oversight

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)

                                  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
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                        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
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