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November 30, 2006

Make U.S. investment pay off in E. Europe

By

It's always a pleasant surprise when a government program works well and accomplishes what it was set up to do. And it's always unpleasant, but never really a surprise, when a successful program is hampered by government's tendency to micromanage. Both are happening right now.

First, some background.

In 1989, the Berlin Wall was finally torn down. Residents of countries that had spent decades behind the Iron Curtain celebrated the death of communism and their first taste of freedom. But when the dust settled, many found themselves wondering, "What next?"

To get their economies moving in the right direction, Congress passed the East European Democracy Act. The idea was to create enterprise funds to invest in existing companies, start new businesses and provide loans to individual entrepreneurs.

These enterprise funds were set up first in Poland and Hungary. Washington contributed $300 million in grants, but the funds were run by private individuals working pro bono.

Within 10 years, Poland's economy was humming. So many people were eager to invest directly that an enterprise fund was no longer needed. Its assets were sold off, with half the money going to the U.S. Treasury and the rest used to fund the Polish-American Freedom Foundation. That organization is still paying dividends for the United States: It works hard to promote civil society, democracy and the market economy, and it doesn't cost American taxpayers a dime.

And here's where today's debate begins.

A number of similar enterprise funds, including those in Hungary, Russia and Central Asia, are preparing to wind down. These areas have improved so much that, as in Poland, private investors are lining up. In Russia, for example, the enterprise fund established Delta Bank, one of the first banks in that country to provide credit cards to middle-class Russians. It was so successful that GE Consumer Finance paid $100 million to buy it.

So as the enterprise funds close -- "victims" of their own success -- the question is what to do with the capital they've built up. Some in our government want the same deal they got from the Polish fund: half for the Treasury, half to promote freedom and democracy.

But this wouldn't be a good deal for American taxpayers. When the Polish fund closed, the money it provided to the Treasury was simply swallowed up. Sad to say, but a few hundred million dollars doesn't go very far in Washington, D.C.

This same investment, though, would make a big difference in Russia, where President Vladimir Putin's government seems to be sliding back toward autocracy. The United States needs to promote the rule of law, encourage open government and protect access to information in Russia. If our bureaucrats will allow it, we could set up a private foundation right away with the $330 million earned by the U.S. Russia Investment Fund.

This idea has broad support on Capitol Hill and in the administration.

"At a time when U.S. funding is declining in Russia for pro-democracy, rule of law and civil society assistance programs," Sen. Richard Lugar wrote this summer, such an investment would "provide an opportunity to make important contributions and achieve results in Russia." And, he notes, these advantages would come "at no cost to the taxpayer."

While in St. Petersburg for the G-8 Summit this year, President Bush announced plans to form such a foundation. But while parts of the government (State Department, USAID) support it, the Office of Management and Budget opposes it, because it wants the money now and apparently isn't considering the long-term benefits a foundation could deliver.

It's time to make this worthwhile project happen.

We've already shown Eastern Europe the best the United States has to offer. Let's make sure we keep doing so, by investing all the earnings from the various enterprise funds in efforts to promote freedom in the region.

Edwin Feulner is president of The Heritage Foundation (heritage.org), a Washington-based public policy research institute and co-author of the new book Getting America Right.

First appeared in the Chicago Sun-Times

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