White House Takes Cautious Stance on East Bloc Bank

The Bush Administration is taking a deliberately slow--and decidedly unenthusiastic--approach toward U.S. participation in a new development bank to help the newly emerging economies of former East Bloc nations.

Although Washington has agreed in principle to take part in the venture, the Administration has been reluctant to make any firm commitment on how much financial assistance the United States may eventually contribute.

Moreover, the White House has called for some hard bargaining over a number of procedural issues. These include the question of whether the Soviet Union, which wants to join the 34-country bank as a donor, will also be allowed to borrow from it.

“We would like to participate, but it’s by no means a foregone conclusion,” said a U.S. official involved in the opening round of talks with other Western governments. “A lot of these things are still up in the air.”

The new institution, to be patterned after the World Bank, is intended to serve as the major channel for Western aid to the former East Bloc nations of Hungary, Poland, Czechoslovakia, East Germany, Bulgaria and Romania.

Under current plans, the bank would make loans for modernizing East Europe’s economies and rebuilding its infrastructure as the new governments strive to recover from decades of central planning at the hands of now-discredited communist regimes.

The White House is under increasing pressure to move quickly on the issue. France, for one, is pushing to complete work by the end of the year on final details for the new bank. The prospective donor countries are scheduled to meet again in Paris next month.

Moreover, the White House faces criticism from congressional Democrats who complain that the Administration’s reluctance to become a prime mover in creating the new bank--or to boost foreign aid for East European countries--is limiting U.S. influence in the region. A new East European aid package introduced by Senate Democrats on Jan. 30 set aside $250 million as a contribution to the new bank. Sen. Claiborne Pell (D-R.I.), the measure’s chief sponsor, has been pressing the negotiators to move ahead soon.

But the Administration is only mildly enthusiastic about the venture. This reflects domestic budgetary constraints as well as concern about the character of the new institution and its operation. Indeed, senior U.S. officials have been skeptical about the basic idea ever since it was proposed in October--some say as political grandstanding--by French President Francois Mitterrand.

“We already have the World Bank and International Monetary Fund available to channel economic aid to the new East European democracies,” one official said. “There’s a lot of skepticism here about why this one even was proposed.”

Whether the Soviet Union winds up as both participant and potential borrower is one of the questions that the Administration wants decided before it commits the United States to join. U.S. officials fear that if the Soviets could participate in setting conditions for borrowing, they would favor easy credit terms because they might themselves benefit from them.

Also undecided is whether the bank should be lending mainly to finance the rebuilding of such basics as roads and bridges or whether it should lend for such other purposes as providing seed money to form private businesses.

U.S. officials say not all the disagreements pit the United States against the Europeans. In many cases, the West Europeans themselves are split, and France often has taken positions that differ substantially from those of its allies.

Progress so far has been relatively slow. Officials of the United States and several other countries involved in planning met in Paris again last week but failed to resolve any major issue. Even so, there is little doubt among international observers that the bank--formally known as the East European Bank for Reconstruction and Development--will become a reality by the end of the year, as scheduled. Indeed, the 34-country conference already has begun to shape the size and character of the new institution.

Although the precise amount of capital has yet to be decided, the group has accepted $12 billion as a working estimate.

Both donor countries and former East Bloc governments have agreed that the bank should require borrowing nations to pledge to undertake specific economic--and, for the first time, political--reforms in exchange for their loans. The International Monetary Fund and World Bank require borrowers to put their economic houses in order before granting them new loans, but the new bank would go even further in requiring that borrowers move to adopt democratic institutions as well.

The proposal for the new East European bank is part of a broad array of aid programs and technical assistance that Western countries have offered to East Europe’s emerging democratic governments. Western governments also have set up a Brussels-based secretariat to coordinate about $4 billion in foreign aid from 24 countries. The compact, which initially served only Poland and Hungary, is expanding now to include other East European countries.

The European Community has established a separate institution to provide Western expertise to help Poland set up a modern banking system and attract foreign investors. And the major industrial nations have provided $1 billion in credits to help Warsaw stabilize its currency.

How quickly the differences among the donor countries can be resolved remains to be seen. “The French are pushing like mad,” a U.S. official says, “but the rest--including many of the other West European governments--are taking a closer look.”