facturers. As replacements are required in the future, or additional equipment is ordered, to take care of expansion, it is only logical to assume that such orders will be placed in the United States in order to have uniformity of equipment operating within the plant.

Such loans of the Export-Import Bank definitely contribute to the development and the expanding of the economy of foreign countries, and to increasing their capacity of purchasing United States exports (question No. 8). To the degree that we enable another country to develop certain basic industries or fill certain fundamental requirements, we enable that country to increase their purchases in the United States. Again using Chile as an example, I cite the hydroelectric development and again the steel mill.

The hydroelectric development represents a saving in Chile's foreign exchange budget which would otherwise be spent for the importation of fuels, and to the degree by which Chile can so effect that saving in its foreign exchange budget it is a potential buyer of goods from the United States.

The steel mill in Chile using local iron ore, again represents a saving in foreign exchange which would otherwise be expended for the importation of that country's basic steel needs. For Chile, an exporter of iron ore, to ship that iron ore 6,000 miles to the United States and then import fabricated steel, another 6,000 miles, constitutes a distinct economic waste if one only considers the cost of the freight involved. To the extent that Chile saves foreign exchange by being able to produce its basic steel needs, means that Chile has more dollars for the purchase of more highly fabricated goods from the United States.

Looking at this solely from a realistic point of view, I would much rather see United States industry sell X dollars of refrigerators, automobiles, and similar equipment to Chile than X dollars of fabricated steel. In our exporting fabricated steel, the largest cost of which represents raw materials, we are further depleting our own limited reserves of raw materials. To sell the same amount of dollars in the form of refrigerators, automobiles, and similar equipment, the largest cost of which represents wages paid to American industrial labor, we are exporting our technical know-how and American labor, which is limitless.

I believe (question No. 9) that the Export-Import Bank should revert to the policy it followed some years ago of financing its loans to borrowers by the use of commercial banks under a guaranty or repurchase agreement. I think this is far better than for the Export-Import Bank to obtain its funds from the United States Treasury. The rate of interest at which those notes would be discounted_with the commercial banks might be somewhat higher than Export-Import Bank presently obtains from the United States Treasury but, nevertheless, it would still leave a margin between the commercial bank's yield and the rate paid by the borrower, which the Export-Import Bank would use for operations and reserves. Also, I believe the Export-Import Bank, if possible, should put more stress upon the use of commercial and banking funds by encouraging a greater participation on the part of suppliers under the guaranty of the Export-Import Bank.

In conclusion (question No. 10), it is my opinion that the activities of the ExportImport Bank not only in the field of short-term credits but also in the field of long-term development loans should, if anything, be increased. The ExportImport Bank is an instrumentality of the United States Government, employed solely in the financing of purchases of United States industrial goods and services. For a period, our country enjoyed a "seller's market," as there were very few other countries from which goods could be obtained. With the end of World War II, it was only logical to anticipate that United States industry would be confronted with keener competition. This is proving to be the case, and it will be intensified as time goes on. The difference in price between what can be offered by an American company as compared with what can be offered by a supplier in a country other than the United States, can very often be offset by the terms of payment accorded to the buyer abroad. Our American industries are not in a position to give long-term credits and, therefore, there must be a powerful governmental instrumentality which, by its ability to finance such operations, will aid American industry to meet that inevitable competition.

Repeating what I said before, the benefits accruing to American industry do not end with the original purchase; instead it aids American industry in obtaining and maintaining markets abroad for its output. It can be expected that other countries will devise means of assisting their industries by some form of financing of purchases, which is all the more reason in these times for the Export-Import Bank to participate in the financing of purchases of American industrial products and thus enlarge its activities.

In reply to the question contained in the penultimate paragraph of your letter, I shall be glad to render whatever assistance I can, appearing before the committee if requested.

Sincerely,

WILLIAM J. SIEMON.

Senator BENNETT. This completes the testimony and will complete our hearings for today. Tomorrow morning at 10 o'clock we will proceed with another list of witnesses with foreign interests. We will begin with Mr. Elija Vihma, representative of the Finnish-American Trading Corp., and hear several other people.

Unless there is further business, we will recess until 10 o'clock tomorrow morning.

(Whereupon, at 12:20 p. m., a recess was taken until 10 a. m., Tuesday, February 2, 1954.)

STUDY OF EXPORT-IMPORT BANK AND WORLD BANK

TUESDAY, FEBRUARY 2, 1954

UNITED STATES SENATE

COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.

The committee met, pursuant to call, at 10:05 a. m., in room 301, Senate Office Building, Senator Wallace F. Bennett, presiding.

Present: Senators Bennett, Bush, Beall, Payne, Maybank, Robertson, and Frear.

Also present: H. K. Cuthbertson, Jr., Raymonde Alexis Clarke, and Donald L. Rogers, assistant counsel.

Senator BENNETT. Ladies and gentlemen, the time has come to begin. We might as well make a start.

Is Mr. Elja Vihma present? Is Mr. Roberto Vergara present? We will begin with you, Mr. Vergara. Will you identify yourself for the record, please?

STATEMENT OF ROBERTO VERGARA, REPRESENTATIVE OF THE COMPANIA DE ACERO DEL PACIFICO S. A., SANTIAGO, CHILE

Mr. VERGARA. Mr. Chairman, I am an engineer by profession, but I have been in the employ of the Chilean Government for approximately 20 years dealing in financial matters. More than half of that time in connection with foreign financing and development, and for a period of that time I was in charge of the Bureau of the Budget in Chile.

I severed my connection there some time ago and am now a private citizen.

I would like to thank you for the opportunity of expressing my views on this matter. I came to this country in 1940 and have lived here for over 10 years.

I think I should give you some background on what Chile has been doing this year. After the depression of the 1930's Chile was a poor credit risk and the flow of foreign capital into Chile was slow. Around 1938, in order to give Chile more capital, we established a corporation called the Corporacion de Fomento. "Fomento" in Spanish means "development," not to foment, as in English.

About 1940 we first borrowed money from the Export-Import Bank. The first loan was $12 million. In order to use that money we opened an office in New York and I was in charge. We started to work to prepare projects. We used the Export-Import Bank funds for the purchase of the United States equipment that went into our plant. We matched that with our local money for local expenditures.

In the case of the powerplant, for every $1 that we borrowed we invested $2. In that way, we also built a steel mill that provided for

Chile's needs. We built cement plants and several other projects. This has been of tremendous benefit, what has been done through the Export-Import Bank down through the years.

We borrowed some money from the International Bank. The total was about $150 million or $160 million, which I understand is being repaid. We have repaid about half, in round figures. The benefit of these loans is very important to the United States in that not only do they sell their equipment but the United States has a large trade with Chile. Every time we establish a new industry it is a source of new imports, supplies, spare parts, and so forth.

The result of this Export-Import Bank association with Chile has been very beneficial. I do not think I need to say anything more as to the detail of these projects because you have them in the record. Private capital, not Government lending, is an important point. I will say something about that. There is a need to borrow money for more of these projects. Money is needed for irrigation. You cannot do earth-moving with just a wheelbarrow and a shovel. It is very expensive. So when the Government wants to undertake projects of any importance they need to have foreign capital. It is a proper thing to buy that on credit.

Today, there is no market in the way that there was before the war. I will not explain why, but it is a fact. If the Government wants to buy equipment of that kind, it has to do some kind of Government borrowing. That is the way the United States, or the Export-Import Bank, has loaned money. Long term loans with about 20 years to go. That was the only way to borrow money.

Today European capital is doing the same thing, in England, France, Germany, and Switzerland. They have a system that is the equivalent of the Export-Import Bank.

Private capital does not go far enough. In Chile, there is Bethlehem Steel; in Venezuela, there is United States Steel and Standard Oil. They have gotten in there with heavy investments.

Senator BUSH. Could the witness push the microphone back?
Senator BENNETT. We are having difficulty in hearing.

Mr. VERGARA. When these companies go abroad, they go into business in a big way. There are many businesses in which American companies do not care to participate. Our Government has had that experience. I would go to a company and say, "Why don't you go to Chile?" They might help us. I was not asking them to put up much capital, just what they wanted to put up. The negotiations were carried on in the most friendly manner, and their conclusion was that the business was not big enough to fit into an operation of their size, although it might be an important one. The companies are so big here that they cannot afford to pay attention to a small operation. It does not compensate.

On top of that, the taxes they have to pay on the return makes them completely uninterested. They cannot get private capital here. The private banks say they cannot afford to take the risk, as has been explained. A private citizen who does not know a thing about a foreign country is not going to raise $500,000 or $1 million. So in order to develop the project we have to borrow abroad through the Government lending agency. You can call it the Export-Import Bank or whatever they call it in England or Canada. But there is a need for such an agency in order to support capital goods.