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

By David R. FrancisStaff writer of The Christian Science Monitor / May 30, 1985

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

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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.

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.