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

As the Berlin Wall fell, these idealized views crystallized to form an even more potent image. In the months after the revolutions of 1989, the West was much more than a saint. It became a savior. The triumphalism of the subsequent end of the Cold War left little room for voices to temper idealized views of the West or quell expectations of its role in Central and Eastern Europe’s transformation. Misleading information circulating in the press in 1990-91 fueled expectations. For instance, Polish news reports that the West was sending billions of dollars in aid neglected to explain that this aid included export credits and loans that would have to be repaid. And the flood of visitors from the West conveying their interest in the region and their willingness to help contributed to a whirlwind of goodwill and anticipation—one that encouraged the East’s predisposition to the idea that the West cared, would be involved, and would make good on its promises.

BUILDING THE AID MACHINE

As it ground into gear, the Western aid effort seemed to be all that the East could hope for. Western packages combined multinational aid (mostly loans from the international financial institutions, notably the International Monetary Fund [IMF] and the World Bank) and bilateral assistance (often supplied by an array of “private” providers, such as consulting firms and nongovernmental organizations [NGOs]. The idea that the aid effort to Central and Eastern Europe, and later Russia and Ukraine, was unique—and not akin to Third World aid efforts—prompted Western donors to reorganize their aid efforts and management institutions to suit the gravity and import of their task. All manner of Western governmental agencies scrambled to take part in the action: in the United States alone, some 35 federal agencies, including the Departments of Energy and Labor and the Environmental Protection Agency as well as the United States Agency for International Development (USAID), got involved in the aid effort.38

Aid operations to the Second World differed from those to other regions in the role played by foreign policy officials and agencies, the higher visibility in the press, the interest taken by legislative bodies, and the considerable political sensitivity surrounding them. USAID official Steve Dean characterized the sentiment at the time: “I don’t think the agency [USAID] has done anything like this [before]. Communism doesn’t fall every ten years. I don’t think you could compare it with anything else [in Latin America, Africa, et cetera]—not with the scope in this region.”39

With large sums appropriated and pressure built up to disburse them and to show results, donors cranked up their aid machines quickly. Aid programs in the areas that donors established as priorities—generally economic reforms such as the privatization of state-owned industries or private-sector development, as well as areas given less attention such as public administration, health, or local governance—were to be coordinated at meetings attended by representatives of the G-24. The very founding of the G-24 especially to coordinate the Central and Eastern European effort illustrated the import initially placed on that effort.40

The high profile of the undertaking led the United States to appoint a special Department of State “coordinator” who was primarily responsible for policy formation and coordination, while USAID created the Bureau for Europe and the New Independent States to manage its programs. The Assistance Coordination Group, chaired by the State Department, managed assistance to Central and Eastern Europe, while the Office of the Coordinator for U.S. Assistance to the New Independent States (appointed under the Freedom Support Act of 1992) handled assistance to the former Soviet Union provided by a number of agencies. In the United Kingdom, aid to the region was supervised primarily by the Foreign and Commonwealth Office, responsible for foreign affairs, rather than by the Overseas Development Administration (ODA). In Germany, the Ministry for the Economy (Bundesministerium für Wirtschaft) handled aid to the former Communist Bloc, not the traditional Third World aid arm, the Ministry for Economic Cooperation (Ministerium für Wirtschaftliche Zusammenarbeit).

Most aid work, whether funded by the United States, the EU, the United Kingdom, or Germany, was contracted to consulting firms and other providers. On their own, donor agencies generally lacked the resources to carry out aid agendas. Civil servants administered aid projects: they issued calls for proposals and evaluated them, organized competitive bidding, and managed task orders and projects. Any firm could compete, and the donors ostensibly followed fair and transparent selection procedures. In practice, however, those consultants and NGOs that had won previous contracts and/or put considerable effort into learning a contracting system and developing contacts were those most likely to be successful in contract competitions. In the United States, a cadre of “Beltway Bandits,” Washington-based firms or firms with Washington offices, were experienced at winning USAID contracts. Successful competitors, especially at the beginning of the aid effort, tended to have worked in Latin America, Asia, or Africa. Later on, those who had worked in Central Europe were advantaged in winning contracts farther east. In 1992, Andrew Rasbash, economic adviser to PHARE in Poland, observed that “everyone wants to be involved in Poland.… If they get their foot in the door here, then they can go to Ukraine.”41

Heading the award lists tended to be accounting firms, notably the “Big Six”—Deloitte & Touche, Coopers & Lybrand, KPMG Peat Marwick, Arthur Andersen, Ernst and Young, and Price Waterhouse. The Big Six, with track records in the Third World, appear to have been designated by the major donors as the most suitable agents of Central and Eastern European “transition.” These firms received contracts from USAID, the EU, the British Know How Fund, the World Bank, and the European Bank for Reconstruction and Development (EBRD). They cornered a large portion of USAID contracts to Central and Eastern Europe and the former Soviet Union.42

With many jumbo “umbrella” and “omnibus” contracts, the Big Six had more substantial and all-encompassing portfolios in Central and Eastern Europe than in the Third World, at least partly because the scope of work in the former was conceived of as much broader than in the latter. Donors retained the Big Six for a variety of tasks, from auditing, privatizing, and setting up stock exchanges, to writing tax and environmental legislation, to activities that could hardly have been further afield of these tasks, such as assessing the changing position of women under “transition.”

The pressure to spend money quickly appeared to have played a role in the choice of contractors. An aid program’s “success” was often evaluated simply in terms of having spent money. As one U.S. congressional staff member put it, “AID is supposed to move the money. That’s what managers in Washington look at, that’s what Congress looks at.”43 Ambassador Richard L. Morningstar, U.S. assistance coordinator to the former Soviet Union, has recounted that

the pressure to get money out the door … that’s why we favored large contractors, which met with some success. Programs in that part of the world are not a lot different from R&D [research and development] in a business because no one has done it before. Time was not given by virtue of political necessity, and so the program got skewed toward big contractors and large technical assistance programs.… At a time when there’s pressure to get money out quickly and there’s a lot of money, it’s a lot less risky than giving contracts to small contractors.44

The climate of urgency led donors to attempt to build some flexibility into the aid machine by changing or circumventing standard foreign aid procedures. For example, competition could be waived by USAID’s assistant administrator under “notwithstanding authority,” an exception introduced especially for use in Central and Eastern Europe at the inception of the aid effort.45 Notwithstanding authority was invoked in contracts granted for USAID’s linchpin privatization program in Central Europe, as well as in its privatization and economic restructuring package for the former Soviet Union.46 Moreover, some USAID awards were approved for “foreign policy”—that is, national security reasons—a justification that career procurement officer Stanley R. Nevin said, to his knowledge, had not before been used in USAID.47