Reagan foreign-aid course jogs bankers, third world

Some two decades or longer ago there was an extended discussion in the United States on the merits of multilateral vs. bilateral foreign aid. Now the debate has been renewed.

It was sparked some months back with the leak in Washington of one of the famous -- or infamous -- David Stockman memos. In it, the director of the Office of Management and Budget called for a detrenchment in the funding of multilateral development institutions (which are controlled by many nations and run by international civil servants) in favor of bilateral aid (from nation to nation).

Of course that idea did not please officials at the World Bank, the Inter-American Development Bank, the African Development Bank, or the Asian Development Bank.

Nor did the leaked proposal warm the hearts of commercial bankers who swarm about the annual meetings of multilateral institutions like ants around a drop of honey. To them, the World Bank and its sister institutions are lucrative clients. Whenever these international institutions raise money on the capital markets, commercial and investment bankers make money underwriting the bonds. Or they profit from holding the revenue from the funds in bank accounts until it is actually used in development project loans.

The bankers find the annual meetings are convenient places to see each other, and to find finance ministers and other officials together in one spot.

Moreover, they find the multilateral institutions useful in regard to their direct loans to developing countries -- a multibillion dollar business.The commercial banks have recycled more petrodollars than any other institution. They find the multilateral banks a source of information about the developing countries. And these international institutions use money-lending leverage to insist that third world countries implement sensible economic policies -- thereby raising the odds the commercial banks will be repaid their hundreds of billions in loans.

In any case, the multilateral development banks have become major pillars of the international financial system. So when a good chunk of the international financial community assembled here last week for the annual meeting of the Asian Development Bank, US officials felt it necessary to assure them that they were not about to play the role of Sampson -- and knock down those pillars.

R. Timothy McNamar, deputy US Treasury secretary, referred to the Stockman memo as "preliminary staff proposals . . . leaked to the newspaper long before any final policy decisions were reached."

Further, he spoke favorably of the multilateral institutions. They, he said, "are special in their ability to play an important role in the division of technical and financial informataion and experience to government agencies and related entities concerned with economic development.

"The accumulated skills and experience of the multilateral development banks have contributed significantly to an improved awareness in both donor and recepient of the complexities of the development process. They have demonstrated that they have a vital role to play in the process. . . ."

It was flattering to the development bankers. But it was not entirely reassuring because the deputy Treasury secretary also referred to an interagency review of foreign aid the Reagan administration has launched. It involved the State Department, the Agency for International Development, the Office of Management and Budget, as well as Treasury.

The review, Mr. McNamar noted, will look at the future participation of the US in the multilateral development banks, the mix of bilateral and multilateral aid and military assistance.

He continued, "There will be a continuity of many policies between the Carter and Reagan administrations. But, there may be some shifts in emphasis."

As an example, he said that human rights "will continue to be of utmost concern to this administration, even though our understanding of how human rights can best be promoted may may differ from that of the previous administration."

Mr. McNamar noted that the policy review will not be completed until September. Thus, the United States will essentially be "putting on hold" the issue of replenishing the funds of the various multilateral development banks.

Another less-than-reassuring point made by Mr. McNamar was that the Reagan administration had launched a major retrenchment in domestic social programs, and "balance will require that foreign assistance will not grow at the rate proposed by the previous administration."

However, Mr. McNamar did promise that US will keep all existing agreements negotiated internationally with multilateral development banks.

Mr. McNamar did not discuss one of the key issues in the multilateral vs. bilateral aid debate -- the political factor. Some congressman have been annoyed when the development bank loaned money to a country of whose government they disapproved. A government memo, for instance, stated incorrectly that the Asian Development Bank has been making loans to Vietnam. It has not done so since the communist takeover in the south.

Bilateral aid, congressmen note, can be directed to support political objectives. Recipient countries, however, prefer the relative freedom of multilateral aid from the political influence of the donor countries. Leftists used to charge that bilateral aid was "economic imperialism."

Developing country officials also point out that multilateral aid often produces orders for US companies. Said Cesar Virata, Philippines minister of finance, "I think the administration will eventually find out these contributions to the multilateral agencies really help out private sectors. They shouldn't be sold to the American public as if they were a giveaway."

Third-world observers here -- though still a bit nervous -- suspect the US review will not result in any drastic change of direction in foreign aid.

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