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

As the flow of Western aid diminished, Hay, Shleifer, and Vasiliev looked to keep their activities going. Using ILBE resources and funding, they established a private consulting firm, ILBE Consulting, with taxpayer money. One of the firm’s first clients was Shleifer’s wife, Nancy Zimmerman, who operated a Boston-based hedge fund that traded heavily in Russian bonds. According to Russian registration documents, Zimmerman’s company set up a Russian firm with Sergei Shishkin, the ILBE chief, as general director. Corporate documents on file in Moscow showed that the address and phone number of the company and ILBE were the same.143

In August 1997, ILBE’s Russian directors were caught removing $500,000 worth of U.S. office equipment from the organization’s Moscow office.144 The equipment was returned only after weeks of U.S. pressure. When auditors from the USAID’s inspector general’s office sought records and documents regarding ILBE’s operations, the organization refused to turn them over, and the auditors left emptyhanded.145

Thus the transactor-created, aid-funded “flex organizations”—so-called in recognition of their impressively adaptable, chameleon-like, multipurpose character—played multiple and conflicting roles: They could switch their status and identity as situations dictated. They sat somewhere between state and private, between the Russian government and Western donors, and between Western and Russian allegiance and orientation. They were sometimes private, sometimes state,146 sometimes pro-Western, sometimes pro-Russian. Whatever their predilection at a given moment, the organizations were run by the Chubais-Harvard transactors (with financial support from USAID through Harvard and U.S. contractors)147 and served as the transactors’ domain and political and financial resource.

Flex organizations were also compatible with the Russian cultural context, in which control and influence, not ownership, were pivotal.148 They mimicked the dual system under communism, in which many state organizations had counterpart Communist Party organizations that wielded the prevailing influence. And they may have facilitated the development of what the author has called the “clan-state,” a state captured by unauthorized groups and characterized by pervasive corruption.149 E. Wayne Merry, the former U.S. senior political officer, regretted the U.S.-sponsored creation of “extra-constitutional institutions to end-run the legislature.” He added that “many people in Moscow were comfortable with this, because it looked like the old communistic structure. It was just like home.”150

TRANSIDENTITIES

Not only could transactor-run organizations switch status and identity according to the situation, so could some individual transactors. Key Harvard-Chubais transactors could change their national identity back and forth as convenient: sometimes as American representatives, sometimes as Russian ones, regardless of which side they came from. To suit the transactors’ purposes, the same individual could represent the United States in one meeting and Russia in the next—and perhaps himself at a third—regardless of national origin. Such “transidentity capabilities”151—this ability of an individual to shift his identity at will, irrespective of which side originally designated him as a representative—lent yet another source of flexibility and influence to the transactors.

A significant example is that of the Harvard Institute’s Russia project general director Jonathan Hay. Hay’s transidentity was institutionalized by policies and procedures on both sides. Formally a representative of the United States, Hay interchangeably acted as an American and a Russian. As an American, Hay not only acted as Harvard’s chief representative in Russia, but also exercised formal management authority over other U.S. contractors, which the U.S. government had granted to the Harvard Institute under a cooperative agreement. In addition to being one of the most influential foreign consultants in Russia, Hay was also appointed by members of the Chubais Clan to be a Russian. As a Russian, Hay was empowered to sign off on pivotal, high-level privatization decisions of the Russian government.152 According to a U.S. official investigating Harvard’s activities, Hay “played more Russian than American.”

Another example of transidentities is that of Julia Zagachin, an associate of Hay’s. Zagachin, an American citizen married to a Russian who was chosen by Chubais Clan principal Dmitry Vasiliev, head of the Russian Federal Securities Commission, to assume a position designated for a Russian citizen. Zagachin was to run the First Russian Specialized Depository, which holds the records of mutual fund investors’ holdings and was funded by a 1996 World Bank loan. As journalist Anne Williamson, who specializes in Soviet and Russian affairs, has reported, the World Bank had established that the head of the Depository was to be a Russian citizen. But Vasiliev and other members of the Clan apparently had determined that if their associate Zagachin headed the Depository, they would retain greater control over its assets and functions, so as to evade accountability if necessary.153 The financial arena yields many such examples of transidentity, in which Chubais transactors appointed Americans to act as Russians.

It was (and is) difficult to glean exactly who at any given time prominent consultants on the international circuit represented, for whom they actually worked, all sources of funds, and where their ambitions lay. Harvard economist Jeffrey Sachs, who served as director of the Harvard Institute from 1995 to 1999, and conducted advisory projects in the region, in the early 1990s sometimes under the umbrella of Jeffrey D. Sachs and Associates, Inc.,154 provides a case in point.155 According to journalist John Helmer, Sachs and his associates (including David Lipton, who later went to Treasury with Lawrence Summers) played both the Russian and the IMF sides. During negotiations in 1992 between the IMF and the Russian government, Sachs and associates appeared as advisers to the Russian side.156 However, Helmer writes that “they played both sides, writing secret memoranda advising the IMF negotiators as well.”157

Adding to the ambiguity was the question of whether Sachs was an official adviser to the Russian government. Although he maintains that he was158—and he certainly was often portrayed as such in the West—some key Russian economists as well as international and American officials have suggested otherwise.159 Jean Foglizzo, the IMF’s first Moscow resident representative, was taken aback by Sachs’s practice of introducing himself as an adviser to the Russian government. As Foglizzo told Williamson, “[When] the prime minister [Viktor Chernomyrdin], who is the head of government, says ‘I never requested Mr. Sachs to advise me’—it triggers an unpleasant feeling, meaning, who is he?”160

Whatever ambiguity surrounded Sachs in terms of whom he represented at a given time, his role as an intermediary and promoter seemed clear. In 1992, when Yegor Gaidar (with whom Sachs had been working) was under attack and his future looked precarious, Sachs offered his services to Gaidar’s parliamentary opposition. In November 1992, Sachs wrote a memorandum to the chairman of the Supreme Soviet, Ruslan Khasbulatov (whose reputation in the West was that of a retrograde communist), offering advice, Western aid, and contacts with the U.S. Congress. (Khasbulatov declined Sachs’s help after circulating the memo.)161 Sachs was also adept at lobbying American policymakers, as indicated, for example, in U.S. State Department memoranda.162 And he was visible in a promotional role in Russia, holding press conferences to explain, justify, and advocate the economic policies of the Russian government to the Russian public.