Doha, Qatar -- Stuart Eizenstat, Under Secretary of State for economic, business and agricultural affairs, said November 18 that the key factor in the development of infrastructure projects in the Middle East is "harnessing together the roles of the private sector and the public sector. Both must work together."

Eizenstat participated in a panel discussion on regional infrastructure projects, sponsored by the Middle East North Africa conference and the Council on Foreign Relations.

The role of the public sector, he said, is especially important with respect to cross-border projects that "are key to creating the economic infrastructure of peace in the Middle East." He cited as an example, the Aqaba Eilat Airport, where the first successful pilot flight occurred last week in which Israeli bound tourists used Aqaba for the first time.

The active involvement of the private sector, from the planning stages on, is "the key to success in regional projects," he remarked, for a number of reasons:

-- Money: "In today's constrained atmosphere for financing, it is increasingly difficult to find public financing for major public sector owned infrastructure projects."

-- The private sector is more willing to take risks: "Every commercial venture involves risk, but business people also know that risks bring rewards, that that's the way to move forward."

-- "Only the private sector can generate the lasting jobs and sustained economic growth that are necessary.... And in the Middle East, this is critical because lasting jobs and sustained growth can bring an end to the poverty and alienation that is a fertile breeding ground for extremism and hate that we saw rear its ugly head again only yesterday in Egypt."

-- "Private sector commercial ties also bring down barriers. These economic conferences, for example, have advanced the peace process by privatizing it, by allowing business to create the private bonds that are the sinews of lasting peace."

The Middle East North Africa Bank (MENABANK), Eizenstat said, "is an institution designed precisely to help bridge the gaps between the public and private sectors and provide financing for regional infrastructure projects.

"We still have a lot of work to do with the public sector to make this Bank a reality," he noted, "But when it is up and running, it will represent and facilitate the kind of public-private partnership necessary to build the economic infrastructure of peace in the Middle East."

Following is the transcript of the panel discussion:

(Begin transcript)

UNDER SECRETARY EIZENSTAT: Let me begin by congratulating the conference organizers and Council on Foreign Relations, Les Gelb, Jonathan Peres and Henry Siegman, for putting together another valuable session on regional infrastructure projects. I'd like to apologize to Les and our two Ministers and to you for having to leave early for a bilateral meeting.

I am particularly honored to join on this panel Minister Haddadeen and Minister Sharansky, who are two remarkable individuals who have already made their mark in shaping a new climate for infrastructure development in the Middle East.

I would like to focus my remarks on what I consider to be the key factor as we look to the future infrastructure projects in the Middle East: the importance of harnessing together the roles of the private sector and the public sector. Both must work together.

Clearly the public sector has an inescapable role in infrastructure development -- especially with respect to the kinds of cross-border projects that are key to creating the economic infrastructure of peace in the Middle East. A good example of this is the Aqaba Eilat Airport, where the first successful pilot flight occurred only last week in which Israeli bound tourists used Aqaba for the first time. Governments must have the vision, the will and the ability to work together to build the kind of regional infrastructure that will enable them to participate fully in the benefits of globalization. Coordination and integration of transportation, telecommunications, and power systems pay huge dividends for the Middle East, but only if governments can help take the initiative.

But just as clearly, the private sector has to be a crucial partner in this effort.

The key to success in regional projects is active involvement of the private sector from the planning stages on. The first reason for this is money. In today's constrained atmosphere for financing, it is increasingly difficult to find public financing for major public sector owned infrastructure projects.

The second reason has to do with the fact that governments tend in many respects to be both cautious and narrow in their focus. Whereas we in the public sector are often reluctant to take risks, the profit motive in the private sector is a tremendous incubator for creativity and courage. The private sector knows that nothing is without risk. Every commercial venture involves risk, but business people also know that risks bring rewards, that that's the way to move forward.

Let me mention two other reasons for the importance of a private sector role in the infrastructure development that are especially relevant to the Middle East.

Only the private sector can generate the lasting jobs and sustained economic growth that are necessary. This is as true in the area of infrastructure projects as anywhere else. And in the Middle East, this is critical because lasting jobs and sustained growth can bring an end to the poverty and alienation that is a fertile breeding ground for extremism and hate that we saw rear its ugly head again only yesterday in Egypt.

Private sector commercial ties also bring down barriers. These economic conferences, for example, have advanced the peace process by privatizing it, by allowing business to create the private bonds that are the sinews of lasting peace.

So there is a critical role that the private sector can and must play for lasting peace in the Middle East. You must invest, you must create jobs, you must do what only you can do, and that is create lasting prosperity. And yet, at the end of the day, it is obvious that the public and private sectors need each other in order to move forward.

I see the public sector's role as an enabler to remove impediments to private sector developments and occasionally to help fill in financing gaps. Let me offer some specific examples of how governments and the private sector have worked together in building an economic infrastructure for peace. In each case the private sector side of the partnership takes risks for peace while the public sector has worked to clear legal and other barriers to make those risks more manageable.

The Gaza Industrial Estate is an excellent example of combining Israeli and foreign capital with skilled Palestinian labor to create the potential for a win-win situation of up to 20,000 desperately needed jobs in Gaza over the next several years. The remaining obstacle is the important security protocol, needed to assure investors that the Estate's exports will continue to flow in a predictable manner, in spite of periodic closures and in full respect to Israel's security needs. I know from my meetings with Minister Sharansky, both in Jerusalem and here at this conference, that he is fully dedicated to successfully concluding this protocol and removing all other obstacles as soon as possible.

This project is the epitome of public-private partnership. With intensive efforts by the Israeli Government, the Palestinian Authority, international donors and a private developer, the GIE holds the prospect of generating a major boost to Gaza's troubled economy, but only if the private sector will invest when the GIE is off the ground.

A second example is the Qualified Industrial Zone initiative, what we call the QIZ. On the public side, the U.S. worked creatively and intensively with Jordan and Israel to create this industrial zone in Irbid, which was presided over by Secretary Daley and Secretary Albright with Minister Sharansky and Mr. Mulki and others. This will ensure that the industrial zone in Irbid will be granted the right to export duty free to the United States. All private investments, all products manufactured will come into the United States duty free. It is in fact like a one-way free trade agreement. On the private side, Omar Salah, an energetic and visionary Jordanian entrepreneur and chairman of the Century Investment Group, took risks for peace -- and continues to take them -- that have resulted in a unique and profitable cross-border commercial partnership with Israeli and U.S. firms. Omar Salah had the vision. But it required the public sector to make it happen as well.

Both the Gaza Industrial Estate and Irbid could well become models for future regional cooperation. Israel's per capita income is approaching developed country status, while much of its older industrial base was based on lower labor costs. A well crafted industrial zone initiative could generate thousands of jobs for Palestinians and Jordanians alike which might otherwise go to Southeast Asia.

The U.S. has also supported the Jordan Rift Valley initiative and Jordan's broader efforts to enhance its water resources. Just last night, Minister Haddadeen, Minister Sharansky and I discussed this at some length. Projects in the Jordan Rift Valley and in the water sector will help create an enabling environment for the private sector by filling in gaps in Jordan's economic infrastructure. It is a priority for us to see that the private sector not only benefits but also participates in these projects. We are currently providing an additional $50 million in fiscal year 1997 bilateral assistance resources specifically for water projects in Jordan. Congress just a few days ago passed a foreign aid bill that slates $150 million for bilateral Jordanian economic assistance in the coming fiscal year.

Together with Minister Haddadeen, we hope to allocate a large portion of that vastly increased amount of foreign assistance -- well deserved, by the way -- to water projects.

I want to conclude with a few remarks about the MENABANK, an institution designed precisely to help bridge the gaps between the public and private sectors and provide financing for regional infrastructure projects.

In its concentration on the private sector, the bank will operate like a merchant bank more than a traditional regional development bank. It will be in terms of capital and staff relatively small. It will have only $5 billion in capital compared to $40 billion in the Asian Development Bank and $12 billion for the European Development Bank.

But in the spirit of a merchant bank, the MENABANK -- through co-financing -- will use its relatively modest capital base to leverage both private capital and funds from other pubic institutions. In addition to direct lending, the Bank will be able to participate in equity financing, offer guarantees, and organize technical assistance.

I want to stress that there is real additionality in the MENABANK. The Middle East is the only region without its own bank. This Bank will not duplicate in any way, shape or form the work of the World Bank. It will not offer concessional financing. It will not engage in policy-based or structural adjustment lending. It will not do lending for the social sector. In short, this a bank for the private sector.

Yesterday we heard a report from the MENABANK transition team headed by Ambassador David Dunford that is now working in Cairo to make the Bank a reality. This highly qualified team of dedicated professionals is led by an American and includes an Israeli, an Egyptian, a Japanese, a Canadian, an Italian and a Dutch member. We hope very shortly, Mr. Haddadeen, to add a Jordanian member. This team has completed most of what is needed to organize the Bank, including plans to begin lending and creating projects.

We still have a lot of work to do with the public sector to make this Bank a reality. Nineteen countries have initialed its charter. Japan and the Netherlands are the furthest along toward a capital contribution. But when it is up and running, it will represent and facilitate the kind of public-private partnership necessary to build the economic infrastructure of peace in the Middle East.

Thank you.

MODERATOR: Thank you very much, Under Secretary Eizenstat. Your colleagues want to take advantage of your presence, so they have consented to open the floor to a few questions before you leave, if that is all right with you, and then we will move on with the program.

We have microphones that will be passed among you for your questions and comments. When you are recognized, please identify yourself, state your question or make your comment as efficiently as possible so that we can have as many questions as possible.

The floor is open. Wait for the microphone, please.

Q: Eileen Powell, Associated Press. Mr. Eizenstat, how is the region going to proceed with these cross border projects if the Arabs continue to boycott regional, multilateral negotiations, talks, conferences?

UNDER SECRETARY EIZENSTAT: First of all, those who do not participate in conferences like this Doha conference are themselves losing an opportunity which can benefit their own people. Those who do attend, like the Jordanians, the Qataris, and of course many others in the Arab world, will be the beneficiaries.

Second, we in no way think that this refusal to attend will be a permanent situation. We believe that we will be at the next conference in full body, and that these will proceed.

Third, the benefits of these projects -- like, for example, the Egypt-Israel pipeline -- are so obvious and so evident that I think the economics will overwhelm the situation and will lead to successful completion of these.

Quite obviously, at the same time, we know that peace and prosperity go hand-in-hand, and that the economic development depends on a positive enabling environment, which includes peace and stability. Peace, in turn, will be undergirded by economic development. We don't think in any way that we can divorce these matters completely, but I think it is time for this region again to show the world that it is putting business and economics first.

It is not an accident that this region has the lowest level of direct investment of any region in the world. One of the reasons is that too often politics overwhelm economics. I hope that will change, and I believe that it will change. Again, we're confident that at the future summits, particularly as the peace process gets back on track, we'll have a full complement of countries.

MODERATOR: Next question?

Q: Judy Dempsey, Financial Times, based in Jerusalem. Mr. Eizenstat, could you tell me a bit more about the Middle East Bank? You mentioned $5 billion capital. To what extent have you gone anywhere near towards accumulating that? And do you have any fixed deadline for this bank? I'd like to know a bit more of the details please, and where it will be based.

UNDER SECRETARY EIZENSTAT: The Bank has nineteen countries that have initialed it; nine who have gone the next step and signed it; two -- Japan with a nine percent share, the Netherlands with a three percent share -- who have taken all the necessary steps for capital funding. At our breakfast meeting yesterday morning, we were informed that Italy and Greece both have bills in their parliaments which they expect to pass very shortly that will enable them to join the Dutch and the Japanese in being prepared for a capital contribution.

The U.S. capital contribution would be 21 percent -- $52 million -- for the first complement. We are in the process of developing a proposal for the President's budget in January to obtain that funding. We have difficulty obtaining it because of the balanced budget fight. We hope now that we know the parameters of the so-called Function 150 account, the Foreign Assistance Account, for the next five years, that we can creatively work with the Congress to find the necessary funding. We know that we have a job to do, we have a selling job to do with the Congress, and we are from very top to bottom in the Administration committed to do so.

I think that the key thing is to be able to convince people -- and this includes a number of European governments who have not yet contributed -- that there is indeed additionality here. There is no reason why the Middle East should be the only region without a development bank. We have crafted this bank through the transition team's leadership so that it takes advantage of lessons learned from previous development banks. It will be much more along the lines of the European Development Bank than it will be the Asian and African (development banks). It is much less a development and social tool, and as I indicated, it does not in any way duplicate the World Bank's efforts. Indeed, at our breakfast meeting yesterday, the most enthusiastic supporters of the bank were Stan Fisher, the number two person at the IMF, and a number of World Bank people, one of whom spoke very strongly about the fact that this would complement the more socially oriented funding that the World Bank does.

MODERATOR: Stu, would you just take a minute more to elaborate on how this bank would be different, say, from the Asian Development Bank?

UNDER SECRETARY EIZENSTAT: This would involve itself only with private sector projects. It would require no government guarantees. It would operate at a profit. It would require viable private sector projects. It would not engage in social sector spending, but purely those kinds of projects -- for example, one example that was given by Ambassador Dunford yesterday was helping to fund the privatization of the Egyptian electricity grid -- that are viable and that are oriented toward a profit.

MODERATOR: One more question for Under Secretary Eizenstat?

Q: (Munthir Haddadeen, Minister of Water and Irrigation of Jordan): Can I ask one?

MODERATOR: Yes, please, Minister.

MINISTER HADDADEEN: Thank you. I remember, Mr. Eizenstat, that Jordan was probably the first country in the Middle East to start promoting the idea of the Middle East Bank as a regional bank specialized in the development of the region. And yet, as much as we were promoting it, we found now the bank crossing the borders of Jordan to be stationed in Egypt without even a Jordanian representative on the steering committee.

This is in response to the attractive lady that asked the first question there: We are chasing regional economic development. We are chasing cooperation, but the Regional Development Bank has abandoned us. I don't want to use the word boycott, but it works both ways. Each has its own reasons, and we do understand the reasons. I just hope that the pledge that we have this morning of a Jordanian getting on the board of that bank would materialize very soon.

UNDER SECRETARY EIZENSTAT: It will. We are very excited about Jordan, now having signed the charter, having a person on the transition team. Also, I might add in response to the last question that a number of projects are already being lined up. I know that Israel and Jordan have both developed projects that would be cross border projects that the Bank could finance, so the transition team has made a tremendous amount of progress. I think it will be strongly enhanced with Jordan's participation.

MODERATOR: Would you join me in thanking Under Secretary Eizenstat for his presentation and for all his work leading up to today's conference. Thank you very much.

(End transcript)

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