they have discussion of it and get a loan paper that analyzes it in greater detail; and then, a week or 2 weeks later, a formal vote is called for at the Board.

All through the process we get reports on how the loans are progressing, and what the loans in the pipeline are for, and how these loans are likely to come up. At any time one has a full schedule of the loans that will be coming up in the next months.

Mr. GROVER. Was there any target date in the initial application, or any procedural moves immediately following the initial application by Panama?

Did they say, "Well, we would like to have this on July 5, 1972"? Mr. HENNESSY. No.

That is a matter of processing the loan by the Bank staff.

Mr. GROVER. Well, when they applied for this loan, they must have had some programing. They must have said, "We would like to have this by the fall of 1972 or the fall of 1973."

Mr. HENNESSY. I am sure they would have liked to have had it the next day.

I am sure at the time it came up it did come up with a request for early treatment, so they could disburse and start this program, but the Bank, within its ability to analyze projects, takes that into consideration. But every country in the hemisphere presents applications to the bank, and wants it done within 2 weeks.

Mr. GROVER. Is it possible to get a copy of the application, and submit that for the record?

Mr. HENNESSY. Well, the application itself is a confidential Bank document.

We would provide it on that basis. We could certainly provide you with a summary of the information which you seek a summary analysis of the loan.

Mr. GROVER. Why would the application for a loan to a public institution be considered a confidential Bank document?

Mr. HENNESSY. I suppose for the same reason that when General Motors applies for a loan, that is a confidential relationship. Our Executive Director has the ability to see it.

Mr. GROVER. Well, I can see that a sugar processing business would like to keep its matters confidential, but I do not see here why when a university applies for a loan, you could not spread it on the table. Mr. HENNESSY. Well, there is no intention or desire not to present all the facts, but it is a matter of the Bank documents-we do not own the Bank. It is owned by the 22 member countries that contribute to it. But it seems to me that Bank documents cannot be given out without the Bank members' approval and the Boards approval, and that is all that I am saying.

All that information is provided to us upon request, and any information that you need, we will be glad to supply. Whether the actual document itself can be provided, is something I would like to discuss with the institution.

Mr. MURPHY. Well, if the gentleman can provide that for the record and put it in the executive session of the record-are view of those considerations we will ask you to furnish it, then, and it will be kept in the confidential files because of the nature of the document that you have just described.

Mr. HENNESSY. We will do that, Mr. Chairman. (The material was placed in committee files:)

Mr. MURPHY. The State Department testified that most countries, developed and undeveloped, view public utilities as normally falling within the public sector of responsibility.

Do you agree with that analysis?

Mr. HENNESSY. I think that certainly in developing countries there has been a trend over the last 10 or 15 years to buy out foreign ownership.

American Foreign Power, EBASCO, and others, have had this happen to them.

We have in our own Friendship, Commerce, and Navigation Treaty with the Japanese, a provision which would allow us the possibility of excluding investment in utilities by foreigners without violating that treaty.

I think many nations have specific areas which they wish to maintain for their own national interests. That may vary among countries. We have restrictions, as you know, in our own country, in coastal shipping, airlines, communications, COMSAT, which limit the right of foreigners to invest; and these have changed over time in our own country.

The question of utilities, quite clearly, in my own experience, both in developed and developing countries, is a sensitive one, because of the fact that governments are not often willing to raise rates to an economic level. When a private company owns them, they get caught in the bind of having to be economic, and to be economic, they have to raise the rates. But the government, for economic reasons, does not want to allow it, and the company gets caught in the middle. Often they are happy to be brought out and invest in other industries in the country, or in other countries. And that has been true in the world for about 10 years, I think, sir.

Mr. MURPHY. Would you consider an oil company a public utility? Mr. HENNESSY. I would not consider it a public utility.

Mr. MURPHY. How about bananas?

Mr. HENNESSY. Bananas, no.

Mr. MURPHY. Administration witnesses have said that Panama has proved to be a very attractive location for a considerable number of U.S. investors.

Do you think their actions at Boise Cascade will enhance Panama's investment attractiveness?

Mr. HENNESSY. I think that a fair settlement of this dispute surely would.

I think if I were an investor I would be concerned about a country in which I had investments meeting its obligations under international law. I worked myself in the private sector for several years. Several of the developing countries have not realized this fact, and several of them are being brought up rather quickly to that reality, after taking acts which they thought were in their longer run national interest, in that investor funds do dry up. There has been a shift in foreign investor capital away from countries which do not provide an adequate investment climate.

And if these countries follow these policies, and these acts, in the long run, as well as in the shorter run, they are biting off their nose

to spite their face. This is a message which we in the Treasury Department believe, and which was carried in the President's policy

statement.

Even from their own development point of view, when they think they are gaining an asset, they may be losing a lot more.

I agree fully with your sentiments.

Mr. MURPHY. But if the Panamanian Government moved into a banana company or an oil refinery, do you think you would view it differently-the expropriation, as it affects Boise Cascade?

Mr. HENNESSY. I think we would view any expropriation the same way, except for the compensation part of it.

Now, we in the U.S. Government have the right to take over certain properties for public purposes, and if we put in a road, we pay for it handsomely.

Mr. MURPHY. You do not call this eminent domain, do you?

Mr. HENNESSY. Well, President Nixon said that countries do have the right to take over property in a nondiscriminatory way, provided that they pay compensation.

We do not think expropriation makes a great deal of sense in many cases, but what does matter is proper and adequate compensation, whether it is bananas, oil companies, or utilities.

If a government takes over private property, it should compensate immediately and adequately.

There is no ambiguity on our part on that.

Mr. MURPHY. Are you aware of the $20 million in notes being underwritten by Goldman Sachs & Co. on behalf of the Republic of Panama?

Mr. HENNESSY. I believe there was a recent bond issue by the country which was successful.

I am not sure who underwrote it.

Mr. MURPHY. Are you aware of the fact that they are being offered at interest rates 1.5 percent above offered quotations in London for Eurodollar deposits?

Mr. HENNESSY. I am not aware of the particular details.

I know it was successful in the sense that they had a fully subscribed issue, yes.

Mr. MURPHY. At those increased interest rates, would that not be an indication of the severe economic situation now existing in Panama? Mr. HENNESSY. I think it would be unusual for any developing country to be able to borrow at the Inter-Bank rate.

I think even Xerox would have problems borrowing at the InterBank rate.

That is the rate for the banks. Banks borrow back and forth from themselves, and when they go out and relend to corporate borrowers, they carry a premium over the Inter-Bank rate, and it does up to 2.5 to 3.5 percent, depending upon the borrower, and 1.5 percent is not too much of a markup.

This does not reflect adversely on Panama. On the contrary, it reflects well since the issue sold out and the premium was not that high. Mr. MURPHY. Who will decide whether or not Boise Cascade gets a fair price in Panama?

Mr. HENNESSY. Pardon me?

Mr. MURPHY. Who will decide whether or not Boise Cascade gets a fair price in Panama?

Mr. HENNESSY. I suppose there are several parties. The U.S. Government has not gotten in the middle, saying, "this is unsatisfactory," to my knowledge.

If the company reaches an agreement which it says is satisfactory, the U.S. Government would not be in any position to say it is not satisfactory.

If the company is not satisfied, then some judgment is involved and the U.S. Government would have to make a decision as to whether what was offered was adequate, and there may have to be international arbitration to determine whether or not it was satisfactory. These things are better done through arbitration.

Mr. MURPHY. Who asks for arbitration?

Mr. HENNESSY. I am laying that out just as an option.
Mr. MURPHY. Who asks for it?

Mr. HENNESSY. Well, either side could ask for it.

Assuming that they are not satisfied here, they could ask for it. But they do not have to ask for it, and the U.S. Government could make the decision that compensation was not adequate.

We do not see our interest as an international organization, and there is some independent judgment here.

We do not give up our rights to make the decision to the corporate boards, however.

Mr. MURPHY. Who made the decision in Guatemala?

Mr. HENNESSY. The U.S. Government was not involved at all. That was a negotiation with the Government, and they arrived at a satisfactory purchase and sale agreement, and went forward with it. Mr. MURPHY. The company did not ask for arbitration

Mr. HENNESSY. No.

Mr. MURPHY (continuing). Of that agreement?

Mr. HENNESSY. No. They worked out quite a satisfactory agreement, as I understand it, from their point of view. But here again I would defer to their statements and thoughts on this case.

They did not come to the U.S. Government and ask for mediation or other services, to the best of my knowledge.

Mr. MURPHY. How about in Chile?

Mr. HENNESSY. In what sense?

Mr. MURPHY. Well, they expropriated private property in Chile, also.

Mr. HENNESSY. The U.S. Government, to the best of my knowledge, did not get involved in the Chilean purchase arrangement, and Boise Cascade here again had a cash settlement, and as I understand it, there was a longer range payoff.

If the company feels it had a satisfactory agreement

Mr. MURPHY. How can you say that the company feels it got a satisfactory agreement in Chile?

Mr. HENNESSY. Well, as I understand it, they were not expropriated in Chile, but they reached an agreement as in Guatemala to sell their shares.

Now, to the best of my knowledge, the company-and here again, you can check-the company felt they were being adequately compensated for it.

We have a large number of cases in Chile where that is clearly not the case; for instance, the copper companies. But in the case of Boise Cascade, before they were expropriated and taken over, they reached an agreement with the Government of Chile, which has purchased the shares of that corporation. I am in no position to say that the company was not adequately compensated. I assume the corporation is subject to lawsuits by the shareholders if the shareholders feel it was an unsatisfactory arrangement.

Mr. MURPHY. In hoping for an amicable settlement of the Fuerza y Luz purchase, the administration has concluded that such a settlement is important to the United States in terms both of our wishes for the economic health of Panama and our responsibility to protect U.S. investors abroad.

Boise Cascade did not want to see their property, the plant has been taken over by force, and they have been threatened with expropriation. How did the U.S. Government protect them?

Mr. HENNESSY. The U.S. Government is protecting the rights of investors by insisting, from our points of view, that prompt, adequate, and effective compensation be paid.

When U.S. corporations invest in foreign countries, just as when foreigners invest in our country, it is quite clear they are submitting themselves to another jurisdiction at the same time.

And the same type of protection is not afforded, and that is part of the risk calculation of management in going into those particular situations.

Where U.S. Government protection comes into play is in terms of international law and seeing to it that those provisions are adhered to.

If they are not, then we have a U.S. Government policy of withholding economic benefits which we give to those nations.

Mr. MURPHY. With the exception of a war time happening in this country, when was the last expropriation by the U.S. Government of a foreign-owned interest in the United States?

Mr. HENNESSY. I would not want you to misunderstand my remarks.

We are not advocating expropriation by any government.

We think it is ill-conceived, but we have the right to take over property in the United States, such as during wartime, and other periods in our history, and I think that in the late 1800's there were similar events here. But it is more desirable to allow the private sector to operate both here and in other places of the world. The U.S. Government protection comes in the form of making sure that international standards are being met.

Mr. MURPHY. What loans are currently pending for Panama before the Inter-American Development Bank?

Mr. HENNESSY. I could submit a list for the record.

Mr. MURPHY. Would you submit that list for the record, please? Mr. HENNESSY. Yes.

Mr. MURPHY. That will be in the open record.

Mr. HENNESSY. Yes, absolutely.

(The information referred to follows:)