Mr. ASPINALL. But you see, you do not have the only Latin American people in the United States in your area. In other words, my own congressional district is made up of a great many Latin American people, and there are other States where the impact has also been great. It so happens, geographically, you have been very fortunate to have been situated in this particular area and your impact upon the Latin American people is far greater than it is in any other areas.

But is it your opinion that they draw any difference between the line of statehood and Commonwealth as far as you folks as citizens of the United States are concerned?

Mr. MORALES-CARRION. Regarding the impact of the program on them, which is what I am trying to mention at this point, I would like to read two quotations with the purpose of illustrating to the committee as to a Latin American reaction from people who are very friendly to the United States, and I would like to read both quotations in view of your questions.

Mr. ASPINALL. If not too long. Otherwise I would like to have them printed in the record.

Mr. MORALES-CARRION. I will just put them in the record.

Mr. ASPINALL. I assure you I shall read them.

Mr. O'BRIEN. Without objection, they will be made a part of the record at this point.

(The information follows:)

EXTENSION OF REMARKS OF DR. ARTURO MORALES CARRION, COMMONWEALTH UNDER SECRETARY OF STATE

The idea that Puerto Rico might become a federated State of the Union is not attractive to responsible Latin American opinion, to judge from the statements made, not by enemies of the United States, but by writers or newspapers known as stanch supporters of American policies.

One of these Latin American newspapers is El Tiempo, of Bogotá, Colombia, an outstanding liberal newspaper of Latin America and highly regarded in U.S. journalistic circles. El Tiempo recently said in an editorial, quoted by the Spanish newspaper La Prensa of New York on August 7, 1959, that the idea of Federal statehood for Puerto Rico would be respectable if the people so wished but would not evoke enthusiasm in Latin America as it would mean "the absorption of part of our Latin tradition, without need or justification."

"Puerto Rico," El Tiempo added, "has a traditional personality, which can be preserved better, with greater dignity and decorum, in its Commonwealth status as an associated free state than as an integrated part of the United States."

Roberto Gracía-Peña, a distinguished Latin American journalist and a recipient of the "Maria Moors Cabot Award," given by Columbia University, wrote an article, published in El Mundo of Can Juan, June 13, 1959, in which he stated:

"The possibility that Puerto Rico might become a State of the North American Union is sometimes discussed. Such a step would be a serious error, certainly. The present status of Puerto Rico, defined as an associated free state, gives the island every possible advantage, while maintaining it in a condition of relative independence which is well suited to its economy and its way of life. Latin America would not view statehood for Puerto Rico with satisfaction, since such a change in status would mean a drastic break with the Iberian tradition of the Puerto Rican people whom we Latin Americans consider as one of ourselves since they represent a prolongation of our tradition and even of our history." "Furthermore, we do not believe that legislation on statehood for Puerto Rico would prosper; nor do we believe that the United States is greatly interested in changing Puerto Rico's present status which reflects honor on the United States for its having done away with every vestige of colonialism, and serves as a hemispheric bond, affording an inter-American meeting place, one more link in forging the good-neighbor relationship which, though greatly deteriorated is, for all of us, north and south, so necessary."

The noted Chilean specialist in economic affairs, Rubén Corvalán, after returning from a visit to the United States and Puerto Rico, wrote in La Nacion, of Santiago, Chile, June 12, 1959, as follows:

"Puerto Rico, as an independent Latin American Republic, could only offer to the islanders freedom and poverty. Unfortunately, it would be ruined as a State of the Union, subject, then, to the overwhelming burden of Federal taxes, and incapable of providing the incentives necessary for its industrial development. Puerto Rico could not then compete in the American market in view of the additional costs arising from the substantial imposition of Federal taxes. We hold, therefore the opinion that Puerto Rico, at this crossroads, would again insist in its determination to live as a Commonwealth, voluntarily associated with the United States."

In an article entitled "Puerto Rico Joins the Union Without Losing Its Own Characteristics," published April 16, 1958, in the well-known newspaper of Buenos Aires, La Nacion, the noted Argentine writer, Juan S. Valmaggia, associate director of the newspaper, after carefully examining the different political trends in Puerto Rico came to this conclusion:

"[The solution is] in brief, neither an independent Puerto Rico nor a Puerto Rico incorporated into the Union as another State with the resulting impoverishing of its cultural entity; but a Commonwealth of Puerto Rico, as provided by the Charter of 1952, with the improvements in the system that time will allow, in order to emphasize the autonomous characteristics that were borne in mind when the Commonwealth was created."

Mr. O'BRIEN. Are there further questions?

Mr. POWELL. I have no questions, but I would like unanimous consent to speak off the record.

(Discussion off the record.)

Mr. O'BRIEN. Thank you very much, Mr. Secretary.

Dr. Fernós?

Mr. FERNÓS-ISERN. Since the present H.R. 9234 covers all the matters, I think H.R. 5926 need not be printed in the record, and I ask unanimous consent it not be.

Mr. O'BRIEN. Dr. Fernós states, in view of the fact that H.R. 9234, which he introduced on September 12, covers or is a complete substitute for H.R. 5926, that he asks unanimous consent that the printing of H.R. 5926 in the record be eliminated. Is there any objection? The Chair hears none, and it is so ordered.

The committee stands in recess until 1 p.m.

(Whereupon at 12:10 p.m. the committee recessed until 1 p.m. this same day.)

AFTERNOON SESSION

Mr. ASPINALL (presiding). The committee will come to order. The chairman of the subcommittee will be here in a few minutes. The first witness this afternon is listed as Mr. Condido Oliverias, president of the Planning Board of Puerto Rico.

I understand he is not here, and in his absence we shall have as our first witness, Mr. Rafael Pico, president of the Government Development Bank.

We are glad to have you as a witness this afternoon, and we will be glad to listen to your statement.

STATEMENT OF RAFAEL PICO, PRESIDENT, GOVERNMENT DEVELOPMENT BANK FOR PUERTO RICO

Mr. Pico. The debt margin and Puerto Rico's financial resources. My name is Rafael Pico. I have been president of the Government Development Bank since January 13, 1958. Previously, I was secre

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tary of the Treasury of Puerto Rico, and prior to that was chairman of the Puerto Rico Planning Board. I would like to review briefly some aspects of Puerto Rico's investment finances, with special emphasis on public borrowing activity and particularly the matter of our public debt limit. I shall also refer to the role of the Government Development Bank in this connection.

Need for external financing in Puerto Rico: Puerto Rico has traveled far along the road of economic development. From a poverty stricken land less than 20 years ago, it has been transformed at an accelerated pace into a progressive, diversified economic community. Yet, in spite of the success with which Puerto Rico's development program has been carried forward, much remains to be accomplished. A continued high rate of growth will require that strenuous developmental efforts be maintained in the future.

Although Puerto Rico's real per capita income has been more than doubled since 1940, it remains at a level about one-half that of the poorest State on the mainland. In addition to the need for increasing incomes, our future objectives anticipate the creation of many new employment opportunities. Puerto Rico is still faced with problems of serious unemployment and underemployment. Average unemployment in 1959 amounted to 14 percent of the labor force.

There is also a growing need for improved public facilities. More schools, additional construction of highways, harbor and airport facilities, continued expansion in the field of housing, greater output of electric power, more water and sewer systems and extensive development in other fields are imperatively required in the years ahead. The achievement of Puerto Rico's economic goals in all the areas that I have mentioned will require large capital investments from both private and governmental sources. It should be noted, howver, that Puerto Rico is still at a stage in the development process which requires the importation of a major portion of its investment funds from the mainland. In this respect, we might compare Puerto Rico's economy to that of the United States in the 19th century— when foreign capital was largely responsible for the construction of America's railroad networks and the exploitation of its natural resources. These investments from aboard had a profound effect on the young American economy, enabling it to expand rapidly during a period in which internal savings were still inadequate to meet growth needs.

This is where we stand in Puerto Rico today. Over the past several years, imported capital has comprised approximately 50 percent of total new investment in the economy. If Puerto Rico had to rely solely on its own internal sources of investment funds, its rate of economic growth would be seriously curtailed.

During the past few years the island has experienced one of the highest rates of investment in the world. In 1959, investment in fixed capital goods reached an annual rate of over $292 million, or 21 percent of gross product-the third consecutive year in which investment has reached such a high portion of gross product. This compares to investment of $150 million, or 15 percent of gross product in 1952, and only $23 million, or 8 percent or gross product in 1940. The current high rate of investment is indicative of the general mechanization that has been taking place in Puerto Rico during recent years.

In 1959, about 52 percent of Puerto Rico's gross domestic investment was supplied from external sources, as can be seen from the chart here shown; No. 1. There you will see that direct external investment totaled $55 million; new public bond issues supplied an additional $82 million. There you must add the private housing mortgages mainly financed in the mainland loans from Federal agencies. They are all very important factors in the investment picture in Puerto Rico.

The sale of public securities in the mainland has been a key factor in Puerto Rico's overall development effort. It has permitted the creation and expansion of basic public improvements required to support a rapidly growing industrial economy. The fact that Puerto Rico has free access to the mainland capital market is of utmost importance to its development program.

Means of financing investment and external long-term debt payment, fiscal year 1959

To obtain a gross domestic investment of..

And amortize the external debt by

The Puerto Rico economy required_.

These dollars were derived from the following sources:

From local savings-

Direct external investment_

New public bond issues..

Private housing mortgages___

Loans from Federal agencies..

Other

Millions

$309

27

336

148

55

14

5

ROLE OF THE GOVERNMENT DEVELOPMENT BANK

Principal responsibility for conducting Puerto Rico's public borrowing operations rests with the Government Development Bank. This institution is a leader in the financial community, initiating and collaborating with other public and private institutions in the expansion and development of all financial aspects of the Puerto Rican economy. It has two primary functions: in addition to procuring funds for Puerto Rico's public borrowers, the bank provides medium and long-term financing to private borrowers for the establishment or expansion of projects which will further economic development in Puerto Rico, particularly for manufacturing purposes. The development bank also encourages loans in participation with commercial and other institutional lenders, including the Federal Small Business Administration and the Puerto Rico Industrial Development Company. In addition to arranging participation loans, the bank assists in attracting various types of private external financing for developmental purposes in Puerto Rico through contacts which it maintains with financial institutions and investors in the mainland.

The Government Development Bank is a public instrumentality established in 1942 by act No. 252 of the Legislative Assembly of Puerto Rico. In 1945 it was made Fiscal Agent-or borrowing agent-for the government of Puerto Rico, its municipalities and the public corporations such as the Water Resources Authority (our electric power agency), Aqueduct and Sewer Authority, Ports Authority and others. As fiscal agent, the bank advises, plans, coordinates, and executes all services connected with public borrowing operations. It seeks to

meet the financial needs of Puerto Rico's public bodies on an orderly basis, always giving careful consideration to conditions in the U.S. capital market and the character of each individual borrower. The bank also serves in an advisory capacity regarding all actions or conditions which may have a bearing on the capacity of any public body to use or receive credit financing.

Through the operation of its fiscal agency, the bank has channeled substantial sums into Puerto Rico's economy. These investments have permitted the development of numerous public facilities required to support a rapidly growing industrial community. Since the start of its fiscal agency work in 1945, the bank has completed arrangements for long-term financing totaling $427 million-an important injection of capital for Puerto Rico's economy. You can see largely for public corporations, but a substantial amount for the Commonwealth and the smaller amount for the municipalities. That is the result of our borrowing throughout all of those years.

In addition to providing fiscal agency services in favor of other entities, the bank has borrowed for its own account on several occasions. Recently it negotiated a new loan for its own purposes in the amount of $9 million.

The proceeds of this borrowing provided additional funds needed for financing industrial and commercial enterprises in Puerto Rico.

RECENT ACTIVITIES OF THE GOVERNMENT DEVELOPMENT BANK

During the most recent fiscal year, which ended June 30, 1959, arrangements were completed for total public financing in the amount of $134 million-$82 million of which represented long-term bond issues. Of the total amount financed, $29 million was for the Commonwealth government, $95 million for the public corporations and over $10 million for municipal governments.

The bank's loan activities also reached a new high during the 1959 fiscal year. There were 176 business loan applications approved with a total value of $13.8 million, representing an increase of 72 percent over the amount approved during the previous fiscal year. This established a new record for approvals in any single year. Disbursements for private business purposes totaled $7.9 million during the year, an increase of $3.8 million over disbursements in the previous year. The total amount of private loans outstanding also reached a new peak of nearly $23 million on June 30, 1959, an increase of 31 percent over the total amount outstanding at the end of the previous fiscal year.

PUBLIC BORROWING AND THE DEBT MARGIN

I would like to turn now to a brief discussion of Puerto Rico's public indebtedness and its relation to the debt margin. In Puerto Rico, capital improvements have been financed through a combination of investment from the government's own resources and the execution of carefully planned borrowing operations. The government has not only operated well within its available recurring revenues in budgeting and meeting ordinary operations, but relatively large