NCPA - National Center for Policy Analysis

Failed Foreign Aid Enterprise

September 19, 1996

"Washington's new approach to foreign assistance is as much a failure as traditional foreign aid programs," says policy analyst Doug Bandow. The new approach -- which still involves using taxpayers' funds -- is called Overseas Enterprise Funds.

Here's how it works:

  • Enterprise funds are established by United States government agencies -- the Overseas Private Investment Corporation and the U.S. Agency for International Development.
  • Private fund managers act as venture capitalists using taxpayer dollars as operating funds and investment capital.
  • Since 1989, U.S. taxpayers have committed $2 billion in grants and guarantees to these enterprise funds, notes Bandow, and the Clinton administration has increased the amount of government funds at risk by more than 10-fold.
  • In Eastern Europe, for instance, 28 percent of U.S. assistance flows through four regional enterprise funds.

Yet there is no evidence that enterprise funds have generated additional private investment in developing countries. The funds were promoted as a way to "privatize" the delivery of foreign aid. But the funds have been mismanaged and have so far yielded very little return. Bandow recommends that Washington get out of the investment banking business.

Source: Doug Bandow, "Uncle Sam as Investment Banker: The Failure of Washington's Overseas Enterprise Funds," Policy Analysis No. 260, September 19, 1996, Cato Institute, 1000 Massachusetts Avenue, NW, Washington, DC 20001, (202) 842-0200.


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