dence that US bombing has been solely or even significantly responsible for civilian casualties or refugees. This is not to say that there have been none, but I believe they have been minimal under the circumstances.

Mr. Chairman, I have tried to trace a brief perspective of the situation in Cambodia and to reply to a few of the doubts held by some regarding US interests and activities in Cambodia. Our objective in Cambodia is to enhance the prospects that the Cambodians will negotiate a ceasefire and a return to peace as a solution to that war, as a vital part of the entire Indochina problem and as a contribution to regional stability and progress in Southeast Asia. Our economic and military assistance is designed to this end.

STATEMENT OF HON. ROBERT H. NOOTER, ASSISTANT ADMINISTRATOR, BUREAU FOR SUPPORTING ASSISTANCE, AGENCY FOR INTERNATIONAL DEVELOPMENT

Mr. Chairman and Members of this Committee: It is a privilege to appear before you to discuss our program in Cambodia.

First of all, I think it might be useful to give you a brief summary of how the economic aid program in Cambodia began in 1971.

In March of 1970, following the deposition of Sihanouk, the North Vietnamese opened hostilities against the Cambodian Government. Their enemy's military actions seriously affected the country's commerce and, in the summer of 1970, Cambodia asked the United States to resume economic assistance.

Prior to the war Cambodia was in relatively good economic shape. Export earnings, together with tourism, loans, and aid, were enough to pay for the country's imports of $100 to $120 million a year. Foreign exchange reserves were about $65 million. By 1971, however, as a consequence of the war, there was a precipitous drop in Cambodia's export earnings. The Government drew down its foreign exchange reserves in order to finance imports and used up its prewar stockpile of commodities.

With almost no exports, the country was unable to continue financing imports needed to sustain the economy. Agricultural production, particularly rice, fell sharply because of territorial losses and labor shortages resulting from the military buildup. The major rubber plantations curtailed or ceased operations. Industrial production also fell because of raw material shortages, manpower diversions, and war damage. Tourism virtually disappeared.

At the same time rapid expansion of the Cambodian armed forces, which before 1970 was only a 35,000-man largely ceremonial force, and the burden of armed conflict resulted in a drastic increase in Cambodian budget expenditures.

In formulating our initial economic aid program, we analyzed available data, including prewar import patterns, military force levels, and the impact of hostilities on agricultural and industrial production and transportation. Based on this analysis, we developed an aid framework geared primarily to supplying commodity imports needed to meet real resource needs rather than to combat inflation. We decided that the number of AID employees administering the program would be kept small; that we would not, at least for the present, initiate technical or capital assistance projects; that we would not have a separate AID mission in Phnom Penh; and that we would try to develop and maintain a procurement system that minimized the need for U.S. and Cambodian Government administrative controls.

We asked Congress to approve a $70 million Commodity Import Program in FY 1971. This program was initiated in March 1971. Following the advice of the International Monetary Fund the Cambodian Government acted courageously to implement a number of important self-help measures including adoption of a flexible exchange rate system, simplification of the import licensing mechanisms, increased import taxes, and higher interest rates. Parallel with these reforms, and in an effort to reduce the continuing drain on Cambodian reserves, we made a $20 million cash grant to the Cambodian Government in October 1971. We have since replenished the Commodity Import Program from time to time with additional resources.

Cambodia has also received, under a PL 480 sales program, substantial amounts of agricultural commodities, including cotton, wheat, and rice. PL 480 sales will be about $30 million in FY 1973.

As part of the stabilization effort, a multilateral Exchange Support Fund of $35 million was established in 1972 on the advice and with the assistance of the IMF. This Fund was established in recognition of the fact that not all of the

country's foreign exchange needs could be met through the tied procurement procedures of the Commodity Import Program. Donor contributions are made available on an untied basis at a level worked out by the IMF. The Fund has been an effective mechanism for enabling Cambodia to secure outside assistance in helping to meet part of the country's foreign exchange needs. Contributors include Japan, Australia, the United Kingdom, Thailand, New Zealand, and Malaysia, besides the United States and Cambodia itself.

Now, having said that, what has our aid program accomplished? First, U.S. economic aid to Cambodia has been, and still is, essential for the survival of the Cambodian economy in time of war. We finance food and other imports required to keep the economy going, some of which replace domestic production lost as a consequence of the war. Equally important, these imports are essential to forestall a serious deterioration in the living standard of the Cambodian people. Cambodia has never been a rich country, with prewar per capita income estimated at $111, and without U.S. assistance the lot of the average Cambodian would have been a sad one indeed.

As U.S. and other economic aid programs have gotten underway, imports have resumed and are about $115 million annually, a level which should sustain the economy. Foreign aid has financed only the import needs, not the domestic budget deficit.

In order to finance the budget for the expansion of its military forces, the Government has had to borrow from its Central Bank. The amount of such deficit financing which the Government has used for the military buildup has been greater than the stabilization impact of foreign aid. The country, as a consequence, has seen substantial monetary expansion and inflation. In 1971, monetary expansion was 50 percent, and close to that in 1972. Inflation has been somewhat erratic, prices rising early in the war during 1970, then lagging behind the rate of monetary increase, but again recently price increases have accelerated.

The Khmer Government's role in economic policy has always been of cardinal importance. Provision of economic assistance presupposed the Khmer Government would take the measures that were necessary to maximize the usefulness of that assistance and, in addition, use its own foreign resources as well as seeking international support. Monetary and fiscal policies were to be the primary tools for controlling the allocation of resources and the rate of inflation. Given the situation it faced, the Cambodian Government has done well, particularly for a country which moved so swiftly from tranquillity to war. The Khmer Government has generally followed a realistic exchange rate policy, even though that has required continuous devaluation as the rate of inflation continued.

Recently, we have also begun a program of direct assistance to refugees and war victims. Until 1972, Cambodia was able to meet the most pressing needs of its refugees, most of whom found housing with other members of their families or friends, and the Khmer Government did not seek additional outside aid. Last year, however, the continuation of hostilities led to an increasing number of persons who were not able to find employment or otherwise provide for themselves. This was particularly true of the 10,000 persons in Government refugee camps, most of whom were women, children, and old people.

On August 10, 1972, the Cambodian Government first requested U.S. assistance to refugees. We dispatched a team to review the situation and to determine what forms of U.S. assistance would be the most helpful in keeping with U.S. policy and legislative restraints regarding personnel limitations. The team confirmed that there were real needs to be met, with the most urgent requirement for relatively small amounts of assistance to those refugee families living in camps. The team recommended that assistance be provided through the United Nations or through private voluntary organizations in order to keep direct U.S. involvement to a minimum.

Since that time, AID has given several grants to private organizations interested in and able to assist Cambodia's refugees. The first of these grants, for $50,000, was made in December 1972 to the International Red Cross (ICRC) to provide food, clothing, medical care, and other assistance. In April, we gave an additional $100,000 to the ICRC. More recently, we made grants for $500,000 each to the Catholic Relief Services (CRS) and to Cooperative for American Relief Everywhere (CARE). These grants will provide medical care, food, assistance in resettlement, and, when security conditions permit, goods and credit facilities to finance resumption of farm activities.

Regarding future aid requirements, the longer-term objective of U.S. policy is to achieve a negotiated cease-fire and a return to peace. While prospects for

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U.S. POLICY AND PROGRAMS IN

CAMBODIA

3-1

HEARINGS

BEFORE THE

SUBCOMMITTEE ON

ASIAN AND PACIFIC AFFAIRS

OF THE

COMMITTEE ON FOREIGN AFFAIRS

HOUSE OF REPRESENTATIVES

NINETY-THIRD CONGRESS

FIRST SESSION

97-471

MAY 9, 10; JUNE 6, 7, 1973

Printed for the use of the Committee on Foreign Affairs

COMMITTEE ON FOREIGN AFFAIRS