. Foreigl! Lll-tJ 1 The sense of the Congress provision that sales should not be made to military dictators denying the growth of fundamental rights or social progress to their own people has been modified by referring to military regimes and by extending it to cover all security assistance. l-l 69 The accompanying Presidential waiver authority has been deleted as legally ultnecessary. - - SECURITY ASSISTANCE A.-_-- --- _---_-Z.-z -____ -:-; --_-..--_.- ..~__ ._ .. SEC’, YUMBER EXISTIIG -- PROPOSEI) Comme"ts -.-. --_-- -- 2 3 Coordination with foreign policy provision carried over. z 3(a)(l) 31(a) Required Presidential determination that sales will strengthen U.S. security and world peace. 3 H 3(a)(2) 31(b) Prohibition on transfer of defense articles would not apply to international organizations. 3c 3(a) 53(3) Reporting requirement carried over. =I 3(b) 42(f) Restriction on assistance to countries seizing or "taking into custody" U.S. fishing vessels in international l-l waters modified by deletion of quoted phrase and 1s the extension of the provision to cover all =curitY assistance. Presidential-determination that the recipient "is pl %pared to take appropriate steps" would facilltaLe waiver of this restriction. 4 32(a) Purposes--reciPient country need not be "friendly." 4 42(e)(; Prohibition on providing sophisticated weapon systems to less developed countries modified by PrOViso --extension of provision to cover cash sales; --deletion of illustrative wording, "such as missile systems and jet aircraft;" and --deletion of Iran and addition of Thailand and Vietnam to list of excepted countries. Presidential waiver authority carried over. Reporting requirement now in sec. 52(a) of S-1657. 21 37(a) Recipient country need not be "friendly" to qualify for cash sales. 22 37(b)(l The clause modifying "dependable undertaking" for cash sales "which will assure the United StaLes Government against any loss on the contract" has been deleted. Reporting requirement carried over to sec. 52(c) of S-1657. Authority for fixed-price sales agreements carried over. Restriction on sale of unclassified defense articles to developed nations and accompanying waivers carried over, 23 36(a) Terms and conditions on foreign military credit sales modified by --deletion of the requirement that repayment be for "not less than the value" of defense articles sold, --addition of explicit authority for refinancing, --interest rate to be not less than the cost of money to the Government, --new concessionary interest rate authority and extended maturity date, and --authority to alter terms and conditions of existing credits outstanding. 24(a) 36(b)(l Requirement that sales guaranties be issued only to firms in the United States deleted to allow foreign financing. 24(b) 36(b) (1 Authority to sell promissory notes (but not to U.S. Government agencies) carried over. 24(c) 36(b) (3 Fractional reserve requirement carried over. 31 63 The computation of the ceiling on credits or participation in credits has been modified by omitting guaranties on the sale of promissory notes. This has been done to avoid counting the same amount of credit twice against the ceiling. 32 36(a)(4 Prohibition on Export-Import Bank participation in credit sales to less developed countries carried over. $4(a) The regional ceilings on foreign military sales to Latin America has been modified by omitting guaranties 011 the sale of promissory notes. Ceiling amount raised from $75 million to 5150 million. ------- SECURITY ASSISTAKE .-._. _.I- .~wm l4”“Bt.R - “E5TmltTIONS YIAIYERS EXISTIWG PIIOFOSLD CMDN CM DN gonme ” t s ------ -- 33(b) 44(a) The regional ceiling on foreign military sales to Africa has been modified by rountillg ship loans aind salrs Q against the total. Ceiling amount raised from $40 million to $60 million. t I ! ! ! ! ! ! ! I 33(c) IAuthority for the President to waive regional ceilings has teen deleted. I 34 36(a) I ~Standards and criteria on credit end guaranties will he subject to limitation on terms and conditions. 35(a) :Restrlction on foreign military sales to countries diverting development assistance rind Public Law 480 sales to military expenditures or diverting their own resources to unnecessary military expendimres has been carried over. 35(b) Required semiannual reports and forecasts on sales and guaranties CO less developed countries deleted. The administration, however, has announced its intention to include this information in its congressional pre- senta tion document. 36(a) Reports on exported defense article s include only those articles exported tv the private sector. 36(b) The requirement that annual information be summarized on a developed-country t.esls or a less-developed-country basis has been deleted and thereby modifies the information requirements of this sectton on foreign military sales. 36(c) The restriction that this section will not affect section 414 of the ?ttual Security Act of 1954, as amended, has been deleted. 37 (e> Prohibition on using cash repayment to finance rredits and guaranties carried over. %a w 37 (b) 36(c) New authority added to allow obligation of portion of sales proceeds for the guaranty reserve. 42b3 37(b) (2) Items to be taken into consideration when deciding on a sale have been modified bv new language which states 2d pro- that the “interests” rather then the “licensing arrangements” of U.S. entities and which adds the word viso “substantial” to the portion of such arlicles which are of U.S. origin. 42(b) 36(d) Presidential determination needed to allow up to 10 percent of any sale to be foreign anti products. 42(c) 3(d’) Responsibilities of the Secretary of Defense carried over. Authorization for use of administrative funds from other acts deleted. :: / 84 Statutory Construction--this act will not effect the Atomic Energy Act of 10 U.S.C. 7307. Provisi ns of th F cf 1971 I ‘i 7 45 Restriction on international fighter aircraft carried over. 8:a; (b) 34(f) The requirement that an expenditure of military assistance funds equal to 33-l/3 percent of the acquisition c cost of any granted excess defense article will apply only when the aggregate total exceeds the amount fixed by law for that year. The amount fixed by law, it is proposed, will equal the expected availability of ex.- cess defense articles. g(d) 52(b) mi The reporting requirement on grants of excess defense articles which are major weapon systems and which have not been previously justified to the Congress has been carried over. The required quarterly reports on excess defense articles would not be mandatory. The administration, hos- ever, has stated its intention of continuing such reports. -- -- -r-. _..~ .l~-=-~ _._. T .==.xz:z=-----==----- -- .___- IUMBER -- PIOPOSEO Comments - 31(b) Restrictions on the transfer of defense articles by a recipient country to another country has been carried over / 22(b) Requirement for legislative authorization of foreign assistance funds carried over. h. 84 4(d)(g) Definitions of "defense article" and "excess defense article" carried over. Definition of "foreign country" deleted. w i-i 82(4) Repeal of "Joint Resolution to promote the maintenance of international peace and security in Southeast Asia" H carried ovei-. Prohibition on use of funds to transport chemical necessities from Okinawa 10 the Ullited States deleted. -- .---.- GEJNERAL AND ADMINISTRATIVE.-- PROVISIONS __~_V. .-- - ___-- ___ . ..-- -- -- - -7.1 UMBER --PIlDPOIED -0visior - Repealed--Encouragement of free enterprise and private participation. 67 Requirements for small businesses modified. (IDHAA sec. 407 does call for assistIn>: American small t~llsinessr:. to artici ate under this act.): ‘to7 6 8 Z(a)(l P advance information to U.S. suppliers carried over to ISAA. G22(a)(i) information to prospective purchasers deleted. 622(a)(3) additional services deleted. office of small business deleted. :z? emphasis on DOD advance information deleted. 603 68 Exemption from 50-50 shipping wle on transportation between foreign countries carried over to security ‘(:djJ:- tance section 6R. No such exemption for development assistance. 604(a) 64(a) Carriea over restriction on procurement outside the United States to security assistance. Carries over Prehi- dentist determination needed to use funds for offshore procurement. No such restriction on development assistance. 604(b) Restriction on offshore bulk procurements deleted. 604(c) 64(b) Carries over restriction on offshore procurement of agricultural commodities for Public Law 480 grants. Not included under development assistance. w -l 604(d) 64(c) Restrictions on marine insurance carried over. Not included under development assistance. 604(e) 64(b) Restriction on foreign procurement of U.S. agricultural products priced below parity modified by adding “ex- cept commodities which are net imports into the Vnired Sbntes”--in ISAA. Not included in IDHAA. 604(f 1 64(d) Requirement for supplier certification of commodity eligibility under commodity import programs carried over to ISA4 but not to IDHM. 65(a) Retention of commodities and defense articles modified by deletion of retention by concurrent resolution. Not included in IDHAA, 605(b) 65(h) Provision on use of commodities used as repayment extended to cover defense articles and services. See page 48 for discussion of barter transactions. Does not apply to IDHAA. 605(c) 65(c) Provision for use of recoverie s on incompleted transactions as reimbursement to supporting assistance funds carried over. goes not apply to IDRAA. 605(d) 65(d) Provisioh for crediting applicable accounts with proceeds from disposition of defense articles returned to the td United States as no longer needed by recipient carried over. 606 Provision on patents and technical information deleted. 8 607(a) 35(d) Deletes restriction that advances, and reimbursements for services and commodities must be received within 203(b) 180 days of the close of the fiscal year in which delivery was completed. z Provides for obligation of funds against anticipated reimbursements for supporting assistance. t= 607fb) Restrictions on using excess property as assistance deleted. t-t GRXRAL AND ADMINISTRATIVE PROVISIONS I -;zy~.-m~w------ -- -~:= z- ==- I__~__ __ -==7-z-z - 4"MBER RESTRICTIONS WAlVERS PlOPDIED c H D N c u 0 N comments --_ 66(a) l Sense of the Congress provision on maximizing use of excess property extended to cover military assistance as e well as supporting assistance. Does not apply to IDHAA. tl . . 608(a) Funds for costs on excess property acquisition and renovation switched from technical assistance to sUpporting X assistance. H $15 million limitation deleted. z 608(b) Requirement that excess property be available first for domestic donation deleted. 609 Requirements for control and allocation of local currency proceeds on commodity grants carried over to 1%~ but not to IDBAA. 610(n) Authority to trz>~sfer between funds extended to all forms of security assistance, including sales. Maximum amount transferable increased from 10 to 20 percent of any single fund. ZO-percent ceiling on amount any fund can be increased deleted. Does not apply to IDBAA. 610(b) Prohibition on use of transfer authority to augment funds for administrative expenses deleted. 611 Requirements for completion of plans and cost estimates on development loans and grants in excess of SloO,n~)Q III deleted. 612 105(h) Restrictions on use of certain non-Public Law 480 excess foreign currencies deleted--including requirement for annual appropriation. Note: This is in line with GAO report "Opportunities for Better Use of United States- Owned Excess Foreign Currency in India" (B-146749, January 29, 1971). 613 82(a)(2 Requirements on accounting, valuation, reporting, and administration of foreign currencies not repealed. Authority of Secretary of State to waive interest income requirement carried over. 614 63 Special authority on use of foreign currency would cover all forms of security assistance. 615 Contract authority deleted. 616 Requirement for annual authorization and appropriation of funds except as otherwise provided deleted. 617 69(a) Termination of assistance provision modified to cover security assistance--not included for development as- sistance. Provision for termination by concurrent resolution deleted. Provides for reimbursement of out-of-pocket losses under IS&L 618 Use of settlement receipts deleted. 619 Assistance to newly independent countrfes provision deleted. 620(a)(l 42(c)(2 Prohibition on assistance to countries aiding Communist Cuba carried over. (3) dO(d(2 Prohibition on assistance to countries allowing their flag vessels and registered aircraft to carry goods to and from Communist Cuba carried over. Presidential waiver added. 620(a)(2) Prohibition on assistance, sugar quota, or other legal benefits to Cuba deleted. Presidential waiver deleted. 620(b) 1 42(a) International Communist-movement countries redefined as those controlled or dominated by U.S.S,R. or Communist 620(b) '410(a)(l I GENWAL AND ADMINISTRATIVE -- PROVISIONS -i- --T-G-- :r==yT.-_; _ _L~=~zz=~.=___ SELTIONN"MBEFl RESTAICIIONS WI\,"ERS EXIITIN‘ PsOPosEL? c M " N c M D N comments ---. -- 620(c) Restriction on countries having recognized outstanding debts to U.S. citizens deleted. Presidential waiver deleted. 620(d) Conditional prohibition on assistance to foreign firms competing with U.S. firms deleted. Presidential waiver deleted. 620(e) Prohibition on assistance to countries expropriating U.S.-owned property made a "consideration" for d?vclop- for Foreign Claims Settlement Commission activities in this area deleted. Federal act of State doctrines not repealed (S-1657 sec. 8%). Does not apply to ISAA. 620(f) Prohibition on assistance to specific Communist countries deleted. Presidential waiver deleted. (However, see ISAA sec. 42(a) and IDHAA sec. 410(a) cl).) 620(g) Prohibition on and required reimbursement for use of assistance to reimburse U.S. owners of expropriated property deleted. 620(h) Requirement for the President 1.0 ensure assistance not contrary to U.S. interests deleted. 62O(i! Prohibition on assistance (including Pub. L. 400) to countries planning aggressive acts deleted. 620(j) Required Presidential consideration of terminating assistance to countries permitting mob destruction of U.S. p=ope=ty &ted. 620(k) Prohibition on economic end military assistance projects costing over $100 million unless presented to the Congress deleted, 620(l) Required Presidential consideration of denial of assistance to countries not signing investment guaranty agreements deleted. 620(m) 42(b) Conditional prohibition on grants to economically developed countries carried over to security assistance bvr not to IDHAA. 620(1,) 42(cXl Restriction on assistance to countries assisting North Vietnam carried over. 620(n) 410(aX3 Same as above but Presidential waiver added. (See also same restriction in Pub. L. 480 sec. 103.) 620(o) 42(E) Consideration on terminating assistance to countries seizing U.S. fishing vessels modified. Presidential waiver added. Applies olrly to security assistance. 620(p) Dclptrs prohibition and Presidential waiver on assistance to United Arab Republic. 620(a) t Delctc,‘: prohibltioll sr,d Presidential waiver on assistance to countries in default of loan payments. 620(r) 405(d) '@ Prohibition on relief from repayment of loan principal and interest changed to principal only. $ Applies to development loans only. 620(s) 42(eXl' Restriction on assistance to countries diverting assistance or resources to unnecessary military expenditures 206 a4 modified by t-equiring Presidential finding to that end as far as security assistance is concerned. President will take the above into account when deciding on development loans. 620(t) 42(d) Prohibition on assistance to countries with which the United States has no diplomatic relations modified by 410(aX~ the deletion of requirement for renegotiation of assistance agreements upon resumption of relations and bY addition of Presidential waiver. Extended to cover foreign military sales. 620(u) Restriction on assistance to countries in arrears on obligations to the U.N. deleted. 620(v) Repealed in 1969. Adminis rative P 621(a) 404(a) Provision on exercise of functions modified by adding authority for the President to utilize entities not in 71 existence at time of passage of act and by authorizing the President to create a federally chartered CorPo- ration or cor$orations to carry out these functions for IDHAA. 621(b) Authority on determining eligibility of persons to receive assistance deleted. 621 A Provision on strengthened management practices deleted. 622 3(a)(b)( Provisions on coordination with foreign policy carried over to ISAA. 623 3(d) Provision on functions of the Secretary of Defense carried over. 624(a)(i Statutory officers would be superseded by authority for reorganization in S-1657 and S-1656. (cl z 624(d) S-1657 Provides authority for new Inspector General of Foreign Operations who would take over the functions of Ztif 0 Foreign ritle II present Inspector General of Foreign Assistance and Foreign Service Inspectors. Service sec. 2 Some of the changes in authority are: Act Sac --Authority would be provided to the Secretary of State instead of directly to the Inspector General. 681 --Authority to suspend assistance (sec. 624(d)(6) deleted). --Congressional access to information proviso(sec. 624(d)(7) deleted). 625 Provisions overning the employment of personnel generally have been carried over. The requirements of 625(g) and 625(i f , however, regarding the language and area competence of assigned officers, have been deleted. Other provisions have been modified for the purposes of reorganization. 626 The limitations on the type and number of contracts for experts, consultants, and retired officers which may be renewed annually have been deleted. Provisions on detail of personnel to foreign governments and international organizations carried Over. Status of personnel detailed carried over. 630 Terms of detail or assignment carried over. 4:&b, 631 Missions and staff abroad carried over. 632 61,406 Allocation and reimbursement among agencies provision carried over. CFNHW, AND ADMINISTRATIVE PROVISIONS -:-.-_-y --.s-.=Y&zz==-=z-. -=.-.:;: ._____ _i-- : -- “UMBER PROPOSED 63(d) Presidential waiver of laws governing contracts and expenditures extended to cover foreign military sales. &. - ------ . 633(b) 63(e) Presidential waiver of Neutrality Act extended to cover all forms of security assistance. 633(c) 72(j) Presidential waiver of laws governing the holding of civil offices by military personnel carried over to ISAA. 634(a) 54 Required annual report modified by deletion of any reference to freedom of navigation and nondiscrimination. Not included in IDNAA. 634(b) Provision on public information on assistance deleted, according to the administration, because it “is more comprehensively governed by the Freedom of Information Act.” 634(c) 55 Access to information provision carried over, security assistance only, not in IDHAA. Presidential denial provision carried over. 634(d) 51 Information to be contained in congressional presentation document carried over. Does not apply to development assistance. 634(e) Required submission to the Congress of plan for progressive reduction of grant economic assistance deleted. 634(f) 53(Z) Required report on loan repayments carried over for security assistance. No such provision for development assistance. 634(g) Repealed in 1968. 634(h) 51 Required information on service-funded military assistance to South Vietnam, Laos, and Thailand carried over. 635(a)(b jZ(a)(b) General authority for grants, contracts, use of gifts, etc., carried over to security assistance. (d) 105(c)0 635(c) Sense of the Congress provision on maximum use of voluntary agencies deleted. 635(e) 77(f)(l)’ 105(eXll Authority to pay for insurance on foreign participants and employees carried over. 635(f) 77(g) Provision for foreign participants to be admitted to the United States carried over. 106(e) t-H--l 635CgXl (2X33(4 35(e) 105(c) i-t-t-l Provisions carried on powers over. to issue Reference to letters Corporation of credit, Control collect obligations, Act does not apply to acquire ISAA. or dispose of property, etc., 635(g)(5 635(h) 635(i) 62(c) 215 Rl Requirement 5-year limitation No such provision Arbitration for of set claims for of on grant development integral contracts limited to accounts carried grants. housing for guaranties. corporate: over for loans security and for assistance GAO audit grants. thereof deleted. 635(j) 62(d) Exemption from prohibition on loans to governments in default of payments to U.S. Government (18 U.S.C. 955) 105(g) carried over. H - GENERAL AND ADMINISTRATIVE PROVISIONS m.zz= ._ .--. A ~-- 4UMBER RESTRICTIONS WAIVERS cd PROPOSED c M D N t M D N comments 635(k) 62(e) Provision for payment of indirect costs on cost-type contracts with educational institutions carried over. 105(f) 1 . 636(a) The provisions of section 77(a) refer only to economic supporting assistance and are largely Carry-OVers of FAA, sections 636(a)(l), (21, (31, (41, (5). (ll), (13). (17), (61, and (14) in that order. There is some modification on ceilings for auto replacement and entertainment. 636(a) The provisions of section 405(e) on the use of funds are largely carry-avers of FAA, sections 636(a)(2), (3)~ (61, (51, (14), (9). (ll), (131, and (17). Two exceptions are 405(e)(3) and (7) which allow the use of funds for automotive and aircraft purchases formerly restricted by FAA, section 636(a)(4) and (5). 636(b) Use of funds for expenses of foreign services personnel, printing, and procurement of supplies outside the United States carried over for sscurity assistance. Administrative expenses allowed for development assistance modified. 636(c)(e Provision for purchase of quarters, schools and hospitals for personnel and dependents, and education of de- pendents carried over to ISAA. 636(e) 72(k) Provision for payment of personnel training costs (including salaries) carried over to ISfi. 636(f) Provision for use of FAA funds for Public Law 480 expenses deleted. 636(g) 77(b) Provision for use of military assistance funds for administrative and other costs carried over. z 636(h) 64(e) Provision on recipients' local currency contributions for contractual costs carried over to security assis- h, tame only. 636(i) 64(f) Prohibition and waiver on purchase of automobiles overseas carried over to security assistance only. 637(a) Separate authorization and appropriation of administrative funds deleted. 637(b) 78 Authorization for appropriation of State Department expenses carried over to ISAA. 638 Provision that FAA is not to be construed as prohibiting Peace Corps, educational exchange, and Export-Import Bank assistance deleted. 639 84(c) Provision that FAA is not to be construed as prohibiting famine and disaster relief carried over to ISA.4. 640 IRepealed in 1968. 640 A Provisions on penalties for false claims and ineligible commodities deleted. Miscellf 641 m 1 1 1 1 1 /Effective date. 642 32,414 1 i ( ! ! ! ! ! IStatutes repealed. (These statutes are dealt with separately throughout the tables.) 643 13,411 Saving provisions allow actions and funds under FAA to be continued unless expressly prohibited by new legis- j 1 / / / j 1 j lation. CRRERAL AND ADI4INISTRATIVE PROVISIONS _--- -- -_- ____.. : .: =-i---= -.7 E lodifications of definitions are: --The phrase "used for the purposes of furnishing (military or nonmilitary) assistance" in the definition of "commodities," "defense articles." "defense services" and "services" replaced by the phrase "furnished for (military or nonmilitary) purposes." --The term "mobilization reserve" redefined in terms of regulations prescribed by the Secretary of Defense rather than by the President. --The definition of "value" has been extended to cover military sales in addition to military assistance. 645 79 411 'revision on unexpended balances to be brought forward carried over. 646 84 'onstruction--Invalidity or nonapplicability of any provision will not affect rest of act--carried over to ISAA. 647 'revision on dependable fuel supply deleted. 648 82(a) 'revision for use of local currencies for assisting the maintenance of certain cemetaries not repealed. 649 ,imitation on aggregate authorization for use in fiscal year 1966 deleted. 650 estriction on commitments to use U.S. Armed Forces applies only to security assistance. L 651 ense of the Congress provision on sale of supersonic planes to Israel deleted. z 652 ,imitation on additional assistance to Cambodia deleted. New prc 3ions 32(c) .equires that arms control considerations be taken into account when furnishing security assistance. 42(g) .equires that recipients' drug traffic control steps be taken into account when furnishing security assis- tance . 62(f) nthorizes the acquisition and sale of defense articles to U,S. prime contractors for incorporation into an end-item to be sold to eligible recipients , where such defense articles normally would be supplied to the prime contractor if the end-items were being procured by the Government for its own or military assistance purposes. nthorizes negotiated sale to U.S. suppliers of spare parts in DOD stocks which are no longer needed and can- not be economically maintained and stored by the United States but which may be needed by eligible MAP re- cipients. The suppliers must agree to maintain an adequate inventory of such parts. 69(a) rovide for reimbursement of out-of-pocket losses by a Govdrnment agency resulting from the termination or !d sen- suspension of deliveries in a foreign military cash sale from military assistance or foreign military sales tence credits. 69(b) uthorize the cessation, upon Presidential determination, of any monitoring or auditing activities with re- spect to assistance furnished pursuant to this act or predecessor legislation when that assistance is terminated or suspended. 72(b) ,uthorizes three executive level officers whose title and order of succession will be determined by the Pres- ident. GENERAL AND ADMINISTRATIVE PROVISIONS -.-. ____ .-.- -.- ~- _- ; .z .-_;2- BECIION NUMBER IRESTRlCTlONS~ WA,"ERS EXllTlWG 1 PROPOSED, ClMlDlN~C~H[D~N Comments - ____- 72(f) Permit Foreign Service Reserve officers to serve a second 5 years. Authorizes appointments OC Foreign Service 401(d) officers having unlimited tenure subject to selection-out process. x 72(g) Provides for participation in Foreign Service retirement and disability system. 401(e) El 401(b) H Provides for 15 executive level officers appointed with the advice and consent of the Senate. Their titles and order of succession will be determined by the President. 404(b) Authorizes the President to appoint members to a board of directors of a corporation or a board of trustees of a" institution or agency created under subsection (a). (See ch. 2, p. IO, for discussion.) 404(c) Authorizes the President to administer those loans and housing guaranties made under FAA and predecessor legislation. 405(a)l General powers and provisions on the use of funds. Provides for necessary offices. Places corporation under (c)l Corporation Control Act and allows it to sue and be sued in its corporate name. Authorizes certain Powers for the Corporation, including its right to determine the necessity for and manner of payment of its obliga- tions and expenditures. (405(h) Authorizes the utilization, without appropriation, of non-Public Law 480 U.S.-owned excess foreign currencies for purposes of IDHAA. (For discussion see ch. 6, p. 71.) 408 Provides for coordination of programs and requires the President to establish coordination systems in Washing- ton and the field. The Secretary of State shall provide foreign policy guidance. (For discussion see ch. 3.) 409 Audits and reports. Requires the provision of adequate financial controls, including auditing, for the pro- posed organizations. (For discussion see ch. 5, p. 55.) Defines "predecessor legislation to the Foreign Assistance Act of 1961" by listing those acts. Thus dollar inflows from loans made under these acts will be available for development lending (see sec. 209(b)), and the actual loans will be administered by the President. Transfer provisions allowing for the transition from the present to the proposed organizational structure. These provisions relate to the transfer of functions and personnel. 82(6) First proviso of section 108 of the Mutual Security APpropriation Act of 1956, as amended, has been repealed. This section required quarterly reports to the Congress on defense articles and defense services provided c under MAP. The administration has, however, announced its intention of continuing such reports. v Public 502(f) Section 502(f) of S-1656 amends section 103(b) of Public Law 480, tying the minimum interest rate on foreign c Law 480 currency credit sales of Public Law 480 commodities to the proposed l-percent minimum interest rate on de- sec. 103 velopment loans in section 208. The former statutory rate (3 percent) was contained in FAA, section 201. 9 (b) The administration has announced its intention of maintaining a 3-percent rate for such credit sales how- 3 ever, despite this change. k% f Migratio? 502(d) Section 502(d) of S-1656 amends section 2c of the Migration and Refugee Assistance Act, authorizing the Presi- P and Refu- dent to use up to $10 million of the proposed conGingency fund for purposes of that act. It deletes sec- gee Assis- tion 7 of that act which authorized the use of the FAA Contingency Fund until appropriatjons had been made. r, ;fa"i.ge&F Copies of this report are available from the U. S. General Accounting Office, Room 6417, 441 G Street, NW., Washington, D.C., 20548. Copies are provided without charge to Mem- bers of Congress, congressiona I commIttee staff members, Government officia Is, members of the press, co!lege libraries, faculty mem- bers and students. The price to the general public is $1 .OO a copy. Orders should be ac- companied by cash or check.
Reorganization Proposals Relative to Foreign Aid and Foreign Military Sales Programs
Published by the Government Accountability Office on 1971-11-24.
Below is a raw (and likely hideous) rendition of the original report. (PDF)