My evaluation of this waterway is that it is an invaluable possession of the United States, which I testified in 1962. At that time, I was Commander of the 7th Fleet operating in the Western Pacific. Frequently, my fleet's capability depended on prompt arrival of supplies in the Atlantic Seaboard, supplies loaded on board ships which were using the Panama Canal.

Then he goes on to say:

From the 7th Fleet, I went on to Commander in Chief of the Pacific; from there, to Commander in Chief of the Atlantic and NATO Supreme Allied Commander, Atlantic; from there, to Chief of Naval Operations; and from there to Chairman of the Joint Chiefs of Staff from 1970 to 1974.

Now, that is what the American people are not being told. Admiral Moorer is a man who really has no axes to grind. He is not subject to administration pressures. He cannot lose his pension. He and the three other admirals, all of whom are highly distinguished admirals, are saying this treaty would be very detrimental to the U.S. interests. I am glad you brought that up. It gave me a chance to put that in the record. I think that is important.

Mr. CRANE. There is testimony also by Gen. Daniel Graham, former head of the Defense Intelligence Agency. General Graham's testimony is equally forceful on this point. I think, as Admiral Moorer observed-and this, of course, is brought home strongly to anyone who still wears the uniform and is serving-one must think twice about the possibility of speaking out in objection to policy decisions made by the Commander in Chief, unless one is prepared to contemplate the possibility of being forced into early retirement and maybe even some humiliation. It will be my expectation that you will have, publicly, a very compliant Joint Chiefs of Staff.

Senator HATCH. You make some very serious allegations about the conflict of interest problems here. Mr. Linowitz told me personally that he did not feel he had any conflict of interest, although he was on the board of directors of Marine Midland Bank. If I recall right, he also joined the board of directors of PanAm. Both of them reputely have huge interests down there in the debt structure of Panama. Do you have any comments with regard to that?

DEBT OBLIGATION

Mr. CRANE. I cannot help but feel that, where your treasure is, there will your heart be also. That's what the Bible says. The banks have quite a treasure down there, and in this instance I fear that their hearts are in Panama and not in the United States.

Imagine a community of roughly 1.5 million population taking on a $1.5 billion debt obligation just from these banks here in the United States, mostly centered in New York. I think that is an insurmountable debt burden.

My understanding is that they are faced with the prospect of defaulting in Panama on just some of the interest payments on that debt. So, obviously, they have got to figure out how to come up with new income from some source. I am sure the banks know what their situation is like. The banks are undoubtedly salivating to see new revenues pumped into Panama to service those debts.

I would hope that maybe here in the Senate there might be some more intensive investigation of who serves on the boards of those banks. What are the kinds of business connections that some of those

board members have with other major corporations that are pumping aggressively for treaty ratification? Find out particularly who within government

Senator HATCH. Do you recommend this to this committee?
Mr. CRANE. I would very definitely recommend that.

Senator HATCH. When I was down there, I met with the President of Panama and Mr. Barletta, who is the Minister of Planning and Economic Affairs, if I remember the title correctly. They admitted to me and I have a document provided to me by the American Ambassador, who told me that Mr. Barletta-and Mr. Barletta confirmed in our meeting with him-that they have at least $1.4 billion in public debt owed to banks. In fact, the largest of the banks were the First National City Bank of New York and Chase Manhattan Bank in New York.

As I understand it, you are indicating here that you believe that part of the reason for the rush in the last few hours of Mr. Linowitz' 6-months appointment--and, of course, he has been criticized in some conservative magazines I have read-that his appointment was premeditated so that he would not have to appear before the Senate during the normal confirmation process to justify his credentials—you have indicated that the reason that was so and the reason that they finally came to this conclusion in the last few hours of the 6-months appointment was because they had the deal of a lifetime and that there are other interests that are to be very much benefited from this canal treaty, much to the detriment of the American taxpayers.

Mr. CRANE. I remember when I served on the Banking and Currency Committee in the House at the time of the hearings on the Lockheed bailout. I witnessed the spectacle of 38 heads of the biggest banks in the U.S. sitting there before our chairman, Mr. Patman. They were like schoolchildren with one mike servicing all 38. They had questions put to them, and they raised their hands if they agreed or disagreed.

They put up with that for 1 full day to get the guarantee of the backup by the U.S. Treasury of the loans they wanted to extend to Lockheed.

So, I know that the banks are willing to suffer at least in that instance I think a great deal of humiliation as a means of trying to get that kind of Government guarantee. If they were willing to do that on a paltry sum involved, relatively speaking, with the Lockheed Corp., I cannot help but feel that they would go to much greater lengths to try and salvage a $1.5 billion investment that they have made in tiny Panama.

Senator HATCH. You have also indicated, have you not, that Mr. Linowitz has direct interest as a result of legal affiliations, banking affiliations, and otherwise in this treaty going through in a favorable manner?

Mr. CRANE. My understanding is, in the face of heat and criticism, he stepped down from the board of Marine Midland in March, but well after his appointment. On the other hand, if this treaty were very quickly ratified, I am sure that, if Marine Midland viewed his talents to be so considerable then it would not be very long before he were retendered an offer to sit on the board of Marine Midland or maybe Chase Manhattan.

Senator HATCH. Our research shows that, when General Torrijos took over the government in 1968, that Panama had a total debt structure of about $139 million. You have indicated here today that they owe some $2.7 billion to just the banks. I have indicated-and there is no question about it-that their leadership has admitted to a public debt alone of about $1.5 billion.

Do you have any reasons that you can give how that public debt could have jumped from $139 million to $1.5 billion or as high as $2.7 billion?

Senator ALLEN. Excuse me for interrupting, but they have just started to vote over at the House.

Mr. CRANE. I can respond quickly and then vote on the B-1 bomber. I would say that that very question is what warrants the investigation that I would hope the Senate might take up. I have spoken to members of the Banking and Currency Committee in the House. Unfortunately, they feel that the prospects are rather remote of getting hearings and an inquiry into that subject.

But the figures I have seen include approximately $850 million of loans by domestic banks and through their foreign branches, though, the additional loans total $2.7 billion. It could conceivably be higher

than that.

There have also been rumors, of course, that some of those moneys have been siphoned off by Torrijos himself and spirited away into unnamed Swiss bank accounts to feather his own nest. Knowing the moral quality of the man, I find that easy to believe.

This is what ought to be brought out, I think, in any public discussion before either the House or the Senate acts on this question of alienation of that canal.

Consider two other quick poin's. One is, if we relinquish sovereignty, then that canal becomes, in effect, a multinational corporation. The United Nations has already upheld the right of expropriation. So, I think we would be very hard pressed to argue that it is ours in the face of criticism that we would receive if they simply wanted to abrogate any terms or any agreements that they made with us up to that point.

I think this, coupled with the fact that gunboat diplomacy started primarily because one illegitimate government-by illegimate, I mean an unconstitutional government; one that came to power by forcewould negotiate loans with a major foreign country such as Great Britain. A coup would take place, and one illegitimate government would be replaced by one that claimed to be legitimate and represent the interests of the people and that they were not responsible for the agreements made by a previous administration because it was an unconstitutional government.

Of course, what happened was Great Britain would send the gunboats in, take over the customs house, and put their affairs in order, and service their debts.

All I am suggesting is this. Since Torrijos is not a constitutional leader down there, since Torrijos came to power by violence and he retains his position by violence and repression, there is the very real prospect that a succeeding government, a truly representative government, might have a powerful case to repudiate any obligations as

sumed by one man, a single dictator not speaking for the people of Panama.

Senator SCOTT. Mr. Chairman, I would like to respond to that.

Time will not permit me to examine my former colleague and friend during the time he is before us. But you mention Torrijos and how he came to power.

Do you feel that, with his background, that he has a right to lecture the Senate as to looking to the future rather than to the next election, as he did last night at the signing of the treaty? Is he in a position to do this?

Mr. CRANE. I think that man has no moral qualifications to lecture anybody on anything unless they want a little locker room dissertation on prostitution in Panama, living off the backs of oppressed working people, stealing from the citizenry of the Republic of Panama, and imposing violence and repression against innocent people there.

That is hardly a man that I would dignify by even acknowledging his existence, much less by negotiating with him to give away a precious $7 billion American possession.

Senator ALLEN. Thank you very much.

Mr. CRANE. Thank you, sir.

Senator ALLEN. We are now going to recess for lunch until 2 o'clock. At 2 o'clock the hearing will be continued.

[Recess taken.]

AFTERNOON SESSION

Senator ALLEN. The meeting will please come to order.

Our next witness is Adm. John S. McCain, Jr., U.S. Navy, retired, former Commander in Chief of the Pacific Fleet.

Admiral McCain, we're delighted to have you come and give us the benefit of your views. We regard you as a great American patriot and we are certainly interested in learning of your views for the record. We invite you to proceed in such a way as you see fit.

TESTIMONY OF ADM. JOHN S. McCAIN, U.S. NAVY (Retired)

Admiral MCCAIN. Thank you, sir. Senator, I consider it a great honor and a privilege to have been invited up here before your distinguished committee to make any comments or statements I want to make as far as the Canal Zone in Panama is concerned.

I would like to make a couple of comments before I go into my statement. One, the United States is in grave danger. The Panama Canal and the Canal Zone problem is a lot broader than just the use of that body of water. We are faced worldwide with advancing communism. Just to give you an example, in the last 4 or 5 years of my naval career-I've now been retired about 4 years-it has become impossible to go into Southeast Asia. It has become impossible to go into the Middle East with impunity. We have the problem of Castro in Cuba in our backyard. We now also have the problem of Torrijos and the Canal Zone.

What is actually happening is that the United States is becoming more and more constrained and constricted to the continent of North America. You might in one sense say that the Berlin wall is being taken brick by brick and moved around the continent of North America. The United States is being restricted to this area.

I cannot emphasize this enough. It is a process that is going on day after day, night after night. Unless the United States itself begins to take a strong stand-and the Republic of Panama and Canal Zone is one then we are going to lose this battle.

It is incredible to me that men who should understand these matters apparently do not. The business of an obsequious approach to nations throughout the world—I speak for example of Peking, of Moscow, and of the handling of the United States in the case when our own helicopter was shot down in Korea, and many others I could mention to you.

I also would like to mention that concurrently we have difficulties in the Philippines. That is the two bases, Subic Bay, the naval base, and Clark Air Force Base. If we lose those two bases that is a further retraction from the Far East. Though we were successful in getting through approval of the use of Diego Garcia which is in the middle of the Indian Ocean. The Indian Ocean has become increasingly important because of the tremendous amount of raw materials that exis in Africa. The U.S.S.R. knows this and it is moving there. In fact, is infiltrating all over the world. It is infiltrating into Southeast Asia which is a matter of great concern to the Red Chinese, for example.

The subject of the Panama Canal cannot be discussed without putting it in its overall global perspective because this is exactly the type of operation we are faced with.

DEFENSE ESTABLISHMENT DECLINING

As far as the response of the United States from a global viewpoint, first, of course, is a Defense Establishment of some strength and some standing. I can assure you, Mr. Chairman, that our Defense Establishment has been in a state of decline. When I was Commander in Chief of the Pacific which included Army, Navy, Air Force, and Marine Corps, just for an example, we had 900 ships. Today we have someplace in the neighborhood of 425 ships in our active fleet. The same thing has been happening as far as our Air Force and our Army are concerned.

In the Air Force we have had this continuing deterioration under which we are constrained to use the B-52 which is antiquated and over 20 years of age. We need the B-1 and we need it badly or we are not going to have the bomber capability which is so necessary.

I have not heard this mentioned except referred to this morning, but very recently there was a treaty signed between the Soviets and Panama. The criteria of this particular treaty was that the Soviet Union would construct in Panama a hydroelectric plant to provide a base for improving Panamanian economy; second, the Soviet Union has been permitted to build and open a bank in Panamanian territory; three, the Soviet Union may utilize Colon's free zone as an outlet for Soviet merchandise which includes Old France Field in the Canal Zone; and, fourth, the Soviet Union has agreed to purchase 50,000 tons of sugar from Panama on the conditions described in the pact beginning in 1978.

So the point I'm trying to emphasize and reemphasize is that the Soviet Union is moving into Panama. One of the greatest and foremost objectives that these people have is to move into Panama. You might