The Wall Street Journal

Thursday, September 29, 1988
Letters to the Editor: International Finance Corp.'s Role

In his June 21 editorial-page article, James Bovard seeks
to portray the International Finance Corp. (and the World
Bank) as a prop to Communist governments and state-owned
enterprises. Regrettably, the article contains errors and
distortions. More significantly, it misconstrues the aims and
objectives of the IFC.

Among the errors, for example, is the statement that
"many, if not most, IFC loans go to government-controlled
enterprises." In fact, in the past three fiscal years, 92% of
all IFC investments were made in projects where the local
government was less than a majority. Fifty-nine percent had
no government involvement at all. Not only is this in keeping
with the IFC's mandate to invest in the private sector but
demonstrates its reluctance to participate in enterprises
where the host country has a majority or controlling stake.

Further, the author claims that the Argentine government
has a stake in three companies to which the IFC made recent
loans. Over the past three years the IFC has approved
transactions in 16 Argentine ventures, for a total amount of
just over $250 million; only in one of these ventures is
there any state ownership. He criticizes a loan to a
manufacturing joint venture between Peugeot and Chinese state
authorities, federal and provincial, because the Peugeot
stake was less than 10%. In fact, Peugeot holds 22% in this
venture and the IFC 8%. Moreover, as part of the arrangements
for the IFC investment, the governmental shareholders have
committed to divesting 10% of their holding to the Chinese
public; this last is part of the movement toward encouraging
domestic private share ownership. In the case of Zambia, he
quotes an embassy official confirming that the government
owns 51% of every corporation. This is simply not the case.
In the two ventures cited, Zambia Cashew Co. and Gwembe
Valley Development Co., the percentage of state ownership is
45% and 14%, respectively.

The IFC was created to support private-sector development
and over the past three decades has consistently assisted
private companies in the developing world by investing
capital, technical expertise and international experience.
There is a movement toward freer markets and market-driven
solutions for economic growth both in developing countries
and Eastern Europe. In Hungary, until recently, there was a
state monopoly in banking where the National Bank of Hungary
was both the central bank and the only commercial bank. The
IFC's assistance in establishing and investing in Unicbank
was a major step forward because it began the breakup of this
monolithic state system and opened Hungarian banking to
foreign investors from Germany and Austria.

As a part of its mandate, the IFC invests in areas where
economic and political uncertainty make others reluctant to
invest alone. Commercial-bank lending in Latin America and
Africa, for example, has virtually ceased. Yet the IFC has
been able to put together sound investments in both
continents and in the past two years we have made more than
100 investments in projects costing about $5 billion.

The world is not perfect but we are living at a time when
the private sector is being given the scope it should always
have had in many developing countries. The IFC is in the
vanguard of this process.

Irving Kuczynski


International Finance Corp.