Foreign Assistance: Enterprise Funds' Contributions to Private Sector Development Vary.

In 1989, the United States authorized enterprise funds as an experimental model to support private sector development in selected countries of Central and Eastern Europe as they transition from centrally planned to market-oriented economies. The funds, which are private, nonprofit U.S. corporations, are supposed to make loans to, or investments in, small- and medium-sized businesses in which other financial institutions are reluctant to invest. With the breakup of the Soviet Union in 1991, enterprise funds were subsequently established in the newly independent states. Currently, 10 funds operate in Central Europe and the former Soviet Union, covering 19 countries with authorized funding of about 1.3 billion. Enterprise funds receive their funding through the U.S. Agency for International Development USAID, and USAID has primary responsibility for monitoring the funds operations. At your request, we determined 1 whether enterprise funds are assisting private sector development 2 what factors have affected the funds ability to carry out their activities 3 whether funds still have a role in private sector development, given other private investment and international donor efforts 4 whether the funds are likely to recoup their authorized capital and 5 whether the funds are complying with recent changes in USAID reporting requirements. In a separate leaflet we address issues related to spin-off venture capital organizations that the Polish fund helped establish as well as U.S. government plans to use funds generated from the sale of Polish fund assets to help establish a foundation for further private sector development in Poland and to return some funds to the U.S. Treasury.