NY Times - November 2, 2000

By JOSEPH KAHN

WASHINGTON, Nov. 1 — Western powers gave tens of billions of dollars in aid to Russia with no comprehensive strategy, and, at least partly as a result, the programs failed to bring about the desired capitalist transition there, a Congressional study has concluded.

The study, by the nonpartisan General Accounting Office, raises questions about what has arguably been the highest foreign policy priority of the United States: making sure Russia did not become hostile after the collapse of Communism in 1991. Many Clinton administration officials supported a huge amount of international aid and a "big bang" approach to change in which Russia was encouraged to sell state companies rapidly and overhaul banks as a way of making the nation both capitalist and democratic — and of ensuring that Communists could never regain control of the economy.

A cumulative $66 billion in aid from the United States, Europe and the leading international lending agencies did prevent Communists from returning to power and kept the nation from descending into anarchy. But the aid programs failed to build robust capitalist institutions or produce sustained economic growth in Russia, which produces roughly one-third less now than it did a decade ago, the report says.

The accounting office review said donors did not coordinate programs sufficiently and tended to distribute money hurriedly.

"While the worst fears of the early transition period, such as anarchy or return to Communist rule, have not been realized, Russia's economic decline has been more severe and its recovery slower than anticipated," the report says.

The report seems likely to offer support for both sides in the continuing battle over Russia policy. It gives ammunition to Republican critics who say the Clinton administration and the leading aid agencies squandered billions in Russia while tolerating widespread corruption. But it suggests that the goal of stabilizing a former foe still seems valid and places much of the blame for the failure of aid on Russia itself.

Russia has been plagued by corruption, a rebellious Parliament, heavy turnover among government ministers and limited grass-roots support for capitalist changes. Moreover, a new economic elite prevented many changes from taking hold. Local support for change is a prerequisite, the report says.

The report notes that the Group of 7 wealthy nations tried to coordinate Western aid strategy in the early 1990's, but adds that the collective effort soon dissolved. That left the World Bank, the International Monetary Fund and individual nations to pursue aid programs largely independently, with varying aims and mixed results.

An even bigger failure may have been Western support for a major privatization scheme in the mid- 1990's, the report notes. The "loans for shares" program put many of the nation's most productive enterprises in the hands of a small elite. But analysts say that state assets were effectively stolen during that process, and that privatization brought few benefits to the overall economy.

James A. Leach, an Iowa Republican who is chairman of the House Banking Committee and first asked for the study of Russian aid, said it shows that aid was "worse than wasted."

The Clinton administration, which responded to the Congressional report in a letter, said the main conclusions were balanced, agreeing that a central problem was Russia's own failure to embrace change.