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Foreign Affairs
Doing Good While Doing Well: The Unheralded Success of American Enterprise Funds
By John P. Birkelund
John P. Birkelund, the former Chief Executive of Dillon Read, is presently Senior Adviser to UBS Warburg LLC. He has served as Chairman of the Polish-American Enterprise Fund since its inception in 1990.
International economic assistance has been an important component of U.S. foreign policy for nearly a century, from the Hoover Relief Program and the Marshall Plan after the two world wars to the creation of the U.S. Agency for International Development (USAID) in 1962. All too often, however, foreign assistance has produced mixed results, thanks largely to a lack of focus and a lack of funding. USAID is a case in point: over time, the agency's original mission of supporting economic development to counterbalance worldwide communist pressures has been extended to include humanitarian and disaster relief; environmental, educational, and governmental reform; and even the encouragement of peace in the Middle East and democracy in the former Soviet states. The resulting lack of an overall strategy and objectively measurable criteria for success, together with the evaporation of the communist threat, has subjected USAID to persistent congressional criticism and a constant battle for appropriations.
Against this often troubled backdrop, however, one extremely successful assistance program stands out: the American Enterprise Funds. Created by the George H.W. Bush administration in response to the demise of communism in central and eastern Europe, the funds are independent of USAID (except for reporting purposes) and are supervised instead by private boards of directors accountable to Congress. Their founding mission was to combine public capital and private management in organizations that would use business loans and investments to promote democracy and free enterprise in postcommunist states. Congress made the initial appropriations — $240 million for Poland and $60 million for Hungary — in late 1989, and the first funds were organized the following spring. Each was given a board comprising individuals with experience in business and government from the United States and the respective host country; the boards in turn recruited management teams and opened offices in the United States as well as in Warsaw and Budapest, respectively.
Shortly thereafter, Congress established a fund for the Czech and Slovak Republics (politically united in the former Czechoslovakia until 1993) and for Bulgaria, and then — during the early years of the Clinton administration — for Romania, the Baltic states, Albania, Russia, Ukraine, and the other newly independent postcommunist states. Ten funds now operate in the former Soviet bloc, with capital totaling $1.3 billion. (A separate fund was organized under the auspices of the Defense Department to convert weapons facilities in former Soviet republics into peaceful businesses, and a fund has been established to aid economic development in southern Africa as well.)
Management shortcomings at some funds and shaky financial conditions in some host countries have produced disappointments. On balance, however, the program's results demonstrate its effectiveness, both on its own terms and in comparison with other initiatives of USAID and of multilateral development institutions. These successes deserve greater attention than they have received.
A Sound Investment
At the funds' inception in early 1990, Poland and Hungary were just embarking on their transitions to the free market, and their business environments were forbidding. Small and medium-sized businesses desperately needed credit and equity capital to start . . .