BERD is the word.

Kasten, a Republican senator from Wisconsin, is ranking member of the Senate Foreign Operations Subcommittee.

THE BUSH Administration has committed U.S. tax dollars to a new multilateral development bank for Eastern Europe-the Bank for European Reconstruction and Development. BERD is to be initially capitalized at $12 billion; the U.S. paid-in capital contribution is $73 million for next year alone. While the U.S. will be the largest single contributor-providing 10 per cent of the capital-the European Community will have a 51 per cent controlling majority. Under the proposed charter, 60 per cent of the BERD's funds would be earmarked for private-sector activities, and 40 per cent for governments.

Establishing this bank is a serious mistake, for the following reasons:

1. The Bank would promote a socialist relapse in Europe's political economy. A bank dominated by Western European countries with mixed economies cannot be expected to promote the abandonment of socialism in favor of American-style capitalism. In the last decade, Europe's high-tax, statist economies have created no net new jobs-while some 20 million new jobs were created in the low-tax, market-oriented U.S. economy.

2. A new regional bank is unnecessary. The record of other regional banks in promoting private-sector growth is not reassuring. Based on that record, it is not unreasonable to expect that the lion's share of BERD lending would go to applicants with good political connections in the Eurobureaucracy.

Also, there has been no shortage of American private-sector interest in the opportunities to invest in Eastern Europe. Hungary and Czechoslovakia are already on the verge of making the transition to a market economy, and the establishment of a BERD would only prolong their transition period.

3. BERD would promote anti-US. European protectionism. Jacques Attali, president of the BERD, is a charter member of the "Fortress Europe" camp. He foresees a future global economy in which two major axesJapan-U.S. and Russia-Europe-compete for dominance. Franz-Oliver Giesbert, editor-in-chief of Le Figaro, charges that the BERD is a "political gadget"; and there can be no doubt that Attali-a member of the French Socialist Party since 1973-would use this gadget to advance his dream of a European superstate.

In fact, the bank's promoters freely admit that BERD would be an integral component in linking Eastern Europe to the overall European Community 1992 (EC 92) strategy of creating this European superstate. The EC 92 Commission is headed by another French socialist, Jacques Delors, who envisions a European future of centralization, protectionism, and government intervention. This Europe would have severe restrictions both on U.S. imports and on investment opportunities for American citizens.

Attali's autocratic management style should be reason enough for the U.S. to withdraw from BERD. He wants to curb the oversight powers of the bank's board of directors, thus centralizing BERD's lending authority in his own person.

Beware: Attali seeks the establishment of BERD field offices. This will create an incentive to lend more in order to justify the continuance of a new branch. The result would be a rash of imprudent lending and a rapid increase in the cost of new branches.

This is just one example of the Attali-imposed costs that the loan recipients in Eastern Europe will have to bear. His proposals for BERD's budget have occasioned concern as well: The average payroll cost for each member of the Bank's staff of 450 is projected to be over U.S. $100,000.

BERD looks as if it will become a socialist juggernaut, to which the U.S. would contribute money but over which it would exercise very little authority. Fortunately, there are other ways to build up the Eastern European economy:

1. To supply short-term transition aid, we should immediately create a special lending window at the World Bank. Even under the most optimistic timetable, BERD won't be able to make its first major loan until next spring-almost two years after the overthrow of Communism.

With its low overhead costs, a special lending window would begin lending immediately. It would rely on established World Bank mechanisms avoiding pitfalls of a new bureaucracy.

The World Bank is far from perfect, but we have made progress in moving it toward market-oriented policies.

2. The United States should act unilaterally to encourage free-market tendencies in Europe. We should start negotiations toward the creation of a free-trade area between the U.S. and Eastern Europe. This bilateral free-trade area would give us considerable leverage over the EC as it seeks to integrate. The best way to start this free-trade process is a free-trade pact with Poland. After World War II, Germany and Japan required imports from the U.S. to stay afloat; Poland offers a similar opportunity today. A U.S.-Poland free-trade area would give Western Europeans a strong incentive to avoid protectionist policies and seek more open trade with the U.S., which would serve Eastern Europe better as well.

BERD would consign the Eastern Europeans to economic vassalage under the domination of Western Europe's public-sector mega-enterprises. When I visited Poland this fall, I found a clear desire among the business community there for a strong U.S. presence to counter the Western European socialist influence.

Eastern Europe can become an economic powerhouse like postwar Japan and Germany. But this cannot happen if its prospects for growth are sidetracked into the attempt to build a Fortress Europe based on the exclusion of America. Instead, Eastern Europe must be integrated into a liberal international trading regime as soon as possible to build a truly worthy future for its citizens.