AFTER spending its first year trying to revive the collapsed economies of the countries of the former communist bloc, the European Bank for Reconstruction and Development is rethinking its strategies.
But it is doing so in the face of stiff resistance from the United States and Britain - two of the bank's main contributors of investment capital - to new investment policies proposed by Jacques Attali of France, the bank's assertive president.
Mr. Attali went to Budapest for the bank's first shareholders' meeting (April 12 to 14) hopeful that he could obtain support for policies aimed at finding new ways to put the economies of Eastern Europe back on their feet. But he returned to his London headquarters with his ears burning after a dressing-down by Nicholas Brady, the US Treasury secretary, and strong criticism from Lynda Chalker, head of Britain's Overseas Development Agency.
At the root of the clash between Attali and his Anglo-American critics, a European Bank official said afterwards, is the narrow focus of the fledgling bank's founding charter. This requires it to direct 60 percent of its investment funds into private sector projects with the object of attracting private capital to such enterprises.
After 12 months at the bank's helm, Attali says that focus is wrong. In the Hungarian capital he urged the bank's 55 member countries to back a plan to provide soft loans to help the Russian arms industry convert to civil production, prior to privatization. He also advocated the early closure of obsolete Chernobyl-style nuclear power stations in the former communist bloc, arguing that his bank should help to fund their replacements.
"Entire sectors need to be restructured before any thought can be given to privatizing them," Attali said in his speech.
Mr. Brady, however, in a closed session, cut in with what officials there described as a sharp rebuke. Brady argued that the European Bank had no mandate to invest in state-owned enterprises and should stick to its privatization brief.
"Recapitalizing money-losing operations won't get the job done," Brady said. "The bank cannot be all things to all people. It cannot back away from its mandate to direct 60 percent of its finances to the private sector. It should not diffuse its mission."
Mrs. Chalker took a similar line: "It is impossible to overestimate the role of privatization. Conversion of defense industries is a particular part of the challenge of economic restructuring, but it is not clear that new facilities are needed."
Part of Attali's problem, a London-based investment banker says, is that "he is a prickly, forceful character given to rubbing up people the wrong way. He is seen as a bit of an empire-builder.... Also, with resources of just 7 billion British pounds (US $12.3 billion), his bank is a comparatively small player," the banker continues. "He is vulnerable to charges of being overambitious."
Attali defends his view that the European Bank's mandate needs to be rethought in the light of experience. He says that experience indicates that in many cases, a "privatize first" approach is counterproductive.
An Attali associate says: "In Russia we are literally involved in a tanks-into-tractors enterprise. The Russian arms industry alone employs 14 million people. Wea-pons factories are unattractive to private investors in their present form. Before they can be made attractive, they need to be restructured, which means breaking them up into smaller components. That means spending money, and we could help."
Although East European countries tend to agree with Attali's assessment, it seems unlikely that Brady will be budged from the "privatize first" approach.
At the Budapest meeting the bank's governing board agreed to look into the soft loans proposal.
A possible compromise was suggested by Theo Waigel, Germany's finance minister and incoming chairman of the European Bank. He proposed a restructuring facility for specially defined purposes, such as outdated and dangerous nuclear power plants.
Attali and his colleagues are looking into this idea, but a US official indicated that Brady was lukewarm about it.
He noted that the US provided 10 percent of the European Bank's capital.
If Attali's call for redefining the bank's aims gets nowhere, there will be carefully muted cheers among many of the 400 staff, most of whom work under Ronald Freeman, Attali's vice president in charge of privatization.
A source inside the bank said: "Freeman is a private-enterpriser. Attali, who used to be an adviser to President Francois Mitterrand of France, has a socialist approach. Tensions are inevitable, especially since Attali is such a determined character."
The source said the bank so far had agreed to support 20 projects worth a total of more than $700 million. About 140 more projects are under consideration.
Attali has estimated Eastern Europe's total investment needs at $4.94 trillion.