Business: New Program for More Help & Less Aid

FOREIGN INVESTMENT

ABROAD new U.S. foreign-investment program is taking form in Washington. Even as fresh opposition to the foreign aid and reciprocal trade programs showed itself in Congress (see NATIONAL AFFAIRS), the State Department was busy last week on a program that every businessman and Congressman could support. The aims: 1) get other countries to shoulder more of the development burden now borne by U.S. foreign aid; 2) shift from giveaway aid programs to revolving loans; 3) encourage private investment and sound fiscal and monetary policies in countries that now dissipate U.S. help by bad housekeeping.

The program's chief architect is C. Douglas Dillon, 48, onetime chairman of Dillon, Read & Co., investment bankers, who was promoted fortnight ago to the rank of U.S. Under Secretary of State for Economic Affairs. Dillon's first objective: an increase in the reserves of the International Monetary Fund, which have not been raised generally since the fund was created in 1944, although inflation and rising world trade have cut in half the fund's effectiveness in keeping world currencies in balance. Although the fund squeaked through the currency crisis at the time of Suez, many fear that it is now facing a major new threat. So many underdeveloped countries are running out of foreign exchange, because of the drop in sales of raw materials, that economists fear world trade will be drastically curtailed, and many a nation plunged into depression. Britain is also strong for a bigger fund.

If the U.S. increases its commitment (now $2.8 billion) to the fund, other nations with strong economic positions, such as Canada and West Germany, will also have to follow suit. West Germany still has the original fund quota of $330 million, which was fixed before the country's astonishing industrial recovery. With $5.5 billion in accumulated foreign exchange and gold reserves, Bonn could well afford to double its quota in the fund. Since the German mark is as sound as the dollar, an increase in the German quota would greatly reduce pressure on the fund's U.S. dollars. The U.S. also wants a stronger fund, able to swing a bigger stick to force its members to keep their fiscal houses in order. This would take much of the heat off the U.S. which often has to perform this disagreeable job when considering foreign loans.

Brazil is a case in point. Brazil got into a fiscal mess with inflationary policies, and did little to reform because officials thought they could always count on the U.S. Export-Import Bank for loans. Eventually, after 63 authorized loans totaling $656 million, Brazil had to go to the Monetary Fund. There a coolly competent professional international staff delivered a stern lecture, exacted a promise of reform, gave a small drawing account of $37.5 million in the hope that Brazil would go and sin no more. If Brazil had had to take this lecture from the U.S., the howl in Rio would have carried all the way to Washington. Said a foreign diplomat in Washington: "From the U.S. standpoint, it is a good thing to have the lightning go down somebody else's pole for a change."