US stepping up push for free enterprise via third-world aid

By , Staff writer of The Christian Science Monitor

Can the United States make the world over into its own economic image? It is trying.

For several years the State Department's Agency for International Development (AID) has been pushing private enterprise in the developing nations through its programs for dispensing bilateral foreign aid. When President Reagan came to power, AID created a Bureau for Private Enterprise with this goal in mind.

Now the administration intends to use the same foreign-aid leverage through its influence on the multilateral development banks (MDBs), such as the World Bank. An interagency group has been considering policy recommendations on how to get the MDBs to encourage ``privatization'' in the third world, that is, selling government-owned companies to private enterprise or the public.

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The growth of parastatal organizations (state-owned companies or other government-owned bodies) in recent years, says an internal Treasury study for the interagency task force, has been ``an important contributor to the economic stagnation and the problems of excessive debt in recent years.''

The paper calls for ``an action plan to implement an active policy of privatization in the MDB programs.''

Among possible measures, the study suggests that in the short term these development banks not finance parastatals that compete with the private sector; that they limit their loans to ``intermediate credit institutions'' (also known as development finance companies) which in turn lend to the private sector; and that they require governments to have parastatals divest unused or dormant assets not immediately relevant to current operations.

Over the medium term, the study goes on, the development banks should use more of their resources for direct loans to the private sector and minimize support for the public sector.

In the long run, the MDBs should encourage privatization of parastatals, increase efforts to develop indigenous capital markets through the provision of technical assistance, and consider making loans to the private sector without the government guarantees now needed.

World Bank officials, not having seen the Treasury paper, will not comment on it. But a spokesman did protest that the bank has long encouraged the development of private enterprise. Indeed, the bank has been arguing for a doubling of the capital to $1.3 billion of its affiliate, the International Finance Corporation, which promotes and supports the private sector in developing countries.

``We look forward to full American support,'' the spokesman said.

To many American conservatives, however, the World Bank and other MDBs, such as the Inter-American Development Bank, the Asian Development Bank, and the African Development Bank, have too often supported ``socialistic'' activities of state-owned institutions.

For example, Rep. Jack Kemp (R) of New York blocked supplemental funds for the MDBs at the subcommittee level until the administration agreed to press the MDBs for more free-enterprise-oriented lending policies. Last week, at the full Appropriations Committee, Mr. Kemp and other Republicans supported the $237 million in supplemental funds for the MDBs this year.

In return for their support, Assistant Treasury Secretary David C. Mulford sent a memo to the US executive directors of the World Bank and the International Monetary Fund pointing to several economic policy areas that it said merit ``special attention'' when considering loans. These include the use of tax policies to encourage savings and investment, liberalization of foreign-trade regimes to facilitate exports and to remove import restrictions, measures to promote pricing policies that reflect market forces, measures to facilitate appropriate foreign investment, and support for growth oriented to the private sector.

A Kemp aide indicated that an administration effort to push the MDBs toward backing privatization may be key to conservative Republican backing of the $750 million requested for a World Bank affiliate, the International Development Association, which makes 50-year, no-interest loans to the poorest of nations.

The interagency group, with representatives from the State, Commerce, and Agriculture Departments, AID, and the Export-Import Bank, and chaired by Thomas Burke from the Treasury, hopes to report to its superiors in four or five weeks.

The actual effect of the efforts of the Reagan administration and Kemp to spread the free-enterprise gospel is hard to measure. The drive is somewhat embarrassing to the MDBs, because they must maintain that they are ideologically neutral. The World Bank, for instance, includes communist and socialist nations as members, as well as capitalist and social democratic members.

``They [the MDBs] can't beat their breasts and shout, `Hey, we're privatizing,' '' a Treasury official noted.

A bank official maintained that, in making loans, it sought to deal with efficient institutions free from political and ideological interference. At the same time, however, he pointed out that the bank had long been encouraging the private sector.

Undoubtedly, with the World Bank's largest shareholder (the United States) campaigning about free enterprise, bank officials are more conscious of the need to serve the private sector as well as government-owned enterprises. At the Asian Development Bank (ADB), Joe O. Rogers, a former Kemp aide, is the US executive director. He backed an ADB conference on privatization earlier this year.

But remaking the world in the free-enterprise model will take time. ``This is not an easy issue and not plain black and white,'' a Treasury official commented. ``You have to be careful and selective.''

The Treasury study notes that from 1972 to 1980, the number of countries in which the public sector accounted for more than one-third of total national output of goods and services grew from 13 to 38 out of 90 countries surveyed. The portion of gross fixed-capital formation represented by parastatals grew from 20 percent to 59 percent in Algeria, 27 to 36 percent in Taiwan, 14 to 23 percent in Brazil, and 15 to 24 percent in Kenya.

Because of the economic vitality of free-enterprise countries compared with state-oriented nations in recent years, the tide of world opinion has swung toward favoring the free market. That could make the Reagan free-enterprise campaign easier.

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