By Samantha Sparks

"GOOD THINGS HAPPEN when you privatize." That, at least, is the message of the Center for Privatization, a two-year-old project of the U.S. Agency for International Development (AID). With a little help from the corporate world, AID is out to sell developing nations on the blessings of free-market capitalism.

Ever since President Ronald Reagan launched his conservative revolution in Washington seven years ago, AID has been struggling to redefine its mission as the world's largest bilateral donor. Long critical of the AID bureaucracy, conservatives have urged the administration to be more forceful in putting its ideological stamp on the agency.

Shortly after Reagan took office, the ultra-conservative Heritage Foundation called for major changes in its book, A Mandate for Change--the massive compendium of right-wing policy proposals that set much of the agenda for the administration's early years. Heritage proposed using foreign assistance to pressure developing nations into changing their economic policies.

The plan called for linking the release of U.S. aid dollars to specific structural changes advocated by free-market economists- -such as dismantling state-owned enterprises, deregulating markets and cutting consumer subsidies. This would have brought AID more closely into line with the "hard money" approach of the International Monetary Fund (IMF), which demands similar structural reforms in exchange for its assistance.

While the administration has not gone as far as Heritage and other conservative critics have advocated, the Center for Privatization is attempting to institutionalize the conservative philosophy. Gordon Johnson, the Center's deputy director, wrote in a recent paper that the Center's goal is to promote "growth in developing countries by broadening and strengthening the private sector and free-market forces."

Johnson argues that the privatization effort would help keep American corporations honest.

"Growth in [Third World] government was accompanied by growth in inefficiency and corruption ... primarily in connection with transactions involving government bureaucrats and state-owned enterprises," Johnson said. By helping transfer state enterprises into the private sector, he argued, the Center is "making it much easier for U.S. firms to comply with the Foreign Corrupt Practices Act," the 1977 law that prohibits U.S. companies from giving bribes to foreign officials. (See story, page 21.)

The Center for Privatization is run under contract to AID by a consortium of six firms headed by the Analysis Group Inc., a minority-owned, technical services company. The other firms involved are Arthur Young & Co., one of the world's largest accounting houses; Ferris & Co., Inc., a major securities broker; International Phoenix Corp., a consulting firm specializing in agriculture issues; Equity Expansion International; and Public Administration Service, a non-profit organization.

According to Johnson, the Center's mandate is to become a source of "knowledge and information about privatization for the use of AID and its missions overseas." The Center offers advice and technical assistance to foreign governments interested in de- socializing their economies.

While the Center is designed to help the Reagan administration to push its version of corporate capitalism in the Third World, it's been a relatively modest effort so far. In its two years of existence, the Center has spent slightly less than $3 million, compared to AID's overall operating budget of over $715 million during the same period.

But despite its limited funding, the Center has kept itself busy, offering its services to over 30 countries worldwide in response to requests from AID officials in those nations. AID missions also supplement the Center's resources with their own discretionary funds.

The AID mission in Honduras, for example, has spent nearly $3 million in support of the Center's work since the Honduran government began its privatization effort in 1984. Indeed, most of the Center's time and money appears to have gone into Honduras--a key ally of the Reagan administration in its effort to destabilize the Sandinista government of neighboring Nicaragua.

In Honduras, as one independent consultant observed, "AID has a lot of money they have to move."

But progress has been slow. Although the Honduran government committed itself to the AlD-funded privatization program in 1984, legislation authorizing the sale of public enterprises was not passed until late 1985. As of last January, only two of the 14 companies targeted by the program had actually been sold.

In Belize, AID and the Center helped the government divest its banana marketing board and sell state plantations to private growers. In other countries, such as Tunisia, the Dominican Republic and Egypt, the Center's accomplishments have been more nebulous.

In Egypt, AID officials are discussing the creation of a private foundation to lobby for free-market reforms. In Tunisia, Center officials spent four months planning a conference on the issue. "The outcome," according to a Center brochure, "was a determination by some key ministers to undertake a privatization program."

In the Dominican Republic, the Center was called in by a special presidential committee created to deal with the financial woes of the nation's publicly owned electric company. A consulting team "diagnosed the situation and ... proposed a strategy for handling the problem," the Center brochure noted. Meanwhile, the utility continues to lose money, requiring the Dominican government to prop it up with an estimated $325 million a year in subsidies.

So far, the administration's real success in the privatization campaign has been in changing the terms of the ideological debate. Debt-strapped governments are on the defensive, and the pressure for restructuring may eventually become impossible for them to resist, despite the social and political costs. The Center's work may only be the beginning.

Debtwatch: IMF and the World Bank
Two new ideas from within the World Bank and the IMF may have given the world's finance ministers something new to talk about when they gathered in Washington for the annual spring meetings of the two financial institutions. The subject was debt relief for the Third World, and signs are that this once-taboo subject is fast entering the mainstream.

From World Bank president Barber Conable: a memo to shareholders of the Washington-based bank that states the issue bluntly. "The challenge [now] facing the [World] Bank is to find a way of providing stronger leadership in the debt workout process," Conable wrote. The memo, obtained by the Monitor, proposes that the World Bank play a significantly larger part in solving the crisis than it has to date, perhaps putting together debt relief offers now left up to the commercial banks.

"The likelihood is that the Bank will need to play a more extensive and diverse catalytic role in two areas: new money packages and facilitating other forms of financial relief, including debt reduction schemes," the Conable memo states.

Conable's proposal is not revolutionary. It falls far short of the more sweeping schemes some lawmakers have called for to reduce the Third World's debt load--a burden now exceeding $1 trillion. Conable, a former Republican congressman and a close associate of U.S. Treasury Secretary James Baker, has taken pains to stress that the World Bank's role should only be to foster "market-oriented," voluntary transactions between debtor and creditor.

But by suggesting, however tentatively, that the world's biggest development agency should do more to chip away at the size of the debt, Conable differs with Baker's three-year-old strategy for handling the crisis, which relies on additional lending by the commercial banks. Conable appears to be saying--privately, at least--that this approach is not going to be enough.

Meanwhile, one of the IMF's executive directors has joined U.S. lawmakers and American Express chairman James Robinson in calling for a new "debt facility" to reduce developing nations' obligations to commercial lenders. Ariun Sengupta, India's representative on the board, last February submitted a paper with the following proposals:

  • Creation of a "debt adjustment facility" by the IMF to undertake "non-market" arrangements to reduce a nation's debt;
  • Action by industrial nations to guarantee the facility's transactions;
  • Adoption by debtor nations of IMF-backed economic reforms in exchange for a reduction in their debt burden; and
  • Acceptance by commercial banks of some financial loss in writing down a portion of their outstanding loans. The IMF facility would transfer part of this write-down to the debtor nation as repayment discounts on their existing loans.

Sengupta's plan decisively breaks with Baker and Conable's assumption that any debt solutions must be individual and voluntary, with their basic outlines determined by the "market"- -an institution which commercial bankers freely admit has ceased to exist for Third World debt.

"The purpose," Sengupta writes of his plan, "is to pass on to the debtors, to the maximum extent possible, the discounts in the values of outstanding debts that the creditors are able to provide. The larger the relief available to debtors, the greater is the improvement in investment, growth and repayment prospects."

Sengupta's plan parallels in many respects a proposal put forward last winter by Robinson, the American Express chairman. The Robinson plan envisions a separate debt-relief institution, standing alongside the IMF and the World Bank as the pillars of a global solution to the crisis. Robinson has sought political support for his proposal in several countries, most recently Japan.

Sengupta makes a convincing argument for the creation of a new institution, whether IMF-affiliated or independent: "For most of the problem debtor countries, no solution .. . is possible unless the size of their accumulated debt ... is reduced," he warns: Economic growth in the industrial nations, Sengupta notes, is closely linked with growth in the developing world.

"A systematic debt adjustment plan," he writes, "is beneficial not only for the debtor countries but also for the creditor institutions and the [world financial] system as a whole."