Janine Wedel - Collision and Collusion - The Strange Case of Western Aid to Eastern Europe

Shleifer and Boycko defined the goal of U.S. assistance to “alter the balance of power between reformers and their opponents” and confirmed that “United States assistance to the Russian privatization has shown how to do this effectively.”100 In answer to the question “Did USAID help propel Chubais into top positions in Russian government?” USAID Assistant Administrator Thomas A. Dine concurred with the “reformers”: “As an observer, I would say yes.”101 In other words, on its own terms, the firehose approach worked.

THE TWILIGHT ZONE OF FLEX ORGANIZATIONS

As the locus of reform shifted following the mass-privatization activities centered around the GKI, USAID set up a separate office for the Harvard Project and funded a network of private organizations run by the Harvard-Chubais transactors.

For many in the donor community, channeling money through private organizations was ideal, as that would circumvent inefficient and cumbersome bureaucracy. USAID’s Walter Coles acknowledged that the organizations were “set up as a way to get around the government bureaucracy.”102 But some “private” organizations created by USAID in Russia often carried out functions that ought to have been the province of the state. The organizations helped the transactors to bypass legitimate bodies of government, such as ministries and branch ministries relevant to the activities being performed, and to circumvent the democratically elected Duma. Indeed, the transactor-run organizations frequently carried out key functions of the state (for example, negotiating loans with international financial institutions, making and executing economic policy, and implementing legal reform).

The donors’ flagship organization was the “private,” Moscow-based Russian Privatization Center (RPC), which was held up by many in the aid community as a model for other aid-supported organizations. The RPC was established by Russian presidential decree in November 1992 under the direction of Chubais, who was chairman of its board even while head of the GKI.103 After reform activities expanded beyond the GKI, the RPC received its own aid-funded office in a separate building.

The RPC epitomized the operations of the aid-sustained Harvard-Chubais transactors. It was closely tied to Harvard in myriad ways, only one of which was characterized by a USAID-supplied explanation: that the Harvard Institute provided management support to the RPC.104 RPC documents state that Harvard University was both a “founder” and “Full Member of the [Russian Privatization] Center,” which was the “highest governing body of the RPC.”105 Harvard’s Shleifer served on the board of directors, along with Anders Åslund, a Washington-based former Swedish diplomat, long connected to Sachs and Shleifer. Åslund helped to deliver Swedish government monies to the RPC and served as a broker between the Chubais coterie and the governments of Sweden and the United States. Members of the Clan appointed one another to serve in the founding, governing, and management structure of the RPC;106 Chubais was chairman of the board; Maxim Boycko, managing director until July 1, 1996; Eduard Boure, managing director after July 1, 1996; and Dmitry Vasiliev, who also served as a vice chair of the GKI, deputy chairman of the board. Chubais, who recruited the RPCs board members, continued to serve on it even after Yeltsin dismissed him from government.107

The World Bank’s Ira Lieberman, a senior manager in the Private Sector Development Department, who helped design the RPC, said that it had “become a very convenient source for multidonor funding.”108 Setting up the RPC, USAID’s Coles said, “was a way … to get good people like Maxim Boycko … [and the] group of people that Chubais was managing that were sitting at the GKI.” Coles thought it was beneficial that setting up the RPC took ministries and branch ministries out of the policy process and gave the green light to an “independent body”—that is, Chubais, Boycko, Vasiliev, and the Harvard Institute. Such an “independent group being financed outside government structure could be hired and paid market rates.”109

With the Harvard Institute’s help, the RPC received some $45 million from USAID110 and millions of dollars more in grants from the EU, the governments of Japan111 and Germany, the British Know How Fund, and “many other governmental and non-governmental organizations,” according to the RPCs annual report.112 The RPC also received loans both from the World Bank ($59 million) and the EBRD ($43 million) to be repaid by the Russian people.113 A 1996 confidential report commissioned by the State Department’s Coordinator of U.S. Assistance to the NIS called the RPC “substantially over funded and largely ‘an instrument in search of a mission.’”114 The report also said that the RPC suffered from “‘imperial overstretch.’”115

In 1996, the World Bank committed a $90 million loan to support privatization and post-privatization activities, of which $59 million was to be managed by the RPC. The RPC was important in planning the loan, according to Lieberman. The World Bank picked up some of the overhead and operating costs that USAID previously covered.116 Despite Finance Minister Boris Fedorov’s opposition to at least some aspects of this loan,117 the World Bank (and the RPC) proceeded, and additional loans were negotiated.118

The largesse that flowed through the RPC appears to have been much greater than the sum total of all these figures would indicate. The RPC’s CEO and Chubais Clan principal Maxim Boycko has written that he managed some $4 billion dollars from the West while head of the RPC, according to Veniamin Sokolov, head of the Chamber of Accounts of the Russian Federation, Russia’s equivalent of the U.S. General Accounting Office. The Chamber has attempted to investigate how some of this money was spent. According to Sokolov, a report issued by the Chamber in May 1998 shows that the “money was not spent as designated. Donors paid hundreds of thousands of dollars for nothing … for something you can’t determine.”119

Formally and legally, the RPC was a nonprofit, nongovernmental organization. But the “private” RPC was funded by Russian presidential decree and received foreign aid funds because it was run by the St. Petersburg “reformers,” who occupied key positions in the Russian government. Was it, then, a government organization? Lending credibility to its identity as such, the RPC’s tasks included helping to make policy on inflation and other major macroeconomic issues, as well as negotiating loans with international financial institutions. Even more convincing was the fact that the RPC had more control than the GKI over some secret privatization documents and directives, according to the Chamber of Accounts. Two RPC officials were authorized to sign privatization decisions (Boycko and the American Jonathan Hay).120 So a Russian and an American— both representing a private entity—were approving major privatization decisions on behalf of the Russian Federation.

This blurring of the RPCs identity led to confusion among aid officials. USAID’s Dine said that he thought USAID saw the RPC as a government organization but that he had “never considered” the question. Dine added that “Maxim [Boycko] was a government employee [when heading up the RPC].”121 All the while asserting its nongovernmental status, the RPC was treated by USAID as a government ministry when U.S. assistance authorities asked it to nominate one person to serve on a technical evaluation panel to select a contractor.122 According to USAID contracts officer Stanley R. Nevin, USAID normally chooses this representative from a recipient government ministry, not from private bodies.123

The World Bank’s treatment of the RPC provides yet another example of its ambiguous status. The Bank’s funding of the not-for-profit, nongovernmental RPC was unusual in that the Bank typically negotiates with governments. In this case, repayment was to be made by the Ministry of Finance, the official borrower for the Russian government, while the RPC served as the implementing agency.124 The Bank’s Lieberman maintained that “we [the Bank] didn’t give [the loan] to [the RPC] as a private organization but as an agent for the government of Russia … the government of Russia is responsible for paying it back.”125 However, as a Russian representative to an international financial institution observed, “the same people who approve the loans use the money. This is what I don’t like about it.”