How US calls on private enterprise to encourage third-world nations
Can Uncle Sam spread the gospel of free enterprise to the developing nations as missionaries taught colonials Christianity years ago? Can a bunch of federal government bureaucrats act like hot-shot capitalists, selecting profitable new enterprises to finance?Skip to next paragraph
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Both questions invite skepticism. But these are, in effect, the goals of the Reagan administration's ''private sector initiative'' in foreign aid.
''We who live in free market societies,'' President Reagan told the joint annual meeting of the World Bank and International Monetary Fund in the fall of 1981, ''believe that growth, prosperity, and ultimately human fulfillment are created from the bottom up; not the government down. Only when the human spirit is allowed to invent and create, only when individuals are given a personal stake in deciding economic policies and benefiting from their success - only then can societies remain economically alive, dynamic, prosperous, progressive, and free.
''The societies which have achieved the most spectacular, broad-based economic progress in the shortest time are not the tightly controlled, nor necessarily the biggest in size, or the wealthiest in natural resources. No, what unites them all is their willingness to believe in the magic of the marketplace.''
By contrast, Elliott R. Morss, an economist formerly a partner with an Agency for International Development contractor, Development Alternatives Inc., maintains the private sector thrust ''is one of the most extreme cases of where ideology runs ahead of substance. This is seen by developing countries as another effort by a developed country to foist its latest enthusiasm on them.''
In other words, he regards the administration's international private enterprise drive as ''a fad,'' suffering from uncertainty as to its meaning and lacking an adequate sense of how to make it work.
President Reagan's comments were made about a month after Elise R. W. du Pont - from a famous free-enterprise family - became assistant administrator of AID's new Bureau for Private Enterprise.
In an interview she noted: ''The philosophy of the whole thing is that we are here to stimulate free enterprise in the third-world countries, involving United States private enterprise where possible.'' The goal is to make these nations self-sufficient by teaching them business methods that will allow their economies to thrive and generate jobs, income, and higher living standards, and thus serve humanitarian purposes as well. ''What this program is essentially designed to do is to take the charity out of foreign aid,'' she says.
The focus of the program is on small and medium-sized enterprises, especially in agribusiness. This assures that the program does not merely enrich the rich, she argues.
AID officials, Mrs. du Pont continues, encourage developing-country governments to provide a suitable climate for private investment, domestic or foreign. ''We serve as an adviser to governments on how to break the bottlenecks to investment,'' she said. ''We have been quite enthusiastically welcomed.''
The AID bureau, for instance, will support the development or improvement of capital markets and other financial structures that generate savings and direct them into productive investments.
It also boosts management training. In Thailand, the Bureau for Private Enterprise has helped launch a management institute backed by three universities and Thai businessmen. The students will be taught by the Harvard Business School's case method, with American teachers training Thai teachers in this technique.
The bureau also has been formulating and using new financing methods - that is, new to AID. The agency will deal directly with private enterprises rather than government to government as was usual in the past. It will provide money to local banks, development finance companies, venture capital firms, leasing companies, insurance companies, or other intermediaries that then loan directly to private enterprises in the developing country.
In Thailand, for instance, the bureau has loaned $2 million to the Siam Commercial Bank for relending along with the bank's own funds to small and medium-sized agribusiness outside the Bangkok area. The bank will do the initial project analysis, take the short-term risk (up to three or four years) while AID will provide five-to 10-year money - the medium-term money that Mrs. du Pont says is hard to find in developing countries.
The money is loaned at market or near-market rates - sometimes 1 or 2 percent below market. That is unique for AID, since generally its loans are highly concessional.
The bureau plans at some point to make loans directly to business enterprises rather than financial intermediaries.
Mrs. du Pont sees leverage as one advantage of her program. The US gets more development for its limited aid dollars by drawing domestic and foreign capital into projects.
Another advantage, she says, is that the free-enterprise approach should lead these third-world countries to the kind of economy that provides a strong, sophisticated market for US products and services, a hospitable location for US private investment, sometimes as joint ventures, and an attractive place for loans from US commercial banks or other financial institutions.
Pointing to a third advantage, Mrs. du Pont finds that the Bureau of Private Enterprise serves as a laboratory for the entire AID. ''It shows the agency what can be done with innovative methods.''
The bureau itself has a mere $26 million to spend in the current budget year, which started Oct. 1. But the agency spends hundreds of millions in various foreign-aid programs, and the AID missions in dozens of countries are under instructions to look for and put emphasis on free-enterprise-oriented projects.
Next: Does it work?