Reagan's foreign-aid thrust prompts some questions

Some 50 percent of the economies of the third world are classified as ''private sector,'' a White House official noted recently.

That's why, he explained, it is realistic for the Reagan administration to put greater emphasis in its foreign-aid program on helping private enterprise and less attention to concessional aid to government agencies.

A congressional critic maintains that the free-enterprise effort of the Reagan administration has been oversold - that it won't do as much for development as billed.

In fact, the scale of activities of the Bureau for Private Enterprise of the Agency for International Development, is small.

Elise R.W. du Pont, assistant administrator of the bureau, says that it has about a dozen projects in operation - projects like loans to commercial banks or leasing companies in Thailand, Indonesia, and Peru. These projects are limited for this year to 10 countries: Indonesia, Sri Lanka, Thailand, Pakistan, Egypt, Ivory Coast, Kenya, Zimbabwe, Jamaica, and Costa Rica.

The bureau's staff of 55 people has been strengthened by the hiring of about a dozen MBAs with experience in private business. The bureau has sent out several missions of experts to some of the 10 nations to see what can be done to stimulate free enterprise. It has contracts with the Conference Board, the well-known corporate research organization in New York City, to provide information on US multinational development activities and with Business International to develop information on laws, regulations, and policies affecting investment in certain developing countries. It has brought under its wing the International Executive Service Corps, which recruits experienced executives, mostly retired, for short-term volunteer assignments abroad as advisers to local firms. Mrs. du Pont's small shop also draws in members of the Young Presidents' Organization to provide seminars, lectures, and discussions on entrepreneurial problem solving in several nations. It works together with the Overseas Private Investment Corporation, which insures US foreign investments against political-expropriation risks, in promoting American foreign investment.

Mrs. du Pont argues that even more important, the bureau and the private-initiative policy are having an influence on the entire American foreign-aid agency, with many millions more to spend.

Nonetheless, the Reagan administration's program is not really a revolution in foreign aid. There have been degrees of foreign-enterprise encouragement for years at AID. Mrs. du Pont herself admits it will take more years to determine whether her bureau's efforts have made a real difference for the private sector in developing countries.

Some critics, however, charge that the program could do as much harm as good. Richard Newfarmer, a senior fellow at the Overseas Development Council, a Washington think tank, studied the program this past summer and came away, as he put it, ''rather skeptical on balance.''

He did say, though, that the private sector initiative provided ''a breath of fresh air'' in the foreign-aid bureaucracy. The emphasis of such a program on economic growth - through free enterprise - brought back an important need that tended to get lost in the dominant foreign-aid philosophy since about 1973. That philosophy calls for the provision of ''basic needs'' (food, water, shelter, health care, and so on).

On the negative side, Mr. Newfarmer believes the program may have prompted the administration to pay insufficient attention to what has been most important for developing countries - high oil prices, high interest rates, greater protectionism in the industrial nations, internal equity, and export promotion.

Further, he finds the administration emphasis on market-oriented programs on firmer intellectual and empirical grounds than its concentration on private sector vs. the public sector. He has done a study of some 85 developing countries and found no correlation between the proportion of national output taken by the government and growth rates. However, national programs that produced rapidly expanding exports and a rapid growth in domestic investment did bring about rapid growth. And these factors would be related to market-oriented policies. In some cases, though, public companies were taking the initiative in this market-oriented atmosphere.

Public enterprises in Brazil, for instance, led the rapid growth in the 1960s and 1970s. Similarly, public companies were dominant in the fast growth in Argentina and Mexico and, since the nationalization of oil in 1976, in Venezuela.

Commented Mr. Newfarmer: ''We can't make our policy on this ignorant generalization. It is not so important whether the enterprise is public or private.'' In Tanzania, government enterprises have been highly inefficient; in Brazil they have done well.

The bureau, however, has decided to deal only with privately owned enterprises as a rule. It may make exceptions where there is no other choice but to do business with a state-owned company.

Moreover, notes Mr. Newfarmer, the government played a leading role in those countries often cited as free enterprise success stories. It developed the industrial policy in South Korea, agricultural reform in Taiwan, and the export promotion policy of Singapore.

Mr. Newfarmer believes the AID bureaucracy is apparently tempering the free enterprise rhetoric to a more pragmatic level. ''Implementation will water it down considerably and justifiably.''

He wonders if the bureau's programs are the most efficient use of AID's limited resources. ''Why not just give the IFC the money?'' he asks, referring to the International Finance Corporation, the World Bank affiliate that has for years been making loans to the private sector in developing countries. He figures the World Bank and the International Monetary Fund do a better job than AID in country economic analysis.

To Elliott R. Morss, an economist, the foreign-aid community has over the years learned a great deal about scheduling, the use of personnel, and other factors needed to make aid more effective. He regards the free-enterprise thrust as a diversion.

He makes fun of a decision to rename farmers as entrepreneurs, thus suddenly boosting the proportion of foreign aid going to free enterprise. He questions the suitability of American management training for operations in developing countries. He holds that the administration's free-enterprise ''ideological views fall far short of providing policy guidance and that free markets are not quite the panaceas that some would hope.'' He doubts that foreign aid can do much to attract foreign capital to a developing nation, noting that most multinational corporations regard it as irrelevant to their decisionmaking. He even asks whether some of the bureau loans are legal, considering that they may be in competition with US commercial banks, something prohibited by foreign-law.

In general, foreign-aid experts here approve in theory the administration's efforts to encourage free enterprise to become more involved in third-world development. They doubt, however, that the Reagan administration program will make much difference in the actual amount of private money flowing into the poorer countries. Investment flows will be influenced mostly by business opportunities.