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Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 FOREIGN ASSISTANCE ACT OF 1973 HEARING COMMITTEE ON FOREIGN RELATIONS UNITED STATES SENATE NINETY-THIRD CONGRESS S. 837 TO AMEND THE FOREIGN ASSISTANCE ACT OF 1961, AND FOR OTHER PURPOSES U.S. GOVERNMENT PRINTING OFFICE 90-989 WASHINGTON : 1973 Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 t',OMMITTE +; ON FOREIGN RELATIONS J. W. FULBRIGHT, Arkansas, Chairman JOHN SPARKMAN, Alabama GEORGE D. AIKEN, Vermont MIKE MANt.F(ELD, Montana FRANK CHURCH, Idaho STUART SYAII:NGTON, Missouri CLAIBORNE FELL, Rhode Island GALE W. McGEE, Wyoming EDMUND S, MUSKIE, Maine GEORGE S. McGOVERN, South Di.kota HUBERT If HUMPHREY, Minnesota CLIFFORD P. CASE, New Jersey TACOB K. JAVITS, New York HUGH SCOTT, Pennsylvania JAMES B. PEARSON, Kansas CHARLES H. PERCY, Illinois ROBERT P. GRIFFIN, Michigan CAI L MARCY, Chief of Staff ARTHUR M. KUIIL, Chief Clerk Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/30 : CIA-RDP75BOO38OR000600170005-7 CONTENTS Statements by : Kahin, George, Professor, Cornell University, Friends Committee on Page National Legislation ---------------------------------------- --- 74 Luce, Don, Director, Indochina Mobile Education Project, Washing- ton, D.C------------------------------------------------------- 82 Tarr, Hon. Curtis W., Under Secretary of State for Security Assist- ance, accompanied by Robert N. Nooter, Assistant Administrator, Agency for International Development, and Vice Admiral Ray Peet, Director, Defense Security Assistance Agency, Department of Defense ------------------------------------------------------- 3 Insertions for the record: Text of S. 837, 93d Cong., first session ----------------------------- 1 Prepared statement of IIon. Robert II. Nooter, Assistant Administra- tor, Bureau for Supporting Assistance, AID--------------------- tr Prepared statement of Vice Adm. Ray Peet, USN, Deputy Assistant Secretary of Defense (International Security Affairs) for Security Assistance, and Director, Defense Assistance Agency_____________ & Legal Interpretation Regarding Use of MASP Funds--------------- 24 Classification of Country-by-Country List of Foreign Military Installations -------------------------------------------------- 25 "Arms to Cambodia and Laos Debated-Pentagon Said to Feel Pacts Bar Help With the State Department Differing," article by John W. Finney, the New York Time,, February 3, 1973--------------- 26 "Indochina Arms Loophole?" article by Oswald Johnston, the Wash- ington Star-News, February 5, 1973_____________________________ 27 "United States Can Give Arms to Laos, Cambodia, State Depart- ment Insists," article from the Washington Post, February 6, 1973- 28 "Future Military Aid to Laos," letter to the Editor of the New York Times from Charles W. Maynes, the New York Times, February 15, 1973 ---------------------------------------------------------- 29 "Cambodia's Elite Grows Rich With U.S. Aid," article by Tanury Arbuckle, the Washington Sunday Star and Daily News, Novem- ber 26,1972---------------------------------------------------- 30 "Cambodian War Enriches the Corrupt, Debases the Poor," article by Sydney II. Schanberg, the New York Times, November 30, 1972__ 31 "Aid and Vietnam Future--As the Factions Contend in the South, Foreign Help Will Be Political Weapons," article by Flora Lewis, the New York Times, February 15, 1973________________________ 34 Indochina imports from Japan and total, table--- ------------- 36 Estimated additional refugee resettlement, medical and emergency repair costs in South Vietnam not able to be accommodated at the present continuing resolution level ------------------------------- 42 Letter and enclosure to Senator James B. Pearson from Curtis W. Tarr, Under Secretary of State for Security Assistance, dated February 23, 1973----------------------- ---------------------- 46 Rationale for requested increase in excess defense articles---------- 58 Public safety programs funded from security supporting assistance, fiscal year 1973 congressional presentation_______________________ 59 Additional Committee questions and responses of Mr. Tarr, Depart- ment of State-------------------------------------------------- 65 Additional questions submitted by Senator McGovern and responses of Mr. Tarr, Department of State------------------------------- 73 Prepared statement of Professor George McTurnan Kahin, Cornell University, on behalf of Friends Committee on National Legislation- 79 Prepared statement of Don Luce_________________________________ 85 Head count of Cambodian troops_________________________________ 87 Approved For Release 2001/08/30 : CIA-RDP75BOO38OR000600170005-7 Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 FOREIGN ASSISTANCE ACT OF 1973 THURSDAY, FEBRUARY 22, 1973 UNITED STATES SENATE, COMDIITTEE ON FOREIGN RELATIONS, Washington, D.C. The committee met, pursuant to notice, at 10 a.m., in room 4221, Dirksen Senate Office Building, Senator J. W. Fulbright (chairman) presiding. Present : Senators Fulbright, Symington, McGovern, Aiken, Case, davits, Scott, Pearson, Percy, and Griffin. The CHAIRMAN. The committee will come to order. The purpose of this hearing is to consider S. 837, the President's re- quest for authorization of appropriations for foreign assistance and military sales for the 1973 fiscal year. (The text of S. 837 follows:) [S. 837, 93d Cong., First Sess.] A BILL To amend the Foreign Assistance Act of 1961, and for other purposes Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 491 of chapter 9 of part I of the Foreign Assistance Act of 1961, relating to refugee relief assistance, is amended by striking out "1972" and inserting in lieu thereof "1973"; by striking out the figure "$250,000,000" and inserting in lieu thereof "$100,000,000"; and by striking out the words "East Pakistan" wherever they appear and inserting in lieu there- of "Bangladesh". SEC. 2. Part I of the Foreign Assistance Act of 1961 is amended by adding at the end thereof the following new chapter : "Chapter 10-PHILIPPINE DISASTER RELIEF "SEC. 497. PHILIPPINE DISASTER RELIEF.-Notwithstanding the provisions of this or any other Act, the President is authorized to provide, on such terms and Conditions as he may determine, relief, rehabilitation, and reconstruction assist- ance in connection with damage caused by floods in the Philippines during 1972. Of the funds provided to carry out part I, $50,000,000 shall be available only to carry out this chapter. Such assistance shall be distributed, to the extent prac- ticable, under the auspices of or by international institutions and relief agencies or United States voluntary agencies.". SEc. 3. Chapter 2 of part II of the Foreign Assistance Act of 1961, relating to military assistance, is amended as follows : (a) In section 504(a), relating to authorization, strike out "$500,000,000 for the fiscal year 1972" and insert in lieu thereof "$780,000,000 for the fiscal year 1973". (b) In section 506(a), relating to special authority, strike out "1972" each place it appears and insert in lieu thereof "1973". (c) Section 514 is hereby repealed. Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 SE.c. 4. Section 532 of chapter 4 cif part II of the Foreign Assistance Act of 1961. relating to authorization for security supporting assistance, is amended by striMng out "for the fiscal year 1972 not to exceed $618,000,000, of which not less than $:10.060.00() shall be akaflvble sotely for Israel" and inserting in lieu thereof "for the fiscal year 1973 not to exceed $844,000,000". Sec. 5.:17he Yereign Military Sa es Act is amended as follows : (a) In section 23 of chapter :;, relating to credit sales, strike out "ten" and insert in lieu thereof "twenty". (b) In section 31(a) of chapter 3, relating to authorization, strike out "$,100,- 000,000 for the fiscal year 1972" and insert in lieu thereof "$527,000,000 for the fiscal year 1973". (c) In section 31(b) of chapter 3, relating to aggregate ceiling on foreign military sales credits, strike out "$550,000,000 for the fiscal year 1972, of which amount not less than $300,000,01)0 shall be made available to Israel only" and insert in lieu thereof "$629.000,000 foa the fiscal year 1973". (d) In section 33(a.) of chapter 3, relating to aggregate regional ceilings, strike out "$100,00.000" and insert in lieu thereof "$150,000,000". (e) Section 33(e) of chapter 3, relating to aggregate regional ceilings, is amended to read as follows : "(c) The President may waive the limitations of this section if he finds that overriding requirements of. the national security of the United States justify such a waiver ;and promptly reports such finding to the Congress in writing, to- gether with his reasons for sucL findings. In any case in which the limitations of this section are waived under the preceding sentence, the report required under such sentence shall set forth, in detail, the amounts of assistance, sales, credits, guarantees, and ship loans proposed to be made in excess of the geo- graphical lirnitatiou applicable under this section.". 14:e. 0. Section 8(b) of the Act of January 12, 1971, entitled "An Act to amend the Foreign Military Sales Act, and for other purposes" (84 Stat. 2053; , is amended by striking out "$18:1,000,000" and inserting in lieu thereof 245,000.0Ii0". The f"rr, iji. rtix. Last yeah, that is in calendar 1972, the Senate de- feated one foreign aid authorization bill and a second died in confer- once because the Senate and House conferees were unable to reach agreement on' a provision sponsored by Senator Case which required t bat, foreign military base agreements be submitted as treaties. The en- tire foreign assistance program is now being funded through a con- t-innirrg resolution which expires on February 28, although no addi- tiona]'authorizations of appropriations are needed for the economic aid programs, other than for Bangladesh. The bill before the committee is basically the same as that proposed by the executive branch last year. It requests a total of $2.1 billion for military gaunt aid, military credit sales and supporting assistance, and $I(. el million for Ba.ngladesll. Much of the money requested in this bill is for Southeast Asia. The committee will be interested in obtain- ing an explanation of how the aid programs for Indochina relate to the cease-fire agreement and the planning for postwar relief and re- construction i.n that area. Thw committee is pleased to have as witnesses this morning Curtis 11'. Tai-r. Under Secretary of State for Security Assistance; the Iion- otuble Robert If. Nooter, Assistant Administrator, Agency for In te.rnational Development; arid Vice A-dm. Ray Peet, Director, Defense Security Assistance Agency, Department of Defense. I wonder, gentlemen, if perhaps to make it easier, we could have the three of you appear at once and give. your statements? I assume, Mr. Tarr, y ou wish to lead off. Is !;hat correct? Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/3 : CIA-RDP75B0038OR000600170005-7 STATEMENT OF HON. CURTIS W. TARR, UNDER SECRETARY OF STATE FOR SECURITY ASSISTANCE; ACCOMPANIED BY ROBERT N. NOOTER, ASSISTANT ADMINISTRATOR, AGENCY FOR INTER- NATIONAL DEVELOPMENT, AND VICE ADM. RAY FEET, DIREC- TOR, DEFENSE SECURITY ASSISTANCE AGENCY, DEPARTMENT OF DEFENSE Mr. TAim. Thank you, Mr. Chairman. Senator Aiken, Senator Pearson, I appreciate the opportunity to appear to support the President's request for authorization of fiscal year 1973 security assistance funds. We meet at a time of relief that the agreement for ending the war in Vietnam has been signed. But it is also a time of anxiety that we will be able to preserve the peace in Southeast Asia. The security assistance legislation before us contains some of the elements to encourage that peace, and thus our discussion could hardly be more timely. Under the continuing resolution authority (CRA), which ends Feb- ruary 28, we have of necessity operated wit i considerable restraint. The members of this committee will want to know the consequence of that restraint, and thus I wish to make brief remarks that might pro- vide the basis for some of your questions. Mr. Nooter and Vice Ad- miral Peet have prepared statements that we wish to submit for the record. The CHAIRMAN. They will be accepted. MILITARY ASSISTANCE PROGRAMS Ir. TARR. Military assistance programs : The President requested I $780 million to support the military as program (MAP) in fiscal year 1973. Under the CRA, we have operated thus far with new obligational. authority of $553 million. While this amount is greater than the $500 million authorized last year for the military assistance program, Thailand has been shifted during the same time from mili tary assistance service funded (MASF) to MAP. Furthermore, the level of expenditure in fiscal year 1972 was considerably lower than many people believed to be prudent. The main casualties under continuing resolution authority funding having been the Korean 5-year modernization program and the a'ssist- a.nce to Turkey as it seeks to replace outmoded World War II equip- ment for its NATO forces. Neither is a U.S. commitment, but we have worked closely with the leadership of each government on their improvement plans. These leaders, in turn, have made their budget plans on the assumption that our support would be fortlicom-. in? at the levels we have shown in our presentation last year. Without the authorization in fiscal year 1973 that we have requested for Korea, it will not be possible to complete their 5-year plan on the date we had set. Foreign military sales : Under the President's fiscal year 1972) pro- gram, we requested $527 million in new funds for foreign military sales credits. The CRA has provided us with $400 million. In a busi- Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 ness sense, we can easily reduce credit sales by telling our friends that we do not have funds available. This usually encourages the leaders of those nations to purchase military equipment provided by another nation, even though American equipment and the continuing relation- ship that comes with it. would have been preferable. Nevertheless, this restriction comes at a time when we would prefer to increase sales while at the same time reducing our military assist- ance grants. Our planning for the future assumes this transition. But we cannot follow these plans without the credit authorizations in the amounts requested. Supporting assistance: As you gentlemen know, we provide sup- porting assistance to a small number of nations, with the largest amounts going to Southeast Asia, Israel. and Jordan. Since the pro- gram requirements in other countries are relatively fixed, the South Vietnamese effort is the one that must absorb the major reductions in funding. The President asked for $841 million in new supporting assistance authority for the current year. Under the continuing resolution an- thority we have been operating at the :level of $600 million, including $50 million earmarked for Philippine disaster relief that was no-' in- cluded in the original request. In order to tailor our efforts to the lower level of expenditure, we eliminated several sound programs in Viet- nam, including the development projects that now have even an in- creased importance following the cease-fire, and U.S. support for the land reform program that ha, encouraged a welcome fundamental economic restructuring. Perhaps the greatest diffculty with the low level of funding for South Vietnam is that now we. should take advantage of the op:por- tunitie s that the cease-fire makes available to us. The need to resettle refugees in permanent circumstances is upon us. We should encourage reconstruction, particularly those projects that will help to insure economic. growth. Our pipeline of commodity imports has contracted substantially. taking from us even that flexibility. EXTENDED REPAYMENT PFraOD ON FOREIGN MILITARY SALTS Other advantages in authorizing bill: The President's legisla`ion also contains three importar t procedural changes. The legislation be- fore the committee would extend the repayment period on foreign mili- tary sales to a maximum of ".03 ears, as compared with the present 10- year period. We have no intention of extending payments longer than the life of the equipment, for which credit has been granted. At the present. time we do not feel compelled to apply even the 10-year maxi- mum on all foreign military sales contracts. But for some loans, the 20-year maximum has justification, both in terms of the economic re- quireuients placed upon the. ''ecipient nation and the life of the equip- ment involved in the transaction. In these circumstances, we would prefer to have the added flexibility. Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/30 :,,CIA-RDP75B00380R000600170005-7 Next, the bill before you would eliminate the 10-percent deposit requirement for the military assistance program charges. This feature reduces the benefit of the program to the recipient government. To meet the cost, a government must allocate tax revenue for the deposit requirement and divert it from other essential programs. Some have suggested that the requirement causes the nation to scrutinize more closely the assistance it will accept from the United States ; perhaps this is so in a few cases. But if it encourages a kind of frugality among a few, the major effect has been resentment among others. We believe our program would attain its ends more constructively if the deposit requirement were eliminated. Finally, we ask the members of this committee to agree to the elimination of restrictions on sales to Latin America. This paternalism no longer has a place in our relations with Latin American nations if in fact it ever had justification. Brazil has become the seventh most popu- lated nation of the world, with a rapidly growing economy that some- day will make it a foremost power. Many other nations in the region are moving ahead rapidly. Most Latin American leaders seek normal trade relations with the United States, and we should be in a position to reciprocate. This restriction makes it impossible for us fully to do so. COMMITTEE SUPPORT REQUESTED) The security assistance program for fiscal year 1973 encourages progress and helps to maintain the delicate balance between security and development. The program reflects our attempt to lay the -founda- tions for a negotiated settlement of the Arab-Israeli dispute. Not only Israel, but a number of Arab states as well, are dependent upon security assistance. In East Asia, our program provides the underpinning for South Korea's current dialog with the North for the purpose of nor- malizing future relations. In Indochina it facilitates the transition to peace. Thus security assistance is a constructive, vital. element of our for- eign policy, transcending the simple question of transferring weapons. It can and must continue to lay the foundation for cooperation. It pro- vides the link that we need to facilitate the transition between the past and the future. For these reasons, I request that the committee support the Administration in its request for authorization of fiscal year 1973 security assistance funds. (The prepared statements referred to follow:) STATEMENT OF HON. ROBERT H. NOOTER, ASSISTANT ADMINISTRATOR, BUREAU FOR SUPPORTING ASSISTANCE, AGENCY FOR INTERNATIONAL DEVELOPMENT Mr. Chairman and Members of the Committee, I am here today in support of S. 837, a Bill to amend the Foreign Assistance Act of 1961. This Bill would authorize $844 million for Security Supporting Assistance, $100 million for South Asia Relief and Rehabilitation Assistance, and authority to use up to $50 million from any of the Part I economic assistance categories for Philippines Relief Assistance. Except for the requested authority for Philippines Relief Assistance, the other requests are the same as those presented to this Com- mittee by Dr. Hannah on April 17, 1972. All other programs administered by A.T.D. were authorized for both FY 1972 and 1973 and are therefore not included in this Bill. Approved ?F`'` V1 1T a 2001/08/30 : CIA-RDP75B00380R000600170005-7 Approved For Release 2001/08/30 - CIA-RDP75B0038OR000600170005-7 I am here to answer ally que,tioiis which you may have on Security Sup- porting Assistance, and other appropriate witnesses are available to respcnd to your questions on other portions of the request. The Security Supporting Assistance request made at this time is essentially for the same purposes as requested last April. A break-down of this request hiy country is attached, and a more detailed program description for each country is contained in the Security Assistance Program Presentation boot: for FY 1973. tlver three-f.niirtlis of the Security Supporting Assistance request of $844 million is for Indochina. These funds are intended to provide the economic assistance which South Vietnam Cambodia, and Laos need to sustain their economies, to provide refugee assistance to the large number of displaced and needy people there, and to contirtie sufficient economic assistance to start the transition toward economic self-sufficiency. The present Continuing Resolution level of $000 million for Security Sup- porting Assistance does not provide sufficient funds to carry out these objec- tives. At this low level, we have had to cut back funding for the Vietnam program very sharply. We have not been able to proceed with U.S. support sor a number of economic development projects which hold the hope of getting the South Vietnamese economy back on its feet so that: it will not require outside assistance in the future. We have not been able to make the final l1a million U.S. contribution in support of the sweeping land reform program begun by South Vietnam three years ago. We have had to make cutbacks across the board in ongoing technical assistance programs in agriculture, edu- cation, public health and public v?orl:s, as well as in programs aimed at main- taining the eount.ry's economic sta!iiliti- such as the Commodity Import Program. We have had to suspend entirely oil 1, funding for an Economic Support Fund which was intended to offiset th? sharp decline in U.S. military spending in Vietnam. We should proceed with our contribution to land reform, which is the most significant: social. reform carried out by the Government of South Vicuna tit. Since its inception in March 1970 this program has moved forward well despite the ,great difficulties posed by the war. By the third anniversary next month, we expect that all titles covering the planned area of 2.5 million acres will be processed, and that at least 90 percent will be in the hands of the new owners. We indicated to the Government of South Vietnam, when it planned to laurich this program, that, pending approval by the Congress, we would provide $40 toillion to help offset the economic costs of the program. We have provided $25 million to date and should go forward with the final $15 million now. We have also faced major new refugee requirements during this fiscal year in excess of original estimates. Prior to the North Vietnamese offensive of let year, many more refugees were being resettled than were being generated by the war. The caseload. of those receiving refugee and resettlement benefits was down from a high of over 3 million in 1965 to less than 500,000 in March, 1972. The North Vietnamese offensive, which began after our request was made to the Congress ]ast spring generated well over one million South Vietnamese refu- gees who were forced to flee their homes. Despite these added burdens, the South Vietnamese Government did an excellent job of caring for the additional refugees- Stocks of food and other relief supplies were available and in position, temporary camps were organized rapidly, and medical supplies were made avail- able. There were some problems, hut: on the whole the South Vietnamese Gov- ernment did art outstanding job or providing emergency relief for these people. As of now we have provided ar additional $30 million out of Supporting As- sistance for refugee relief. We have accommodated these additional refugee costs within the Continuing Resolution level in view of the high priority which we give to this portion of our program, but it is not possible to continue to do an adequate job, Particularly for refugee resettlement, without additional funds. I would like to point out that the Government of South Vietnam has moved with some vigor on financial and economic reforms. A greater stress has been placed on domestic tax collection and more taxes have been collected. In the mid- 1960's much reliance was placecon administrative controls to manage the economy. In recent years, the Government has come to rely more heavily on market forces, which work much better. Interest rates have. been increased and the. exchange rate changed from one artificially pegged at a low level to one adjusted periodically to reflect realities of the market. These changes provide Vietnam with sound fiscal and mcnettary policies for the future, and will facili- tate the transition to economic self-sufficiency. Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/3, : CIA-RDP75B0038OR000600170005-7 We have not found it operationally possible to make significant reductions in programs outside of Vietnam. Our request for Cambodia, $75 million, is needed to provide the most urgent import requirements for food, fertilizer, petroleum products, spare parts and other necessities. We cannot reduce the $50 million level for Laos much if we are to meet refugee needs and help support the coun- try's economy. We attach considerable importance to providing adequate levels of economic support to Israel and Jordan, which offer the best prospects for assuring stability and peace in the Middle East. EFFECT OF THE CEASE-FIRE ON SUPPORTING ASSISTANCE REQUIREMENTS FOR FY 1973 It has long been our objective to encourage economic stability in Vietnam in 'a way which will permit an orderly reduction in U.S. assistance to that country. The cease-lire agreement signed on January 27, 1973 should accelerate that process considerably over the coming years. In the short run, however, the cease-fire will, if anything, increase the requirements for economic assistance. This, will be particularly true because of the additional requirements for refugee resettlement programs, and the need to undertake the reconstruction of damaged bridges, hospitals, schools, and health clinics. We, believe that these costs can he accommodated within the $844 million request during the remainder of this fiscal year, but not at the $000 million Continuing Resolution level. There are some who advocate that U.S. economic assistance to Vietnam be channeled almost exclusively to refugee aid. We agree that refugee assistance should be given priority over other programs, but it is not realistic to think that generous assistance to refugees alone can be'effective at the same time that the general economy is collapsing for lack of support. Our assistance to Indochina must be a balanced program if it is to be effective, and for this reason we strongly urge that this Committee oppose the earmarking of funds for particular portions of the program, even for something as worthwhile as refugee support. At some later date we will present to you a request specifically aimed at the problems of rehabilitation and reconstruction in Indochina, probably within the context of the FY 1974 budget. This will be done on the basis of consultation. both with the Congress and with other donor countries and institutions. In the meantime, however, the substantial progress toward peace which has been made in Indochina depends upon being able to sustain the economies of Vietnam, Cam- bodia, and Laos until such time as peace is fully restored and reconstruction can become a reality. The cost of economic assistance to Indochina is a substantial amount, but it is only a fraction of the cost of war. Our military forces are withdrawing ; it is essential that we continue the economic support which these countries need in order to survive. BANGLADESH The authorization request for Bangladesh is $100 million, compared to $250 million authorized for FY 1972. This $100 million is contained in the Con- tinuing Resolution as a separate line item. We have provided the Committee this week with a detailed statement of our relief and rehabilitation program for Bangladesh. In summary, we are assisting the relief activities of U.S. voluntary agencies, providing the U.S. contribution to the U.N. Relief Operation in Dacca, and providing bilateral grants for relief supplies and to assist in rehabilitation projects. The U.N. agency, the largest relief organization in Bangladesh, supports the relief and rehabilitation effort of the Bangladesh Government, marshals worldwide contributions and coordinates the many activities of voluntary agencies. At the level of $100 million which we have requested in FY 1973, the U.S. contribution to relief and rehabilitation in Bangladesh is about one-third of the total from all sources. Other donors have been forthcoming in their con- tributions, and we believe that the essential tasks. of relief and rehabilitation can be completed with FY 1973 funding. The Phillipines was struck by massive floods late last summer. The devasta- tion and disruption have been great throughout the countryside and in the cities as well. The United States has responded quickly, first with emergency Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/30 : c A-RDP75B00380R000600170005-7 relief assistance, then with funds to help in reconstruction. By the end of this month about $45 million of the $50 million provided under the Continuing ]Reso- lution will have been put to use. The lJnited States is assisting the Philippine Government in rebuilding rural roads and irrigation works, and in providing fertilizer and insecticides :much needed for greater rice yields in.thce affected areas. Schools destroyed are being rebuilt to hi,rher standards wh`eh will resist such disasters in the future. We also are assisting in flood control vv)rks necessary to help prevent further catas- trophies of this sort In the future. We have recently provided the Committee with a more detailed statement on this program. The Philippine disaster strut'{ after the FY 1973 authorization request was submitted to the Congress. Diaast?rs of this kind deserve our support, and should take priority over other programs which may be equally important but less urgent. The Congress, in th? Continuing Resolution, earmarked $50 million for Philippines Relief Assistance to be drawn exclusively from Security Sup- porting Assistance, which is alread'T greatly reduced and must meet the needs of large numbers of refugees in Indochina. As an alternative, we are requesting authority to fund the Philippines Relief Assistance from any of the categories of Part I of the Foreign Assistance Act so that it can be drawn from whatever programs can most easily he delayed. Supporting a.Isistancc-Summar,j: Request for fiscal year 1974 as contained in the security assis'ancc program presentation book Vietnam _ Millions ------------- ------ $55.5.0 Cambodia --------------------------------------------------------- -------------- Laos --------- ------ 49.8 Thailand --------------------------------------- --------------- --------- 35. Israel ----------------------- 50. 0 - -- ------------------ 0 Jordan --------------- lo.0 East Asia regional----------------------------------------------------- 8.4 Malta ----------- ----------------------- 9.5 Spain -------- - -------------- 3.0 Interregional _-______________ CYP ------------------------- 3. 4 IJNFI -- -------------------- --------------------------------- 4. 8 't'otal program--------------------------------------------------- 8i'4.5 Less anticipated deohligations from prior years ------------------------- 30. 5 Now obli!gational authorit, --- ----------------- ---- 894. 0 ti'I':1TF:Aa P;'IT OF tier Amu. RAY ?EF,-. USN, DEPUTY ASSISTANT SECRETARY OF DEFENSE (INTERNATIONAL SECURITS' AFFAIRS) FOR SECURITY ASSISTANCE, AND DIRECTOR, DEJ:'ENSE SECURITY ASSISTANCE AGENCY Mr. Chalrman and Members cf the Committee, I take this opportunity to present to you a brief report on management of the Military Assistance Program and Foreign Military Sales under the Continuing Resolution Authority (CRA). We have been working under some miusual constraints and have had to employ some innovative measures to deal with them. As you will see, however, we have not been able to find acceptable volutions to all of the problems. The major constraint has been a reduction in the size of the grant aid pro- gram from the Administration's request for $780 million new obligational authority (NOA) to the continuing resolution authority (CRA) level of $553.1 million. This thirty percent reduction has necessarily altered the scope of the Security Assistance Program. In the Military Assistance Prograri there are some expenses that cannot he deferred if the program is to continue. Annual contracts must be funded fully at the beginning of the year. We must pay current bills for moving the pipeline generated by prior year programs and these bills do not occur at a level rate. Funds must be obligated early it, the year if students are to be selected and moved to training, facilities in the TJn'ted States. In some cases equipment must be ordered at a fixed time to meet delivery commitments or to preclude produc- tion breaks that would result in suelstantial price increases. In other cases, Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/309: CIA-RDP75B0038OR000600170005-7 ongoing projects in the field must be funded for the same reasons. By using available CRA funds to meet these priority needs we had to defer funding of operations and maintenance - requirements. At this point in time we have managed to avoid significant disruption in the program. In.many cases, however, foreign countries have exhausted stocks on hand and their abilities to find other resources. Simply to keep the program moving we foresee valid requirements of about $68 million now. Some of these require immediate attention and, short of obtaining additional funding, we see no way at this time of alleviating the situation. For example, we have not yet been able to fund some resupply requirements for Cambodia, M-00 tanks and UII-1 helicopters for Jordan, and several other significant needs such as con- struction equipment for Nicaragua, ship overhaul for Indonesia, and mainte- nance needs for several countries. In the next few weeks we should fund T-37, F-100 and F-5E aircraft and, of course, additional operation and maintenance needs. I would like at this point to submit for the record a detailed accounting of our planned programs and the status of their funding to date. (Attachment A). Funding of FMS credit has not caused serious problems. We have not been able, however, in some cases to proceed with planned transactions at the time that would have been advantageous to both the United States and the foreign country. I would like at this point to insert for the record a statement of credit transactions concluded to date. (Attachment B). FY 1972 Foreign Military Sales totaled $3.4 billion. During the first six months in FY 1973 Foreign Military Sales and Credits totaled $2.4 billion. Of this amount approximately $2.1 billion were cash sales with $319.3 million of credit (equivalent to $228.3 million NOA) being concluded under Continuing Resolu- tion Authority. Major FMS transactions concluded to date in FY 1973 include the sale to Iran of P-3 and F-5E aircraft, Improved Hawk, helicopters and 707 aerial refuelers ; Republic of China of F-5B and F-5E aircraft ; and Turkey of F-4 aircraft. Finally, I would like to insert for the record (Attachment C) brief re- ports on performance to date in this fiscal year in the transfer of ships and excess defense articles to foreign countries. We are continuing to emphasize the sale of ships instead of leases and loans, and the role of excess defense articles in lieu of grant aid. By selling, the United States recovers in dollars the fair value of the material which ranges from 5%Jo to 50% of acquisition cost depend- ing on condition. To the foreign country, this is a relatively inexpensive and simple step in the transition from grant aid to sales. Limited experience to date indicates that the foreign country is much more careful and selective in accept- ing excess equipments when it must pay for them. Mr. Chairman, gentlemen, that concludes my prepared statement. I welcome any questions you may have. (Attachments referred to follow:) Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/30 : 9A-RDP75B00380R000600170005-7 A-TACHMENT A FISCAL YEAR 1973 MI':.ITAF`Y ASSISTANCE PROGRAM-GRANT AID (Do' ars In thousands] Program in CPD Funded' b, date' Program in CPD Funded to date East Asia and Pacific: Cambodia _ _ $209, 541 $9),034 1 Taiwan __ __-__ 7 642 12 171 East Asia and Pacific: Malaysia Indonesia -------------_-------------------- Korea ---- ----------------- , . 28,745 215,710 , 12,757 115,025', --.-. Near East and South Asia: Afghanistan ------------------ 215 205 Philipp,nes ------------------- Thailand--- ----- ------------- 20,780 59, 954 10, 39,153i India ------------------------ 234 Lebanon_____________________ 230 133 166 Far East region-,-_---------- 375 267 Nepal ---------__29 ----------- 26 Near East and South P,sia: Pakistan--_- --------------- ----- 243 282 4ireece---------------..------ 9,554 1,144 Saudi Arabia- . -_------------- 484 231 lordan______________________ 42,746 13,410 Sri Lanka___________________. 15 53 'Turkey -------------- -_------ 88,611 45,031 Europe: NESA region----------------- 591 99 Austria ---------------------- 24 'Europe: Portugal_____________________ 905 869 Finland_____________________ 24 Africa : Spain ----------------- ---___ 9,261 8,680 Ghana--------------------- 55 European region:---_ 85 99 Mali------------------------ 50 Africa: Ethiopia --------------------- 12,139 7.233 Morocco_____________________ 956 Senegal---------------------- 25 Liberia------------- - ______ 499 117 Zaire________________________ 455 Tunisia ------------ _-------- 3,703 1.272 Latin America: Africa regio----------------- 93 62 Argentina____________________ 550 555 Latin America: Brazil -_----------------------- 988 669 Bolivia_____________________ 4,873 3.006 Colombia --------------------- 778 722 Chile_______________________ 1,114 919 Mexico______________________ 87 85 Dominican Republic ----------- 1,435 586 Peru ----------------------- 820 783 Ecuador ----- --------------- 1,000 0 Venezuela____________________ 870 866 El Salvador------------------ 805 464 Guatemala --__--------------- 1,736 711 Total______________________ 7,313 5,640 Honduras-------------------- 734 537 Nicaragua ------ -------------- Panama 1,045 527 669 3791 World-wide total program---- 819, 700 4 39, 980 _____________________ Paraguay____ ------------- 791 243 1 NOA______________________ 780,000 413,000 Uruguay- --_ --------------- 1,460 601 Latin America region 687 314 General costs ----- _________________ 85,246 63,533 Total ----------------------- ------- 812,387 -- 434.340 1 ATTACHMENT B FISCAL YEAR 1)73 FOREIGN MILITARY SALES CREDIT [Do!lars in thousands] Program in CPD Obligated Program to date in CPD Obligated to date East Asia and Pacific. Taiwan ------------------------ $55,000 $13,700 Korea ------------------------- 25,000 15,000 Malaysia--_-_ _________________________ 10,000 Far East Region. _____________ 12, 500 _-_-____- Near East and South Asia: Greece______________________ 55,000 140.750 Israel_______ _____________ 300,000 $126,250 lordan -------- ------------- 10,000 ---------- Lebanon------.----. ---------- 15,000 ---------- Saudi Arabia-.._______________ 45,000 _._._-__-. Turkey__-___ _______________ 15,000 20.000 N ESA region_________________ 3,000 --------- Africa: Morocco ---------------------- 15,000 ---------- Zaire ------------------------ 3,500 --------- Latin America: Argentina____________________ 15,000 ___------ Bolivia ----------------------- 4,000 ---------- Brazil ----------------------- 15,000 ---------- Chile ------------------------- 5,000 ---------- Colombia -------------------- 10,000 ---------- Guatemala -------------------- 2,000 ________- Mexico---------------------- 2,000 ---------- Peru ------------------------ 5,000 ---------- Uruguay-------------------- 2,000 ---------- Venezuela -------------------- 15,000 ---------- Total ---------------------- 629,000 228,300 I Includes $5,750 for a guaranty of $23,000 prvate ; redit. 2 Includes $26,250 for a guaranty of $100,000 prince credit. Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/3q f CIA-RDP75B0038OR000600170005-7 ATTACHMENT C FISCAL YEAR 1973 SHIP TRANSFERS BY LOAN OR LEASE Method Country and number Ship of transfer China: 1----------------- AOG-7----------- Lease Turkey: DD-709 Loan ' SS-340 ----------- Do' ------------------- I SS-410----------- Do' I ATF-75---------- Lease I APL-47--------- Do Greece: AUG 11 - Do I------------------ I ------- YTM-767--------- Do ---------------- LST-1174-------- Do Brazil: 1----- Philippines: 1------------- MSO-436--------- Do 1 ----- --------------- MSO-444--------- Do ------------------- LST-222--------- Do i LST-488--------- Do I ----------- LST-546--------- Do Method Country and number Ship of transfer Chile: 1----------------- AOG-8----------- Do Korea: I ----------------- DD-805---------- Loan' I-------- ---------- DD-830------ --- Dot Italy: ------------------- LST-1171-------- Lease 1------------------ LST-1175-------- Do I------------------- SS-524----------- Loan.' I------------------- SS-490------ ----- Do.' Uruguay:2-------------- LCM-6----------- Lease. Iceland: 1--------------- Hydra sound boat- Do. Spain: ------------------- DD-882- ------ Loan' I ----------- DD-711---------- Do.' I------------------- SS-382----------- Do.' I------------------- SS-385----------- Do.' Mexico: 1---------------- AFDL-28--------- Lease. Dom. Republic:I --------- ATF-72---------- Do. Country and Unit price Country and Unit price number Ship (thousands) number Ship (thousands) Ships transferred by A B. Ships sold that were on . sale: loan or lease: --- LST 277 Chile: 1 Spain--------------- AVT-3 (ex-CVL)( 500.0 ---------- China: DD-731 153.0 DD-550 153.0 DD-551 153.0 DD-764 229.5 DD-509 153.0 Turkey: DD-765 229.5 DD-799 153.0 DO -678 153.0 ------------- SS-421 1 153.0 Chile---------------- SS-414 55.0 55 0 -- Greece: . Brazil--------------- SS-381 I DD-888 229.5 DD-794 76.5 I--------------- SS-365 153.0 DD-675 76.5 Turkey-------------- DD-656 153.0 Brazil: 1 DD-596 153.0 DD-861 153.0 ------- SS-484 I 153.0 DD-872 153.0 ----- --------- SS-350 - I 153.0 DD-66B 153.0 ---- - --------------- DD-7d5 229.5 DO-709 153.0 SS-320 112.2 Argentina: ASR 10 51.0 I--------------- DD-702 229.5 1--------------- DO-704 229.5 1------------- DD-877 Colombia: 229.5 I ---------- DD-775 229.5 I --------- DE-1029 122.4 Venezuela: 1--------- DD-756 229.5 Uruguay: I---------- DE-1006 122.4 Mexico: 20---------- MSF 28.0 Indonesia: 1--------- DE-1034-------- 145.0 Note: Total number of ships sold during fiscal year 1973: 57; total sales proceeds during fiscal year 1973: $6,500,000; percent of ships transferred by sale during fiscal year 1973: 66; percent of ships transferred by sale during fiscal year 1972: 33%. Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/30 :IGIA-RDP75B00380R000600170005-7 ATTACHPIENT C-Continued Fiscal year 1973 allocations of excess defense articles of February 20, 1973 [Million dollars at acquisition cost] Country Cambodia Allocated ----------------- ---- ------- - -- -- -- ---- - - -- China (Taiwan) 18.7 - - ------ -- - ---- --- - -- Indonesia 28.8 --------- ------------ 4 Korea . --- - - ? -- ---- - -- - - -------- ------- .aos 3.0 --------- 3.2 ------------------------------- ------------------ ----------------------------- Thailand 91.9 . 9 V G ietnam 33.2 Jordaaen - -- - - ------ ------ - - - 7.8 ord --- Turkey --------- - - ---4. 6 ---?------------------------- ----- 52.1 ------------------- Ethiopia ------------------------------------------------------------ .1.6 Tunisia - --- ------------------ --?---------------- 29 ------------------- ) Total ---8166. 1 1 Allocations constitute authorizatio,,s to deliver specific major Items, some of which may not occur clue to subsequent changes in availability. In addition to the total shown, the military departments have been author: zed[ to deliver up to a value of $00 million in second- ary items (acquisition cost) on the bash of requisitions received from the field. ' Less than $50,000. ' Total may not add due to rounding. The CIIAI n r N. Thank You, Mr. Tarr. CI3,IECTIVE OF MILITARY ASSISTANCE PROGRAM I wonder if you could summarize for the committee how you see the objective of th:i.s military assistance program. What is it the United States seeks to achieve by it? Mr. TARR. Mr. Chairman, I think that the U.S. Government recog- nizes that there are valid recuirements among friendly nations all over the world to provide for their own defense security requirements. Many of these nations are not It a position economically to meet those requirements, and so The CHAIRMAN. Who determines their requirements? Do you deter- mine them? Do we determine there? Mr. TARR. The fundamental determination of requirements for de- fense must be made by the leadership of each nation. The degree to which we are prepared to help is a function not only of our appraisal of the validity of those requirements but also is a function of our ability actually to take part in terms of the amount of funds we have available. The CIIATRIVIAN. It is difficult for me to follow what you consider to be the basic justification for the military aid program. Is it to as- sist our own. manufacturers? Is that the primary purpose? Mr. TARR. Mr. Chairman, the primary purpose is not a means by which we can keep our factories running or a means by which we can emphasize the sales of Ameriean manufacturers. We all recognize that this is a. byproduct of the ef.,'ort. The fundamental purpose of he program, rather, is to assist foreign countries to provide for their own security. Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/30 f:,~CIA-RDP75B00380R000600170005-7 The CHAIRMAN. Their security against whom? I mean who is threatening all these countries that we are helping? Mr. TARR. Well, Mr. Chairman, it is not possible to make, a sweeping generalization. The CHAIRMAN. You made a sweeping one. This is very sweeping. Is it our responsibility to provide security for all the countries in the world or all those to whom we give aid? Mr. TARR.. Mr. Chairman, it is my feeling that it can be very im- portant for us to help other nations provide for their own security in a part of the world where we have interests that are involved. For instance, in 1950 no real care was given to the preparation of South Korea for the withdrawal of U.S. forces. We all know the consequences of that. The CHAIRMAN. Mr. - Tarr, there have been a lot of changes since 1950. I was talking about the justification today: I know you shy away from saying that we are restraining communism. Your predecessors used to say we were restraining communism, we were protecting the free world from enslavement by Communists. I am trying to see what is the new rationale. That used to be said to be the reason. That was the reason we got involved in Vietnam originally. It was aid to protect them from communism. PURPOSE OF CONTINUING MILITARY ASSISTANCE PROGRAM That was the purpose of SEATO. I am trying to bring it up to date. I am not trying to bedevil you. I thought maybe you had some new rationale, that you could.. give the committee that this is what our objective is in going all around the world and spreading arms and aid. What is the objective? I was trying to get you to express the adminis- tration's new rationale in view of the President's changed attitude toward Russia and China. Maybe it is out of order, but I was trying to lead you along to see if you could tell us clearly what we are up to. What is our purpose in continuing a program which-as you refer back to 1950. But this isn't 1950 ; it is 1973. Mr. TARR. Mr. Chairman, let's use the same nation in 1973. The purpose of our aid to South Korea right now is to help them maintain adequate strength against a possible encroachment by the people in the North. The CHAIRMAN. Is it probable or possible? Did you use possible in- tentionally or is it probable? Mr. TARR. It is possible. The CHAIRMAN. Anything is possible. Mr. TARR. To the degree to which it is probable, I would rather not speculate. But I do feel that the strength of South Korea now puts that government in a position whereby it can negotiate with the North with the hope eventually of bringing about normal relations between the two. We both have read statements where each side hopes even- tually that the two halves of that nation might someday be unified. We think that it is important to our interests in the Far East that this nor- malization, in fact, take place. We think that normalization cannot take place unless certain fundamental security needs are met in South Korea. Our program there is aimed at these purposes. 90-989-73-3 Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/30 1,CIA-RDP75B00380R000600170005-7 The CHAIRMAN. I have one or two other questions. You state that restriction on sales to Latin America is apparently paternalism. How do you arrive at that conclusion?, Why is a restriction on what arms we sell paternalism? Mr. TARR. Because, Mr. Chairman, we are saying to nations in Latin America that if they want to buy and they have the credit potential to pay back the loan or they have the cash in hand actually to buy, we are judging they cannot do so. Such judgment, I am saying, is paternalism. The CHAIRMAN. I was thinking it isn't our business to promote arm- ament races. I mean that is our policy, I thought. It has nothing to do with paternalism, in my view,, to say I don't want to go around spread- ing arms all over the world, as we did in Pakistan and as we have done in the Middle East. I don't see it as paternalism. I might say that the 10-percent deposit was not intended to be beneficial to the recipient. It was intended to be a slight benefit to the United States because it, was intended to use that much funds for our local expenses. You misunderstood our purpose, I think. We didn't put it in in order to benefit the recipient country. Mr. 'T'ARR. Mr. Chairman, ,'egardless of what the intention was for putting it in, the effect is a hardship on the recipient country. The (1I1AIRREAN. At one time, I think, we had 50 percent. The Senate approved 50 percent. One other before I pass you on to my colleagues. I know they want to ask you some questions. Are. you aware of the condiion in our Federal budget? Do you know what the deficit in our Federal budget was last year? Mr. TARR. NIr. Chairman, I am familiar with it. The CHATI-MAN. What was ::_t? Mr. TARR. I will take the adv: L.'e of the chairman if he wants to state an actual figure. The CHAIRMAN. I didn't know whether these facts that we were in deficit condition ever filter into the State Department [Laughter] be- cause these statements give the impression that you are utterly un- aware of the condition of either our balance of payments, balance of trade or domestic budget. I thought maybe you would know. Mr. TARR. Mr. Chairman-- The. CHAIRMAN. It is more important that you know than I know, but if you don't know that is all right. I suspected you didn't because it gives the impression that our budget is quite irrelevant in the view of the members of the bureaucracy as to whether these programs sho,ild proceed. This is one reason I asked you the objective of the program.. Mr. TARR. Mr. Chairman-- The CITAIRMAN. I didn't find your answer very persuasive, in all de- ference to you, that this is an. overwhelmingly important objective that we are seeking to achieve. Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/3: CIA-RDP75B0038OR000600170005-7 Mr. TARR. Mr. Chairman, if the Federal budget was in arrears some- thing on the order of $20 billion last year, it seems to me that the logic suggested is that no one would ask for any budget this year. I think that The CHAIRMAN. No, no; the logic is we have to be more careful and discriminating where we spend more money. Isn't that the logic of it? Mr. TARR. Yes, Mr. Chairman. But, Mr. Chairman, what I think you have every right to expect from me is that I represent to you as honestly as I can what the valid needs are. Now I recognize that there are re- quirements placed upon Congress, and there are requirements placed upon the President to give oversight, and to make a structure of prior- ities with reference to what programs are valid and what programs are not and the degree to which some must be cut. But I am simply trying to bring to your attention what I think the valid requirements are for this program, and importune you in the best way I can in that light. PRIORITY OF PROGRAM The CHAIRMAN. You are not saying then that this should be funded even though there is not enough money for the domestic programs or the Farmers Home Administration or the Urban Renewal. You are not trying to tell us that this is a higher priority than any of those; are YOU? Mr. TARR. I can't set an order of priority for all Federal spending. The CHAIRMAN. What you are saying is If..we have plenty of money this is a, nice thing to do ; is that right? Mr. TARR. No, I am saying irrespective of the money we have to spend I think this is an essential program. The CHAIRMAN. Does that mean you think it should have priority over the domestic programs? Is that what you are saying? Mr. TARR. I think it should have priority in your consideration. CONSIDERATION OF DEFICIT, TRADE BALANCE AND DOLLAR DEVAL:T.'ATIONS SUGGESTED The CHAIRMAN. Do you have any idea of about how much we have spent on military affairs since World War II, just in the general range? Mr. TARR. I think on total aid programs of all kinds it is about $100 billion; isn't it? The CHAIRMAN. No, the total military expenditures of this country for our own services and others. Mr. TARR. No. The CHAIRMAN. I don't want to press you on that. In round num- bers what we, have spent on military affairs is about $1,500 billion and we have accumulated in the last 4 years about a hundred billion dol- lars additional deficit. Last year was the second deficit in our trading balance since the turn of the century and much the largest. It was nearly $7 billion last year and, as you know, we have devalued the dollar twice in 15 months. Don't you think these are things that should be taken into consid- eration in this kind of a program? Mr. TARR. Of course, they should. The CHAIRMAN. That is all I wanted to know. Senator Aiken, do you have any questions? Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 16 ('a)NTINfTiO) USE OF TERM ""SUPPORTING ASSISTANCE" QTTFSTIONED Senator _ATKEN. I know you refer to supporting assistance. ]is it necessary to continue. that term "supporting assistance" which has been more or less a catchall in the AID program? Why don't we specify directly the purposes that we appropriate for instead of leav- ing it so open? Are you insistent on calling it supporting assistance? Mr. TARR. Senator Aiken, we are more concerned about the pur- poses I' Or which the money is spent than we are the title under which 1111(1v c;;me to youu, and I thin]- in changing times it might be that aaiothci title' ould be more appropri?i.te. Semi to AiUcEN.Ithink so. Mr. TARR. The purposes though that are represented in this budget, we think, are valid and essential in this transition period. Senator AiKEN. I would say on the economic assistance you call that technical assistance and. get away from that catch-all phrase of supporting assistance. VAYMENT FOR IRANIAN PURCHASES In regard to the purchases which Iran is making in this country of $2 billion, as reported I believe in the papers, do they pay cash for that? That is strictly a private deal. Does the United States or any of our agencies underwrite the payment in any way? Mr. TARP. Senator, they pay cash for the equipment. Most of this cash comes from their treasu:'y ; some is represented by borrowing. Senator AE EN. They borrow the money? Mr. TARR. Yes. Senator AIItiEN. From our banks, Swiss banks, anywhere they can borrow it the cheapest. But we don't underwrite it.' Mr. TARR. We do not underwrite it under our foreign military sales program, no. Senator A(KEN. Any other? What about OPIC, for instance? Do they underwrite any? Admiral PEST. We don't underwrite any of the loans so far as Iran is concerned. It is handled through the Export-Import Bank or straight cash. NO MILITARY ASSISTANCE TO BANGLADESH, INDIA, OR PAKISTAN Senator AMEN. We don't give any military assistance to Bangla- desh; do we? Mr. TARE. No. Senator AIKEN. And none to India or Pakistan at this time? Mr. TARR. As you know, Senator, we have had an embargo in those areas. Senator AIKEN. Yes. AID SOUGHT BY ISRAEI, One of the 'ih"ashington papers recently printed a story to the effect that Israel is seeking a promise of $515 million of U.S. aid for this coming year; is that correct? Mr. TARR. Well, we are not certain of the amount but a gentleman representing the Government of Israel recently visited with us and Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/30 i7CIA-RDP75B00380R000600170005-7 talked in preliminary terms about their needs, and the visits early next month of other officials from that Government certainly will focus on this question more precisely. CONGRESSIONAL ACTION ON AID PROMISED BY EXECUTIVE Senator AIKEN. If the Executive does make a promise to Israel, or any other country as far as that goes, running up into the hundreds of millions of dollars, would that be subject to congressional action? Mr. TARR. I think it is quite clear that it is subject to appropriation. Senator AIKEN. In this legislation or what? Mr. TARR. Excuse me? Senator AIKEN. Would it be included in the military assistance bill or do you know? Mr. TARR. Well, I think the article in the paper the other day would ? indicate a request for assistance from a variety of sources. Senator AIKEN. Yes. Mr. TARR. My recollection is that the largest portion of that assist- ance would come from the Foreign Assistance Act. Most of it is under foreign military sales, but some of it would come under supporting assistance. It would all come out of fiscal Year 1974 authorizations, and so it would involve our request to you If we went along with their requests in any amount, in the legislation that we will bring up. for fiscal year 1974. FUNDS FOR KEY WEST, FLA., NAVAL TRAINING CENTER Senator AIKEN. Probably my last question could be better directed to Admiral Peet, but we do have naval training and other training for military personnel covering Latin American countries. Last year sev- eral Members of Congress proposed funds be taken from military assistance to finance the naval training facility at Key West, Fla. Is this an administration idea? Admiral PEET. I think you are referring, Senator, to the $2.5 mil- lion that is earmarked for a training unit in Florida. Senator AIKEN. Yes. Admiral PEET. Key West, Fla. Those funds have not been released and there are no plans right now to go ahead with that project. Senator AIKEN. I wondered if that shouldn't be considered more aid to Florida than aid to Peru and Venezuela. The CHAIRMAN. Sure. Senator AIKEN. I will pose that question for my chairman's con- sideration. There is certainly no naval training in Arkansas; is there? The CHAIRMAN. No, not at all. Senator AIKEN. Not at all. I think that is all I have now. The CHAIRMAN. Senator Symington. Senator SYMINGTON. Thank you, Mr. Chairman. NO ADDITIONAL REQUESTS BASED ON FURTHER DOLLAR DEVALUATION Mr. Secretary, we have now devalued the dollar twice in 15 months; and there are rumors already it is going to be further devalued. Gold went to its highest level in history today, $83 an ounce. Not too long Approved For Release 2001/08/30 : CIA-RDP75B00380R000600170005-7 Approved For Release 2001/08/30 18 CIA-RDP75B00380R000600170005-7 ago we were buying it and selling it at $36 an ounce. If you succeed in obtaining this money would you request an additional amount based on further devaluation? Mr. TAR:R. Senator Syrnin ton, it would not affect our operations in fiscal year 1973. Senator S71fINCTON. So you would not ask for additional money. Mr. T,AARn. No, sir. Senator SYMINOTON. Thank you. ADDITIONAL CLASSIFICATION OF REQUESTED INFORMATION In preparation for consideration of this bill, the staff of this com- mittee requested information from the Departments of State and De- fense. When it came, a considerable amount of information was classi- fied that was not classified la:.t year. For example, the latest estimate for Government cash and commercial military sales is classified con- fidential, although the same data in last year's presentation book is unclassified. Inasmuch as the new figure is considerably higher and some of us are becoming increasingly apprehensive about the billions of dollars we continue to ship out of this country to sustain the vari- ous foreign programs, why is there this classification, additional clas- sification, from the people? The country-by-country lisi. of distribution of excess arms is also now classified confidential. But last year only two countries, both in the Middle East were so classi. red. Why is there this change in policy? Admiral PKET. If I might answer that, Senator, in m , prepared statement to be inserted in the record, I have listed the allocation of excess defense articles for fiscal year 1973 in an unclassified chart. Senator SYMINCTON. So now we can consider it as declassified even though in preparation for the hearing the staff was told it was classified? Admiral PErT. Right. The c.ctual expenditures to date so far as the sales programs are concerned, are unclassified and also our estimate for the year is unclassified. Senator SYI4IINOTON. Admiral, I would ask you or the Secretary, what is the amount of the military assistance funds program for the current fiscal ,year? Admiral PEEr. For military assistance program, the total amount-- Senator SYMTNCTON. MASF, military assistance service funded. admiral PEST. The MASF program is not my responsibility but we could provide the data for the record. Senator SYMI NOTON. Do you know, Mr. Secretary? Admiral PEEr. Although I am not involved in MASF funding, the total that was just handed to rme is $2.73 billion for fiscal year 1973. Senator SYMIN(GTON. That is what you plan for the fiscal year 1974? Admiral PEET. The fiscal y3ar 1974 total budget authority in Be budget is $1.871 billion. However, it is a new ball game as far as recent events are concerned and I am sure that will be recen.sider^d. Senator SYMINOTON. Do you think it will be less or snore? Admiral PEET. So far as I know. it would be less. Approved For Release 2001/08/30 : CIA-RDP75B00380R000600170005-7 Approved For Release 2001/08/1300 : CIA-RDP75B0038OR000600170005-7 Senator SYMINGTON. Thank you. If our military assistance to South Vietnam and Laos is to be re- Pro- stricted y? Did yprevious vious answer mean you belwe cut this ieve it will ram be gram your heavily cut? Admiral PEET. Well, there is certainly a different ball game now that we have a peace agreement. We are in the process of evaluating and reassessing it, and I would rather not make any predictions along that line. REDUCED SPENDING CEILING FOR CAMBODIA Senator SYMINGTON. I am particularly sensitive about the Cam- bodian situation Admiral PEET. Yes, sir. Senator SYMINGTON. About a year ago I went to Cambodia. I have seen a lot of messed up situations, but never seen one to beat that setup. This is no criticism of our people there. We tried in the Senate to get a limitation on the aid, but the Administration objected; in fact, there was objection to even a limit at what it said was wanted. They just didn't want to be bothered with any congressional interference when it came to the money. To date, in this fiscal year, your obligations for Cambodia, the program, totals only $116 million I am told, as against a figure which finally got through the Senate of $341 million. Since more than half of this fiscal year is now passed, is there any reason why the expendi- ture ceiling for Cambodia cannot be reduced heavily; and, if so, to what figure do you think it could be reduced? Admiral PEET. Senator, the obligation ceiling last year was $341 million. This year, although I think there is a technical question as to whether we have a ceiling under CRA, we are operating under a ceiling that is in fact lower than the $341 million. Senator SYMINGTON. What is that figure? Admiral PEET. It is a total ceiling for aid and we are well within the ceiling. In fact, right now as you have indicated, for the first two quarters economic and military assistance amounted to only $116 million. Senator SYMINGTON. Do you think it would be Admiral PEET. It would not be appropriate for me to give a new ceiling. Senator SYMINGTON. Our economy continues to deteriorate. Nobody would argue that fact. We in the Congress are trying to get a handle on what we are spending out of the country. Last year the only handle we could get through the Senate was that amount of money the admin- istration asked for; otherwise enough Senators on both sides of the aisle refused to go for any reduction. But you didn't spend anything like what you asked for. I ask now, what do you think your estimate would be for this. year in Cambodia? Admiral PEET. Senator, it is not firm, it would be just a guess on my part, and I would rather not get involved in a guessing game. I would hope you would have confidence in our desire to keep it as low as possible because we want to. Senator SYMINGTON. Will you make a guess and then correct it for the record? Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Admiral PERT. I would certainly say it would be less than $300 million, sir. Senator SYMINGTON. All right. I thank you. Admiral PrrP. But I don't have control of the whole thing. This is a total figure for the Government. AID is involved as well ss the Defense Department. Mr. TAint. Senator, the supporting assistance program for Cam- bodia this year will run about $70 to $75 million, and also Public Law 480 shipments would come under your ceiling also. So that the $116 million military assistance ti ure alone might be somewhat misleading. Senator SYMINGTON. All those items are included in an estimate we have been given, everything mentioned so far. It totals $226 million, so I don't see why you need around $300 million? even as a guestimate. I would hope we would try co put sound accounting principles of :man- agement in this field. RECOVERING MONEY STOLEN BY (CAMBODIAN MILITARY PAYROLL PADDING An article last January =aid the Minister of Information of Cam- bodia acknowledged at a recent news conference that because of pay- roll padding by military commanders the Government had at times paid salaries to as many as fc hundred thousand nonexistent soldiers- a wasted total of around $2 million a month. Has anything been done to get the money back that was stolen through this payroll padding? Mr. TARE. Senator, I think one thing that we need to keep in mind about the so-called phantom troops in Cambodia is that those troops are paid out of the Cambodian Government's budget. Now it is- true that in our program this year of about $70 million of supporting as- sistance, we provide commodity imports sold in Cambodia, and the proceeds of some of these go toward. that military budget. They go toward approximately one-half of that military budget. Now, it would be difficult for us in this kind of argument to honestly plead that t i United States ha.l supported these phantom troops, be- cause the payments to'troops actually on board were considerably in excess of the budget that had been undertaken by the U.S. subsidy. Senator SYMINGTON. What percent of the total Cambodian budget does theIT.S. support? Mr. TARR. I have said that IN e support approximately one-half of their military budget. Senator 5'YMINGTON. I understand it is about 75 percent. In any case, if we are putting up that much of the American taxpayers' money, don't we take steps when they admit themselves they have been paying a hundred thousand soldiers who were not there? Mr. TARR. Senator, as you know, we have a small military mission there, and one, thing we have done through that mission is to help the Cambodians install the kind of payroll systems that, Senator S YMINGTON. Mr. Secretary, I understand all that and am sure you have a lot of plans and organizations and setups, and I am not being critical of you, just asking a question. I would like an answer. Have we done anything specific about recovering this stolen money, inasmuch as we put up an estimate of 75 percent of their total budget? Have we or haven't we? That :'.s the question. Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/30 :2XlA-RDP75B0038OR000600170005-7 Mr. NoOTISR. Senator Symington, if.I could speak to that, let me say that the belief is widespread that, as you have indicated, the Cam- bodian Government payroll system was paying a number of troops that weren't on the payroll. That was of concern to the Cambodian Government as well as to ourselves and, in fact, when I was out there, last November they had just come to us at very high levels and asked for assistance in trying to bring that situation under control. But let me say that having an awareness of this problem is quite different from having an accountancy of what the shortfall is, and I was aware out there in talking with our people, as they were beginning to take on this problem, that it was extremely difficult to actually count heads on the battlefield and see how many people were on board. I will say that we made representations at very high levels frequently. We took severe steps to bring that condition to an end. Senator SYMINGTON. I understand that, especially as you are work- ing with our own people's money. As I understand it, we are support- ing an army of 200,000 people, but now they say,? the Cambodian Gov- ernment itself says, 100,000 of those were fictitious. FINANCIAL ADJUSTMENT CONCERNING CAMBODIAN MILITARY PAYROLL PADDING All I. aim asking, is there any financial adjustment? We still have ,a force ceiling agreement with Cambodia that calls for 200,000 soldiers, and are equipping 200,000; but we sent people out there to look. They reported only 125,000 in being. We are back in the same kind of a situation discovered several years ago .in the Philippines, a great deal of our taxpayers' money being paid to get soldiers from the Philip- pines to go to Vietnam. The soldiers never got the money. Do we pass this money over and then turn our backs on it, or do we demand repayment? Mr. NooTiR. Well, we have not turned our backs at all. Incidentally, the agreement Senator SYMINGTON. Then what have we done specifically? Mr. NoOTER. We have worked with their people tgo out into the field and we are operating there, as you know, with a very small staff' which both we and the Congress agree is desirable in terms Senator SYMINGTON. Are we working with people on this specific problem? Mr. NoorEn. Yes, sir, Senator SYMINGTON. When do you think you can give a report to this committee as to the result? Mr. TARR, Mr. Chairman, we have a statement that we would be willing to submit for the record if the committee wishes to have it. (See p. 49.) Senator SYMINGTON. I am also on the Armed Services Committee and I would like to know where this money is going. We pile it in, year after year. It seems to me if the American people are being told they are supporting a 200,000 man army, and the Government of Cambodia states 100,000 of those are fictitious, it ought to be explored and, if possible, some money saved for us. Every day it is becoming more clear the United States is running out of money as the dollar 90-989-73--.-? Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/30,1,)CIA-RDP75B00380R000600170005-7 continues to deteriorate. And the re is continuing overall deterioration in our own economy. If you cvil.i supply that for the record I would appreciate it, Mr. Secretary. E3i''BARG0 ON MILITARY EQLrIPMENT TO INDIA AND PAKISTAN Have we continued the tota:_ embargo on military equipment, spares, and supplies to India and Pakistan, without reservation? Mr. TARR. We have. Senator SYMINGTON. Thank you. Thank you, Mr. Chairman. The CHAIRMAN. Senator Case, Senator CAssE. Thank you, T/.Ir. Chairman. RETURNING MILITARY ASSISTANCE FUNDING TO FOREIGN ASSISTANCE A('T Gentlemen, since 1966 military assistance for Vietnam and Laos has been funded out of the defense budget. With cease fires now in Vietnam, in Laos, and, I hape, not too far away in Cambodia, do you think the. administration would 'have any objection to returning military assistance funding for these countries to the regular Foreign Assistance Act? Mr. TARR. Senator, a considerable amount of discussion has gone on in the Department of Defense and the Department of State and with the White House on this matter since the cease-fire in Vietnam. I think that the President has not made a final decision yet with respect to the total submission of the budget for fiscal year 1974. But I can tell you that we have been exploring this very carefully. Senator CASE. The admin`.st-ration hasn't made up its mind yet? Mr. ARR.No. Senator (',ASE. Mr. Chairlaar, I would hope that before the Senate considers the aid program for fiscal year 1974, the administration will. advise us what it has in mind so that we may be guided accordingly. We have to make a decision, but we would like to have the administra- tion's recommendation. USE OF DEFENSE DEPARTMENT hEQUEST FOR SOUT]-I VIETNAM AN,1) LAOS The Defense Department's budget request for 1974 asks for au- thority to use $2,100 million for funding of South Vietnamese and Laotian military forces. That is as much as was asked last year before the North Vietnamese offer.sive brought about the need for a supple- mental request. In your judgment-and i!,hi,: is tied in with my questions yesterday to Secretary Rogers--can these funds be used or could they be used for purposes like building bridges, buying bulldozers, repairing rail- roads, improving transportation systems generally, or for other pur- poses in connection with re:iabilitation of the economy, the infrastruc- ture of the countries of Indocl-lna ? Admiral. PEST. The figures we mentioned a little while ago in the fiscal year 1974 budget a:'e ;approximately $1.56 billion for South Vietnam and $0.3 billion for Laos, for a total of $1.871 billion. How- ever, that was under a different set of ground rules. It was before we had-- Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/30_~?IA-RDP75B00380R000600170005-7 Senator CASE. This is my question, Admiral. I am asking whether that money, in your judgment, can be used by the Defense Depart- ment, by the administration, for other than strictly hardware military purposes? Can it be used for reconstruction, whatever the amount? Admiral PEET. What I am saying, Senator, is that this whole thing is out of date, so to speak; it is overtaken by events. We are revising the whole program. Senator. CASE. What is the sense of our considering it now? Admiral PEET. I am. sorry, sir? Senator CASE. What is the sense of our considering it now if the whole thing is in flux? Admiral PEET. Well, it is my understanding so far as this session this morning is concerned we are not considering MASF funding. Senator CASE. We are talking about the balance of 1973, the rest of this fiscal year. Admiral PEET. But it is not considered MASF funding, and what we are talking about is not considered MASF funding; we are not talking about those figures. Senator CASE. I see, on this matter then you are not ready to make up a recommendation or to follow up the recommendation in the budget. Admiral. PEET. That is correct, sir. Senator CASE. So the budget figure, Admiral PEET. So far as MASF funding for fiscal year 1974 is concerned. Senator CAsr. This is massive, all right. What I am trying to get at is, do you regard it as proper under existing law to use money like this for reconstruction purposes ? Mr. TARE. Senator, I don't believe that we can elaborate any more than the Secretary did yesterday on this point. Senator CASE. No; what be said was that wherever it was possible to get away with it you might do it. That is a reasonable paraphrase of what he said. He refused to say the administration wouldn't do it. Now I am not asking you what your intentions are. I am asking you what, under existing law, you think can be done, because we may have to change the law-that is what I am getting at, you see. Admiral PEET. Senator, as manager of the program, so far as the Department of Defense is concerned, I assure you we will manage it within the law. Senator CASE. That is a fine statement and I think you are right at least as you interpret the law in any event. Admiral PEET. Yes, sir. Senator CASE. But that isn't the question. The question is what is the l aw ? Mr. TARR. Senator, I don't believe we are prepared to answer on that. Senator CASE. Would you ask counsel to give an opinion on this, please? Mr. TARR. We Will. Senator CASE. For the Defense Department, for AID, and for the Department of State. (The information referred to follows:) Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/30,] PIA-RDP75B00380R000600170005-7 (Supplied by Department of Defonse for themselves and Department of State) Section 737 of the Department of Defense Appropriations Act, 1973, authorizes Department of Defense appropriations to be used "for their stated purposes" to support. Vietnamese forces. Th( words "for their stated purposes" have the effect of limiting the use of the appropriations line items on behalf of the Viet- namese forces to such activities end projects that the Department of Defense could perform for the United States Armed Forces. Accordingly, section 737 does not authorize Department of Defense appropriations to be used for general rehabilitation of the economy of Vietnam. Mr. Tz m. My understandirg is that your question is could MASF appropriations be used for AID projects for which they were not originally intended when the--- Senator CASE. As an example, could funds which we are appro- priating or expect to be appropriating with the understanding they are for military hardware purposes be put into reconstruction pro- grams to which we are not necessarllyy oppposed. I am trying to find out what authority and what degree of flexibility exists. Without blaming any of you gentlemen, I would just point out that we have been faced in the past with enormous transfers. Cambodia is the example that comes most readily to my mind. In that case the administration di- verted hundreds of millions of dollars for the Cambodian military aid program without congressional authorization. This is the kind of thing I am concerned about, and my interest in it was sharpened by my discussion yesterday with the Secretary on the basis of that News- week article with which you are all familiar. The staff has just called to my attention that MASF funds are already being used for civil engineering purposes. What is the author- ity for that, Admiral?, Admiral PEET. The general authority for MASF activities is sec- tion 737 of the DOD Appropriations Act, 1973. Senator CASE. Yes. I am not necessarily criticizing the purpose. I want to know about the legislative authority and the flexibility that the administration believes it has. Admiral PEET. Yes, sir. Senator CASE. This is what we are concerned about; at least this is rrry own concern. c;IASSr[f1CATION OF FOREIGN MILITARY BASE AUTHOItrrY LIST Why was the list that we got for country-by-country authority for foreign military base establishments sent up as secret? We are very glad to have the information, but why was it classified as secret? Could you find this out for us ? Admiral PESST. I will check and find out, and supply it for the record. Senator CASE. 1)o you have any idea? Were you familiar with this list? Admiral PEST. No. sir, I was not. Senator C.LsE. I see. Would you find that out for us and have the information furnished to us? Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/3~ 5 CIA-RDP75B0038OR000600170005-7 Admiral PEET. Yes, sir ; I will find out. (The information referred to follows :) ,CLASSIFICATION OF COUNTRY-BY-COUNTRY LIST OF FOREIGN MILITARY INSTALLATIONS (Supplied by Department of Defense) The list entitled "Agreements Authorizing US Military Installations in For- eign Countries and Areas," January 23, 1973, is classified SECRET due to individual entries having that classification (indicated by an "(S)" preceding each item). There are also items classified CONFIDENTIAL (indicated by a "(C)" preceding each Item). The items not preceded by an (S) or (C) are unclassified. The classification of the entries is governed by the classification of the agreements to which they refer. Senator CASE. At the moment, Mr. Chairman, I think I have taken as much time as I should. Excuse me. The CHAIRMAN. Senator McGovern. Senator SYMINGTON. Would the Senator yield? Senator MCGOVERN. Yes. STATEMENT ON QUESTION OF CAMBODIAN PILFERAGE Senator SYMINGTON. You have a statement you mentioned in reply to my question. Would you read it if you have it? Mr. TARR. It is three pages long and if the chairman wants it read we will read it. (See p. 49.) Senator SYMINGTON. Thank you, Senator McGovern. MILITARY AID. TO CAMBODIA IN VIEW OF CEASE-FIRE AGREEMENTS PROHIBITION Senator MCGovEUN. Mr.. Tarr, article 20 (b) of the Vietnam cease- fire agreement concerning Cambodia and Laos has this to say, and I quote from the agreement : Foreign countries shall put an end to all military activities in Cambodia and Laos, totally withdraw from and refrain from re-introducing into these two countries troops, military advisers and military personnel, armaments, mu- nitions and war material. As I understand it, the bill before us would fund a considerable amount of military aid for Cambodia. Two hundred ten million dol- lars was requested for the 1973 fiscal year. As I understand it the military budget for Laos comes out of the Defense budget. But how can additional military aid be furnished to Cambodia in view of the specific prohibition of such military aid under the Vietnam cease-fire agreement, as has been mentioned in the press ? Mr. TARR. Senator McGovern, my understanding is that subpara- graph (b) of article 20 to which you refer must be read in context with subparagraph (a) which simply says that the parties to the agreement will abide by the Geneva agreements on Cambodia of 1954 and on Laos of 1962. We ourselves raised questions on this point, and we were assured by those from the State Department and the White House who were involved in these, discussions that the understanding at the time of the Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 26 cease-fire agreement was that subparagraph (b) could not be read except in the l?ontext of subparauraph (a). Senator McGovERN. The net result of that, whether you read it in context or not, is to prohibit military aid; is it not? Mr. T. Not under the Geneva agreements. senator McGovFRN. I don't; sere how the language I read from article 20, putting an end to all milir,arv activities in Cambodia and Laos and an end to all shipments of munitions and war materials, is qualified in any way. It is a flat prohiaition against any further military ship- ments into that area by either side. It is not really a question of what the other side is doing. I don't see how either side can do it. As I read it, it is an unqualified prohibition against such military assist- ance. l1a. TARR. Senator, all I can tool you is that we have been told that the understanding was that chapter 7 regarding Cambodia and Laos was to ixing back in force the Geneva agreements that do permit at the request of the various governments involved items of military assistance. Senator MCGOVERN. That i, just one more piece of the evidence that seems to be growing, as far is I am concerned, that this agreement which we are arriving at now in 1972 and 1973 is pretty much a re- statement of what we found unacceptable in 1954. If what you say is true, then even the language :n this agreement has its validity in the 1954 agreement, and it really underscores the tragedy of all these things we have been doing for th,a last 19 years if we are now going to end up with the same agreement we found unacceptable back in 19;4. I don't know what we have accomplished over the last 19 years. (The articles referred to follow:) [From the New York Times, Feb. 3, 1973] ARMS TO CAMBODIA AND LAOS DEBA'CED---PENTAGON SAID To FEEL PACTS BAR HELP WITH THE STATF D_4EPARTMENT DIFFERING (By John W. Finney) WASHINGTON, Feb. 2.-A disagreement has reportedly broken out within the -Nixon Administration over whether the recently concluded agreement for a cease- fire in Vietnam allows the United States to continue military aid to Laos and Cambodia. Senate Democratic sources report that they have been informed by State De- partment officials that the Defense Department is being urged by the State De- partment, and apparently by the White House office of Henry A. Kissinger, to con- tinue military aid to Laos and Cambodia and not to withdraw any of the military aid personnel assigned to the two countries. The aid amounts to some $500-million a year. Directom of the military aid program in the Pentagon have reportedly ques- tioned whether such continuation of military aid was permissible under the Viet- nam peace agreement and are said to be demanding that any orders to continue the aid programs be put in writing by either the State Department or the White House. The agreement is specific in restri,!ting the military aid provided to the contend- ing sides in South Vietnam. It provide, that from the start of the cease-fire last Sunday, all military aid must be :limited to replacing, on a one-tor-one basis, equipment and armaments that have become worn out or destroyed. But when it comes to military aid to Laos and Cambodia, the agreement is less specific and subject to varying interpretations within the Administration. Article 20 of the agreement, dealing with Cambodia and Laos, provides in Secr- tion A that all parties "shall strictly respect" the 1954 Geneva Agreements oa Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/32: CIA-RDP75B0038OR000600170005-7 Cambodia and the 1962 Geneva Agreements on Laos-agreements that basically establish the independence and neutrality of the two nations. Section B of Article 20 goes on to provide : "Foreign countries shall put an end to all military activities in Cambodia and Laos, totally withdraw from and re- frain from reintroducing into these two countries troops, military advisers and military personnel, armaments, munitions and war material." It is Section B that Defense Department officials cite in questioning whether a continuation of the military aid programs is permissible under the agreement. To Defense Department officials, the clear intent of this section is to cut off mili- tary aid to the two nations, although no precise deadline is set for the termination. However, State Department officials, in arguing that continued military aid is permissible, cite Section A of the article, which calls on all parties to respect the 1954 and 1962 Geneva accords. They note that both the 1954 Agreements on Cam- bodia and the 1962 Agreements on Laos permit each country to request and re- ceive military aid needed for self-defense. Therefore, State Department officials contend, the Vietnam cease-fire agree- ment permits military aid to be continued if requested by the governments in Laos and Cambodia. Describing Section B as redundant, they said they were governed by Section A. The present intention, State Department officials said, is to continue military aid to Laos and Cambodia unless such aid is specifically prohibited in any truce agreements worked out by the contending factions in the two countries. The Senate majority leader, Mike Mansfield of Montana, said in an interview that he would advocate "a cut-off of military aid to Laos and Cambodia as soon as a cease-fire is reached and a truce is arranged." In the defense budget submitted to Congress earlier this week, the Administra- tion asked for $2.1-billion in military aid for South Vietnam and Laos in the fiscal year beginning July 1, with about a sixth of the total for Laos. Military aid for Cambodia is handled in separate legislation.that has not yet been submitted to Congress. For the current fiscal year, which ends June 30, the Defense Department has scheduled $49-million in military aid for Laos plus $50-million in "supporting assistance," an indirect form of military aid used to help a nation carry a heavy defense budget. For Cambodia, the Defense Department has proposed $209.5-million in military aid in the current fiscal year, plus $75-million in supporting assistance. Because of a stalemate that developed in the last Congress on foreign aid legislation, however, foreign aid for Cambodia and other countries is being pro- vided under a continuing resolution, with spending at basically least year's rates. That continuing resolution expires at the end of this month. The United States maintains a military mission of more than 500 in Laos. In Cambodia, where the United States resumed military aid in 1970 after the ouster of Prince Norodom Sihanouk as chief of state, there is a 50-man "military equipment delivery team," that is not supposed to give military advice to the Cambodians. U.S. AIR STRIKES IN LAOS HONOLULU, Feb. 2.-The Office of the Commander of United States forces in the Pacific said today that American aircraft continued bombing missions in Laos for the fifth straight day. A three-line announcement said only that United States aircraft, including B-52's, continued operations over Laos at the request of the Laotian Government. [From the Washington Star-News, Feb. 5, 1973] INDOCHINA ABMs LOOPHOLE? (By Oswald Johnston) The United States is free to continue supplying military aid to both Laos and Cambodia after a cease-fire there, the State Department said today. Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/30 : 2 CIA-RDP75BOO38OR000600170005-7 Despite language in the V iet lair peace agreement banning a reintroduction of war material into Laos or Cambodia after the withdrawal of foreign troops, the State Department says the agreement allows continuing aid to the established governments, both of which have been U.S. allies in Indochina. State Department spokesman John F. King said this interpretation of the complicated article in the Vietnam peace document referring to Laos and Cam- bodia was not objected to by Ncrth Vietnamese negotiators when the agreement was haiumered out last month. King refused to say however, whether this point was covered in a secret under- standinvg, either oral or written, with the North Vietnamese. "The right of the government, of Laos and Cambodia to import arms for self defense is in no way impaired," King said. To explain this. King pointed out that the peace accord's ban on reintroducing war supplies "has to be read in context" of language saying the Geneva Agree- ments of 1954 and 1962 are still to be enforced. Under those accords, King explained, the governments of both Laos and Cambodia are allowed to receive aid, military and economic, from "any source." "In negotiating Article 20 of the Vietnam agreement (which refers to Laos and Cambodia cease-tires and foreign troop withdrawal), there was no intent to change those accords of 1954 and 1962," King said. The operative language in A::?ticle 20 is aimed at withdrawal of the 1'orth Vietnamese forces now operating in both Laos and Cambodia. The terminology "foreign troops" also refers, however, to U.S. ground forces operating in Laos and to Thai troops who have been fighting on the government's side in Laos. There is one hitch in this readin;t of the Laos-Cambodia situation, and King declined to discuss it. This is the fact that the North Vietnamese recognise as the governments of both Laos and Cambodia the rebel forces they have been supporting. The Laotian rebels, the Pathei Lao, regularly refer to the Royal Laotian gov- ernment of Prince Souvanna Phoume (as the State Department styles it) as the government in Vientianethe current and temporary capital of the country. Likewise, forces loyal to Prince Norodom Sihanouk, the deposed Cambodian ruler now in, agile in Peking, refuse to recognize the legitimacy of Premier Lon Nol's regime in Phnom Penh. UNITED STATES GA.N GIVE ARMS TO LAos, CAMBODIA, STATE DEPARTMENT INSISTS The United States can continue to supply arms to Laos and Cambodia under the Vietnam peace accord, the State Department said yesterday. The statement, issued by depart:inent spokesman John King, came in re- sponse to a flew York Times report Saturday that there was division be- tween the State and Defense departments over interpretation of this point in the peace accord. The newspaper said the Defense Department felt a provision requiring for- eign countries to refrain from nilitary activities in the two Southeast Asian countries, including the reintrod-icti.on of arms and war material, banned future U.S. military aid. But King said that Article 20 of the 'Vietnam cease-fire agreement, which contains the provision banning reintroduction of troops and war material, allows the supply of arms to the governments of Cambodia and Laos for self-defense. He cited Paragraph A of Article 20, which calls on the Vietnam cease-fire signatories to adhere to the 11154 and 1962 Geneva agreements. It is these accords that allow the supply of arms for :elf-defense, the spokesman explained. The State Department would not address itself, however, to the question of whether North Vietnam or China would be free to supply arms to Prince Noro- domn Sihanouk, whom they recognize as the legitimate head of Cambodia. King said that "in negotiating Article 20 of the Vietnam agreement there was no intent to change those [The Geneva] agreements." The agreements ended French involvement in. Indochina indestablished. the neutrality of the two Southeast Asian countries neighbjri:ng Vietnam. , King said that Paragraph B of Article 20, which The New York Times said was read by the Defense Department as a ban on future U.S. military aid, was aimed at foreign troops and the arms they had with them. Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/ : CIA-RDP75B0038OR000600170005-7 When asked whether the removal of foreign forces provided for in this sec- tion meant that the roughly 4,000 so-called Thai volunteers fighting on the royal Laotian side must be withdrawn, King said only that the agreement meant "all foreign troops." U.S. military aid to Laos and Cambodia is currently running at about $500 million a year. [From the New York Times, Feb. 15, 1973] FUTURE MILITARY AID To LAOS To THE EnITOR : John Finney's Feb. 3 report that the State Department and the Defense Department hold differing views over future military aid to Laos snakes depressing reading for anyone familiar with the history of U.S. involve- ment with that country. In the mid-fifties, there was a strikingly similar dispute between these two departments, with which your readers should be made familiar. Then, following the signing of the SEATO Treaty in September, 1954, Secre- tary of Defense Charles E. Wilson requested the Joint Chiefs to prepare recom- mendations regarding the optimum size of the Lao Army and the amount of U.S. military aid that would be required. In a move which must continue to perplex those who always see the U.S. military as single-minded proponents of large armies and war, the Joint Chiefs concluded that, with the end of the war in Vietnam and with the inclusion of Laos under the "umbrella" provided by SEATO, it was desirable to reduce the Lao Army from its wartime strength of 15,000 to a level needed for routine police work. It was the State Department that urged a massive commitment of U.S. re- sources. Concerned that the Lao Army appeared to be the only cohesive force in the country, Department of State officials successfully opposed the Joint Chiefs' view. More importantly, they persuaded the U.S. Government to support a Lao Army of 25,000, or a 66 per cent increase in the size of an army the U.S. military thought should be reduced into nonexistence. The political and economic consequences of supporting such a large army are apparent to anyone who has visited Laos. In an underdeveloped country with no industrial base, the salaries of the ballooning Lao Army-it was to climb toward 100,000 in the 1960's-had a catastrophic effect on the local economy. Run-away inflation developed since there were no goods to buy. To counter the inflation, the U.S. had to pour massive amounts of aid into the country. This in turn corrupted Lao political and social life. Moreover, with so many young men in the army, Laos could not even produce enough rice to feed itself ; large imports from neighboring Thailand became necessary. In the mid-fifties, a key factor influencing the Joint Chiefs' decision to recom- 'mend a cut in the size of the Lao Army was the prohibition inherent in the Geneva agreements against U.S. establishment of a Military Assistance Group in Laos to supervise training. Ironically, Pentagon officials today are question- ing whether continuation of military aid is permissible under the Vietnam peace agreement. Citing one clause of the agreement, they say it isn't; citing another, State Department officials say it is. This is not meant to suggest that historical parallels always enlighten. Some- times they mislead. But enough has been said to make clear that Congress should insist on a very persuasive case indeed before it concludes again that in Southeast Asia the Pentagon is always wrong and the State Department is always right. CHARLES W. MAYNES, New York, Feb. 6, 1973. (The writer is a former foreign service officer, U.S. Embassy, Laos.) USE OF U.S. AID TO FINANCE COMMERCIAL IMPORTS Senator McGovERN. In another connection, Mr. Tarr, as you know, much of the U.S. economic aid to South Vietnam, Cambodia, and Laos, I think a very high percentage of it, is now used to finance commercial imports. There have been stories appearing in the press over the last 90-989-73-5 Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 30 few months, two of which, Mr. Chairman, I would like to ask unani- mous consent to have made part of the record-- 7')!e CHAIRMAN. I'Vithoiit objection it is so ordered. (The information referred to follows:) [From the (Washington 1 Sunday Star and Daily -News, Nov. 26, 19721 CAMBODIA'S ELITE Grows Rica WITH U.S. Ala (By a'amniy Arbuckle) PIINOM PENIr, CAUnonrA.--The Cambodian economy is running on a "more busi- ness than usual" basis despite the war, courtesy of the American taxpayer, diplo- matic and Cambodian officials who are disgruntled with rampant corruption and fat living in this capital say. "'There is no belt tightening here," one diplomat said, commenting on effects of the war on Cambodia.. The vehicle which brought opulence in time of war is once again the same as in the other countries of Indochina, an American eco- nomic aid program with the same old ingredients, the setting np of It corrupt local official and Chinese merchant elite, insufficient control of U.S. funds, economic thinking on the part of American officials which takes no account of the effects of U.S. economic aid on the recipient country's society and, in the case of C'anthodia, outright bribery of a foreign government. Auocrican economic aid to Cambodia is tied almost completely to financing im- ports into Cambodia. This is done through two programs--the Commodity Import Program (CI1') and the Exchange Support Fund (ESF). U.S. of iiciaLsa in Phnom Penh admit one of their aims is to keen the Cambodian volume of imports at a prewar level. After two years of war, Cambodian exports of rice, rubber and tobacco have become almost non-existent as the Communists have seized control of large areas of the countryside, cut roads and rail coni- munica.tion. of course, without axports, Cambodia cannot pay for imports. There- fore the IJni,ted States has stepped in to finance Cambodian imports. American economic reasoning on financing Cambodian imports is this : the out- break of war in Cambodia brought r.hout a large Cambodian military budget. In order to pay the troops and other war expenses, the Cambodian National Rank printed large numbers of bankrotee for Cambodian government use. This meant there was a large supply of monev in the country. As people had more paper money there was a eorrespondir.g rise in prices and inflation. The United States, by financing imports, makes goods available to soak up the extra money supply and movement of currency nfner:attes funds for the Cambodian government through customs revenues and tuxes. It all sounds very feasible until a close look is taken at the $110 million U.S. aid economic program and what it actually does. Some $75 million is budgeted in fiscal year 1973 for the CIP, an aimmnf ecn- nonic sources say is about $25 million in excess of Cambodia's actual import needs. Some of the money is being used to import luxury articles such as air conditioning- equipment and tele-ision sets. Informed sources say it is ridiculous that these luxury articles should ii? mr ported to- be sold to a small group of people who can only afford them because of the large profits they make our of the C1P in the first place. This group is a small elite groun of high-ranking Cambodian officials and businessmen. They are getting rich because the U.S. import program allows then[ to import goods from the Unites` States at a preferential rate of 130 Cambodian riels to the U.S. dollar compared to a current market rate of about 190 riels to the dollar. These businessmen do nor pass on this bonus to the Cambodian con- sumer whom they charge at the 190-riel rate this profit is instead transferred into black market U.S. dollars which are slipped out of Cambodia to Hong Kong and Singapore, large-scale capital flight of Cambodian foreign exchange. Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/3: CIA-RDP75B0038OR000600170005-7 U.S. embassy officials, asked about this state of affairs, explain lamely that importers have a waiting period for goods purchased in the United States of five or six months. Without this preferential tariff they would not risk funds to order U.S. goods. Because it is U.S. money involved Congress insists Cambodia buy U.S. goods officials said. Junior officials in the Cambodian ministries complain this preferential tariff system has led to formation of a small business elite while the ordinary Cambo- dian has various imported goodies dangled in front of his eyes which he can't afford. Desire to have luxury items has led to an increase in already rampant corruption in government offices and social dissatisfaction, sources said. Nor does the Cambodian government benefit from customs revenues or taxes. Economic sources charge there have been irregularities in the agency which processes im- porters applications and importers have not been paying customs dues or tax. "Cambodia is an undisciplined society, there is no way of checking on these things here or collecting revenues properly," sources said. Thus the U.S. aim of adding to government revenues is imperfectly attained. Sources here say the U.S. Cambodian import program would be more viable if it were confined to essential goods for the average Cambodian, cumbersome paper procedures eliminated making faster delivery times, the preferential tariff eliminated and therefore more Cambodian riels soaked up. U.S. financed imports and the whole tied to cleanup of corruption in various Cambodian government departments, particularly customs. The CIP accounts for 70 percent of Cambodian total imports. The remainder is handled through the exchange operations fund, a $35 million fund to which the United States officially contributes $12.5 million. U.S. economic sources here are enthusiastic about the ESP because the Cam- bodian national bank fixes the dollar-riel rate daily, forcing would-be importers to bid for dollars for their import needs. This prevents "runs" by merchants on U.S.-supplied funds, U.S. officials say, because the bank can enforce a high ex- change rate simply by refusing to sell dollars if importers' bids are too low. OUT OF SIGHT This should not give U.S. officials reason for jubilation, however. What ESP does in fact is provide the Cambodian government with foreign exchange with which it finances local businessmen to import luxuries from countries like Japan. The United States has no means or rights to audit just how the $12.5 million is used by Cambodia, economic sources here say. Press reports in Cambodian newspapers published Nov. 9 revealed some abuses that go on. They alleged 1,000 Honda motorcycles were imported from Japan but no customs tax was paid and that one of the defendants in the case would be the chief of Camdodian customs. The case was postponed because the customs chief failed to appear in court. [Prom the New York Times, Nov. 30, 19721 CAMBODIAN WAR 1ONRICUIES TIIE CORRUPT, DEBASES TIIE POOR (By Sydney II. Schanberg) PNOMPENII, CAZMBOnIA, Nov. 29.-The sons of generals drive Alfa Romeos and Cougar fastbacks. The governor of a province is known to sell ammunition and drugs to the enemy. Other government officials can be seen selling automatic rifles and uniforms to wealthy merchants, who in turn sell them to both sides. Low-salaried colonels-some accused of pocketing the payrolls of their units- build luxury villas here in the capital and rent them to Americans for $700 a month. At the other end of the scale hundreds of thousands of Cambodian refugees uprooted by the fighting and janinied into 1'nompenh often cannot afford to buy enough rice. The price has rocketed as the Communists have blocked supply routes and officials have engaged in profiteering with the emergency supplies brought in by the Americans. The refugees live in new shantytowns, in empty railroad cars and with rela- tives in houses with wall-to-wall people. This is the distraught face of Cambodia after two and a half years of war-a country of open green spaces that is now a country of human islands, where Approved For Release 2001/08/30 : CIA-RDP75B0038OR000600170005-7 Approved For Release 2001/08/30 : CIA-RDP75BOO38OROOO6OO17OOO5-7 people huddle in the isolated :ow,as and cities still under Government control and await the next rocket or sapper attack by the Communist forces, which are all around them. `?I'he mind protests," says a reft