U.S. Will Urge Private Investment in S. Africa : Policy: $80 million in direct government aid will not be enough to help nation after its upcoming multiracial elections.

The Clinton Administration, determined to prevent the failure of South Africa’s experiment in multiracial democracy, will try to persuade American businesses, pension funds and other institutions to pour billions of dollars into the country’s fragile economy after next month’s elections, officials said Tuesday.

The White House decided to build its South Africa policy around private investment because the U.S. foreign aid budget is stretched so thin that there is not much money available for the massive aid programs earlier administrations might have used to welcome a onetime pariah nation into the international family.

Although some details remain to be worked out, the Administration plans to offer South Africa about $80 million a year in direct U.S. aid, one official said. In addition, Washington will encourage the World Bank, International Monetary Fund and other governments to make generous contributions.

The official said the Administration is also looking for programs that would have great impact at relatively modest expense. Those could include U.S. government guarantees for private loans to finance housing and U.S.-government financed studies of projects where U.S. firms might want to invest.

But the potential governmental programs are dwarfed by possibilities in the private sector. In the mid-1980s, before Congress and the public forced a reluctant Ronald Reagan Administration to mount an economic boycott of South Africa, about 300 American companies maintained investments of $2.7 billion in South Africa. By 1990, direct American investment was down to about $700 million.

The objective is to reverse that government-driven disinvestment. The stakes could hardly be higher. If the government chosen in elections April 26-28--almost certainly headed by black nationalist icon Nelson Mandela--is unable to satisfy the soaring expectations of the country’s black majority, it could destroy democracy before it has a chance to take root and could destabilize most neighboring countries.

If the new government could avoid deterioration into ethnic rivalries--prevent fragmentation such as what occurred in the former Yugoslavia--and mount a peaceful transition from white leadership to black majority rule, it would give U.S. diplomacy and the entire international community a badly needed lift.

But the difficulties are daunting. South Africa’s economy is brittle after years of sanctions. And the U.S. business community, so important to the Administration’s plans, is an unknown factor.

“Companies will go back when they decide it is a good place to invest,” said John Howard, director of International Policy and Programs at the U.S. Chamber of Commerce.

“The elections are a major step forward. The investment climate is better,” he added.

Under white-minority governments, South Africa maintained the facade of capitalism and free enterprise. For that reason, U.S. officials believe it will be easier to attract private investment there than it has been in formerly communist countries that lack a private infrastructure.

But I. William Zartman, director of African Studies at the School of Advanced International Studies at Johns Hopkins University, said severe economic problems could obliterate the “political miracle” of a peaceful transition to majority rule.

“The new, legitimate government is in danger of losing its legitimacy because it cannot live up to the expectations that have been raised,” he said. “The South African economy is weak and artificial. What looked like good free enterprise . . . was heavily supported by the state, by state ownership and state subsidies.

“It has been dependent upon cheap labor, but the labor will get much more expensive,” he said. “It is as if you took two-thirds of the society and let them out of prison and dumped them on the job market. They have no money, they have no housing, and the state is now responsible for them.”