SLUG: 2-268904 Russia Aid Assessment (L-O) DATE: NOTE NUMBER:









INTRO: A U-S government agency, the General Accounting Office, has issued (November 3) an extensive and generally critical review of ten years of multi-lateral assistance to help Russia build a market economy. V-O-A's Barry Wood reports that 66 billion dollars of assistance is regarded as having brought only mixed results.

TEXT: The report stops short of saying aid to Russia has been a failure. However, the 229 page report makes clear that western governments over-estimated the impact of aid and underestimated the difficulty of turning a sluggish centrally- planned economy into something resembling modern capitalism. The G-A-O says western expectations were too high and aid was dispensed without coordination or a comprehensive strategy.

From the beginning, western governments assigned the task of Russian aid to the International Monetary Fund, an institution set up 50 years ago to keep the world financial system operating smoothly. The I-M-F provided more aid to Russia, 22 billion dollars, than any other lender. James Millar, the head of Russian and Eurasian Studies at (Washington's) George Washington University, believes the I-M-F money was wasted.


So we had an idea about the kind of market economy we thought they should develop. We persuaded them (the Russians) that they should do it. But we didn't know where they were in terms of that market. We were ignorant of the initial conditions. Therefore the funds tended to be used for personal gain and personal advantage and not really to move towards a market economy.


Another analyst, Ian Vasquez of the conservative Cato research foundation in Washington, believes Russia would have been better off without western aid.


Probably, in the absence of official aid from Washington, the I-M-F and other lenders, policy-makers in Moscow would have concentrated their minds a bit more and would have been more disciplined in terms of economic reform and setting up the policy environment.


The central conclusion of the G-A-O is that there was no consensus in favor of reform inside the Russian government and that therefore it was impossible for aid to be effective. A successful transition, it says, requires laws and support institutions and in Russia they have been slow to develop.

The report was requested by the House Banking Committee, which earlier this year held hearings on aid to Russia. Committee chairman Jim Leach says the report confirms that aid money was wasted. The aid, he says, contributed to the spread of a culture of corruption and a concentration of assets in the hands of oligarchs. (signed)