The Former Soviet Union and U.S. Foreign Aid: Implementing the Assistance Program, 1992-1994

The Former Soviet Union and U.S. Foreign Aid: Implementing the Assistance Program, 1992-1994

Order Code 95-170
CRS Report for Congress
Received through the CRS Web
The Former Soviet Union and U.S. Foreign Aid:
Implementing the Assistance Program, 1992-1994
January 18, 1995
-name redacted-
Specialist in International Relations
Foreign Affairs, Defense and Trade Division
Congressional Research Service ˜ The Library of Congress

The Former Soviet Union and U.S. Foreign Aid:
Implementing the Assistance Program, 1992-1994
Summary
This report, written in 1995, provides historical background that may be useful
to Congress as it considers funding levels, types of programs, and problems in
implementation of U.S. assistance to other countries.
In FY1994, the new states of the former Soviet Union (FSU) collectively
became the second largest recipient of U.S. foreign assistance made available from
all sources, reflecting the exceptional importance attached by the U.S. Government
to the region. Whether and how the assistance program is helping to bring about
democratic systems and free market economies is increasingly a question of interest
to Congress and the public at large.
Since implementation for most of the aid program is only in its second year, it
is too early to judge success or failure. However, the program has attracted
widespread comment and criticism on a number of fronts. Questions include:
! Is the program being implemented fast enough? Although measures
have been taken to speed up the process, past obstacles have
included the slow pace of reform, lack of knowledge of the region,
an inability to identify reformist elements, and congressional
notification procedures.
! Is the program well-coordinated? At least 16 U.S. agencies are
playing a role, making coordination a complicated and cumbersome
process. It is the responsibility of the State Department’s New
Independent States (NIS) Coordinator to develop a strategy and
allocate assistance to meet that strategy.
! Is assistance reaching the grassroots? Some believe that an approach
favoring small non-government organizations (NGOs), volunteer
programs, and exchanges is the best way to reach the people of the
FSU.
! What is the appropriate role of U.S. consultants and contractors?
Some suggest there are too many, highly paid consultants
performing a questionable job.
! Is assistance being used for corrupt purposes? Despite the limited
potential for corrupt uses of U.S. funds, concerns remain.
! Is U.S. assistance being used effectively? A U.S. strategy of
emphasizing reformers, bringing different programs together,
creating person-to-person linkages, and leveraging U.S. private
sector participation suggests a coherent strategy for making U.S.
assistance effective.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Overview of the U.S. Assistance Program
To the Former Soviet Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Purpose of Assistance Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Amount and Terms of Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
U.S. Bilateral Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
U.S. Assistance and International Financial Institutions (IFIs) . . . . . . . 6
Direction of Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Major Categories of Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Private Sector Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Trade and Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Democratic Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Humanitarian Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Energy and Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Housing Reform and Troop Withdrawal . . . . . . . . . . . . . . . . . . . . . . . 15
Assistance Implementation Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Is the Program Being Implemented Fast Enough?: Pressures to
Accelerate and Delaying Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Obstacles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Too fast? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Is the Program Well Coordinated? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
AID and other agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Field Coordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Is Assistance Reaching the Grassroots? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
What Is the Appropriate Role of U.S. Consultants and Contractors? . . . . . 28
Consultants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Contractors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
How Is the Program Helping U.S. Business and Investment and Trade? . . 32
Is Assistance Being Used for Corrupt Purposes? . . . . . . . . . . . . . . . . . . . . . 34
Is U.S. Assistance Being Used Effectively? . . . . . . . . . . . . . . . . . . . . . . . . 36
Strategic Focus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Management and Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Risk and Accountability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Conclusion: The Role of Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
List of Tables
Table 1. U.S. Bilateral Grant Assistance for the Former Soviet Union . . . . . . . . 5
Table 2. U.S. Bilateral Credit Assistance for the Former Soviet Union
(Face Value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Table 3. Major U.S. Government Assistance Providers: Obligations
from NIS Account through FY1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

The Former Soviet Union and U.S. Foreign
Aid: Implementing the Assistance Program,
1992-1994
This report, written in 1995, provides historical background that may be useful to
Congress as it considers funding levels, types of programs, and problems in
implementation of U.S. assistance to other countries.
Introduction
In FY1994, the new states of the former Soviet Union (FSU)1 collectively
became the second largest recipient of U.S. foreign assistance made available from
all sources.2 This leap from no program at all only three years before reflected the
exceptional importance attached by the U.S. Government to the region and the
multiple foreign policy objectives — political, economic, and strategic — that the aid
program is intended to meet. In the pronouncements of both the Bush and Clinton
Administrations, as well as in a series of authorization and appropriations bills
approved by Congress, the United States seeks to foster democratic systems, free
market economies, and responsible security policies in the FSU.
Whether and how the assistance program is helping to bring about these
objectives is increasingly a question of interest to Congress and the public at large.
Oversight hearings, congressional delegation visits, and, most recently, amendments
to the FY1995 foreign aid bill have focused on implementation issues. Prominent
members of both parties have criticized the program for its slowness, misplaced
priorities, and administrative disarray, and have raised concerns regarding possible
corruption and waste. Critical press reports, most prominently in major publications
such as U.S. News and World Report, Forbes, and The Wall Street Journal, have
generated additional interest. Largely as a result of these multiple concerns, Congress
cut the Administration request for FY1995 NIS aid funding from $900 million to
$850 million. Further efforts to trim funding have been initiated. On December 12,
1 Also known as new independent states (NIS), consists of 12 of the former republics,
excluding the Baltic states which were never recognized by the United States as part of the
Soviet Union.
2 The FSU received $2.2 billion in Foreign Operations Appropriations grants, including a
$1.6 billion FY1993 supplemental, signed into law on September 30, 1993. The
supplemental is treated by the State Department as part of the FY1994 aid budget. Counting
food aid and DOD Nunn-Lugar disarmament assistance, total grant aid in FY1994 was
approximately $2.8 billion. In FY1995, the region is likely to hold the number three
position in U.S. aid with more than $1.3 billion.

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1994, Senator McConnell, new chairman of the Senate Foreign Operations
Appropriations Subcommittee, issued a foreign aid proposal for FY1996 that
includes a 12% cut in assistance for the FSU from the FY1995 level.
The issue, wrapped in hyperbole and distortion, needs clarification. This report
first describes some essential features of the aid program, types of assistance, and
specific activities being undertaken. It then frames the basic issues that have arisen
during its early implementation period and those that are likely to arise in future years
and places the debate in a perspective that will facilitate reasoned congressional
deliberation.
Overview of the U.S. Assistance Program
To the Former Soviet Union
Purpose of Assistance Program
Judging by the FREEDOM Support Act authorizing legislation, subsequent
appropriations bills, and executive branch aid strategy statements, Congress and both
Bush and Clinton Administrations have held to the same objectives with regard to the
use of foreign assistance in the FSU: that is, chiefly
! the establishment of democratic societies;
! the promotion of free market economies;
! the meeting of humanitarian needs; and
! control and dismantlement of nuclear weapons.3
In its January 1994 strategy paper, the Clinton Administration added to these a
cross-cutting theme — the environment — reflecting its emphasis on this subject in
its worldwide foreign policy/assistance program.
While all foreign aid is meant to serve U.S. foreign policy, the aid program for
the FSU has been framed by Congress and two Administrations as more closely tied
to this purpose than others. What many believe to be the most important foreign
policy focus of the United States is in large part an effort to facilitate an internal
make-over of the new states, something many believe foreign assistance can help
advance. The program’s foreign policy tie is particularly reinforced by the
appointment of the State Department as coordinator of the program. And the State
Department has repeatedly emphasized the program’s unique and distinct —
3 The latter objective is dealt with directly by the Defense Department-funded Nunn-Lugar
program and is not part of the traditional economic assistance program. It is aimed
exclusively at the four nuclear states, Russia, Belarus, Ukraine, and Kazakhstan. Although
included in some specified aggregate aid amounts in this paper, Nunn-Lugar fund activities
are not discussed in this report.

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“historic” — foreign policy purpose by noting that it is short-term, that the bulk of
the Russia program is destined to end by FY1998 and the others shortly thereafter.4
To some extent, the delivery of U.S. aid is at the very least a strong statement
of U.S. support for the changes occurring in the new states. But assistance is
intended as more than that. U.S. Government commercial guarantees and insurance
programs can facilitate U.S. private investment, considered by many to be key to the
economic and political transition in the FSU. Technical assistance and training
programs can help bring the recipient countries a step closer to achieving an
economic and political environment that would encourage that investment.
Humanitarian aid can alleviate social and political stress. Strategic assistance can
help encourage and facilitate disarmament. To the extent it meets these multiple
objectives, the assistance program is playing a useful role as an instrument of U.S.
foreign policy.
Amount and Terms of Assistance
U.S. Bilateral Assistance. Something as seemingly straight-forward as the
amount of assistance provided by the United States has become the source of much
confusion and misinterpretation. Yet getting it right is central to any judgment of the
efficacy of the aid program. Since the program began, some have argued that funding
has been insufficient while others argue that large sums have been spent to no effect.
How much does the United States in fact provide? The answer to the question
hinges in large part on what one counts as “foreign assistance.” During the first two
years of the program, for example, the State Department tried to make the size of
U.S. contributions look significant, presumably to demonstrate strong U.S. support
for the political and economic transition to an FSU as well as a G-7 audience.5
Although State has since developed a somewhat more sound presentation of U.S. aid
contributions, its old claims — $17.6 billion as late as January 1994 — may easily
be viewed as overstated and are instructive in the potential for widely varying
interpretations of the size and content of the aid program.
For example, at one point, more than half of the State Department’s “aid” total
was made up of credit guarantees and insurance. This sum included Commodity
Credit Corporation (CCC) agriculture credit guarantees, a program that insures the
repayment of market rate loans used to purchase U.S. food commodities. It is a
commercial program, rarely, if ever, considered “foreign aid,” and, in fact, is
prohibited by statute for such use. State Department figures even included $1.9
billion in loans provided to the region prior to the dissolution of the Soviet Union
(Russia has assumed responsibility for this debt). Further, although the Overseas
Private Investment Corporation (OPIC) and the Export-Import Bank (Eximbank) are
4 Limited aid budget resources and the sense that Russia and some of the other republics are
not underdeveloped in human and natural resources lead State Department policymakers to
make a distinction between more long-term aid to developing countries and that to the FSU.
“Russia is not Rwanda”, is one such refrain.
5 The Group of 7 industrial nations — the United States, France, Germany, Britain, Canada,
Italy, and Japan — has taken a leadership role in organizing donor assistance to the FSU.

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part of the annual Foreign Operations bill, which appropriates most foreign aid, the
face value coverage of their guarantee and insurance programs has never before been
calculated and purveyed as a specific dollar benefit to a recipient aid country. Like
the CCC program, the Eximbank is also a commercial program designed to benefit
U.S. exporters. Finally, unlike government reporting for other countries, the State
Department aid levels included private donations delivered with publicly funded
transport.
On the other hand, it can be argued that the State Department has been correct
in including the face value of credit guarantee programs because other donors do so
for the FSU program (although none appear to include insurance coverage of the sort
provided by Eximbank and OPIC). In addition, Russian defaults in the CCC program
and rescheduling of debt have given it a temporary concessional element.6 Finally,
all these programs can be defended as instrumental in supporting the region’s
economic and democratic transition.
Some also suggest that aid totals might appear exaggerated because much of the
claimed assistance — either credit or grant — has not yet been either obligated or
disbursed. Further, some charge that the aid is not directly benefitting the recipients,
but is remaining in the United States. These last two concerns are discussed in more
detail below.
Given the varying interpretations that might be made of aid figures, it is difficult
to put a precise dollar amount on U.S. assistance to the FSU. Grant aid since
FY1992, that has been made available (but not necessarily obligated yet), is roughly
$6.7 billion.
6 Some suggest that, given the odds of default, the subsidy amount currently required to back
up loans is insufficient. See General Accounting Office, Credit Reform: U.S. Needs Better
Method for Estimating Cost of Foreign Loans and Guarantees, (GAO/NSIAD/GGD-95-31,
December 1994).

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Table 1. U.S. Bilateral Grant Assistance for the
Former Soviet Union
(in millions of U.S. dollars)
FY1992
FY1993
FY1994
FY1995
Total
Humanitarian Assistance
Medical
USAID Disaster Assistance
12
—
—
—
12
DOD Excess Medical
100
106
—
—
206
Donation
Food Assistance
USDA Food Aid
167
658
160
77
1,062
DOD Excess Stock Donations
62
42
—
—
104
Transportation
DOD Transportation Funds
100
46
—
—
146
Subtotal
441
852
160
77
1,530
Technical Assistance
NIS Assistance Account
—
417
2,158a
850
3,425
Economic Support Funds
230
—
—
—
230
USAID Development Assistance
5
5
—
—
10
P.L. 480, Farmer-to-Farmer
10
10
11
—
31
Other USG Technical Assistance
32
69
63
—
164
Subtotal
277
501
2,232
850
3,860
DOD Nonprolif./Disarm. Fund
188b
283b
400
400
1,271
Total Grants
906
1,636
2,792
1,327
6,661
Source: Department of State and CRS calculations.
Note: Prior to the dissolution of the Soviet Union, in 1991, the United States provided $10 million
in grant aid, $1.9 billion in CCC credit guarantees, and $51 million in Eximbank guarantees.
a. Includes $1,609 billion FY1993 supplemental approved Sept. 1993. H.R. 3759 rescinded $55
million of the FY1994 and FY1993 supplemental appropriations for the FSU.
b. Original appropriation in FY1992 and FY1993 was $400 million. Of these amounts, $212 million
from FY1992 and $117 million from FY1993 were “lost” due to failure to obligate funds by end
of FY1993 and FY1994, respectively.
In addition, an estimated $669 million in concessional food loans and $5.5
billion in a variety of commercial credit guarantee programs have been provided
since FY1992. In fact, the actual budget outlays for these programs are as little as

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one-fifth of these amounts, since only the subsidy cost has to be appropriated to back
up the loan or guarantee.
Table 2. U.S. Bilateral Credit Assistance for the Former Soviet
Union (Face Value)
(in millions of U.S. dollars)
FY1992 FY1993 FY1994 FY1995a
Total
USDA CCC Export Credit
2,567
523
20
20
3,130
Guarantees
USDA Concessional Food Creditsb
35
529
65
40
669
Eximbank Guarantees
66
184
1,276
—
1,526
OPIC Financing
—
135
700
—
835
Total Credits (Face Value)
2,668
1,371
2,061
60
6,160
Source: Department of State and CRS calculations.
Note: Prior to the dissolution of the Soviet Union, in FY1991, the United States provided $1.9 billion
in CCC credit guarantees, and $51 million in Eximbank guarantees.
a. FY1995 credits are figures available as of October 1994.
b. Food for Progress and P.L.480 Title I programs — loans made at low interest rates with longer
than normal repayment terms.
U.S. Assistance and International Financial Institutions (IFIs). From
the start, it has been generally understood that, however much assistance the United
States promises to provide to the region, it is merely a fraction of what is needed. For
example, the International Monetary Fund (IMF) calculated that Russia alone would
require at least $20 billion in outside assistance to meet its foreign exchange needs
in both 1992 and 1993. As they put together programs of assistance in those years,
the G-7 anticipated that the bulk of funding would come from three international
financial institutions: the IMF, the World Bank, and the European Development
Bank (EBRD).7 A member of these institutions, the United States contributes
between 10% and 20% of their costs and has often argued that a similar proportion
of their programs in the FSU may be viewed as a U.S. contribution to the region,
additional to its bilateral program.
For several reasons, both the IMF and World Bank have provided much less
assistance than was originally anticipated by the G-7.8 The IMF bases its loans on
7 The Asian Development Bank also provides loans to Central Asian republics. To date, it
has committed $60 million to Kazakhstan and $40 million to Kyrgyzstan.
8 In April 1992, the G-7 proposed $10.5 billion in multilateral assistance for Russia,
including a $6-billion ruble stabilization fund, to be allocated in 1992. In the end, only $1.6
billion was offered. In April 1993, the G-7 proposed $18.4 billion in multilateral assistance
for Russia. To present, it has received roughly $6.6 billion of this. See Jeffrey Sachs,
(continued...)

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policy reforms which Russia and the other states have been slow to adopt. The G-7,
led by the United States, have pressured the IMF to forego its usual reticence and
provide loans prior to reforms as a way of encouraging progress rather than
rewarding implementation. The World Bank has sent numerous experts to design
prospective loan projects in a wide range of sectors. But few were approved by the
Russian Parliament which was reluctant for the country to assume more debt.
In the past year, however, IFI programs have moved much more rapidly. As of
November 1994, they had provided or reached agreements to provide an estimated
$11.3 billion. Of this sum, the IMF has lent $5.4 billion, $4.2 billion of which went
to Russia. In all, the World Bank approved $3.7 billion in loans (57% in 1994 alone)
for 28 projects. Russia accounts for $3 billion (82% of this total) followed by
Kazakhstan with $276 million (7% of total). The EBRD has approved roughly $2.1
billion, $1.3 billion of which is for Russia.
Direction of Funding
Which of the dozen new states receives U.S. assistance has been a continuing
issue. Some observers, including Members of Congress, have expressed concerns
that Russia has been getting too high a proportion of U.S. assistance relative to the
other republics. Indeed, in absolute terms, most aid to date has gone to Russia, a
reflection of its reformist policies, enormous geography, larger population, and its
importance in U.S. security and economic policies. As of September 30, 1994,
Russia accounted for about 58% of total NIS account obligations, the bulk of the
grant program.
8 (...continued)
Toward Glasnost in the IMF, Challenge, May-June 1994, p. 4-11, for another view of what
has been provided.

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Figure 1. U.S. Grant Obligations by Republic:
NIS Account FY1992-1994
Although difficult to capture an ever-changing program, figures suggest that
Russia was receiving a little more than half of bilateral grant aid allocations under the
Bush Administration. Under the Clinton Administration, the 1993 Vancouver and
Tokyo announcements shifted allocations dramatically, so that as much as two-thirds
of the U.S. program was targeted for Russia. Congress approved this formula in the
$2.5 billion FY1993 supplemental/FY1994 Foreign Operations bill in September
1993, after conferees overrode Senate report language that criticized the emphasis on
Russia. At the same time, however, it earmarked $300 million for Ukraine, although
this could come from other aid spigots, including Nunn-Lugar. After the December
1993 Russian parliamentary election and increased criticism of the perceived Russia
focus, the Administration promised to provide future assistance on a fifty-fifty basis.
Some members of Congress have continued to push for greater funding of the non-
Russia republics. As a result, in the FY1995 aid appropriations (P.L. 103-306),
Congress recommended, but did not require, that $150 million, $75 million, and $50
million be provided to Ukraine, Armenia, and Georgia, respectively. Russia is
currently expected to receive 44% of FY1995 appropriations.
Critics have taken the view that U.S. policy is too Russia-centered and, given
the political uncertainties there, greater emphasis should be placed on fostering the
transition in the new countries on its fringe. Some would counter, however, that the
reason other countries have not until now received a larger share of funds is that they

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have been far behind Russia in meeting the basic conditions imposed by Congress for
such aid — economic and political reform. Further, according to the State
Department, although Russia receives the most funding in absolute terms, it does not
on a per capita basis. Taking population into account, Armenia is the main
beneficiary of U.S. NIS-account grant assistance and Russia is only fifth.
Figure 2. U.S. Grant Obligations on a Per Capita
Basis: NIS Account FY1992-1994
Major Categories of Assistance
The chief vehicle authorizing assistance for the former Soviet Union — the
FREEDOM Support Act of 1992 — laid out thirteen sectors in which assistance
could be provided. The FY1994 Foreign Operations Appropriations bill broke the
assistance program down into six, more generic, categories, and, unlike the
authorizing legislation and the FY1993 appropriations, earmarked specific amounts
to be spent under each. The FY1995 bill does not categorize the assistance.
Many of these categories of assistance under what is now called the NIS account
overlap with one another. For instance, housing, energy, and democracy activities
will facilitate private sector development. The exchanges and training activities
under democratic initiatives will bolster all the other sectors. The commodity import
program helps both the environment and U.S. trade. Most, but not all, of the NIS
account assistance programs are managed by the Agency for International
Development (AID).
Programs lying outside the Foreign Operations appropriations are also providing
assistance. These include the Department of Defense managed Nunn-Lugar
Cooperative Threat Reduction Program (FY1992-FY1995: $1.271 billion available)
and Department of Agriculture grant, concessional, and commercial programs

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(FY1992-FY1994: $1.1 billion, $669 million, and $3.1 billion, respectively). In
addition to Defense and Agriculture programs, a wide range of U.S. government
departments and agencies have been conducting their own small programs of
technical exchanges, many of which pre-date the fall of the Soviet Union and are
funded from their own budgets (FY1992-1994 activities estimated at $164 million).
Set out below are descriptions of the major sectors and estimates of NIS account
grant obligations (and other funds directed at the FSU under the Foreign Operations
bill) through FY1994. Most of the projects described under each sector only started
operating in 1993 or later and are only located in those states where they are expected
to have an effective impact. Specific project activities noted are illustrative; this is
not a comprehensive list.
Figure 3. Total Direct Obligations or Transfers by
Sector FY1992-1994*
Private Sector Development. (estimated FY1992-FY1994 obligation: $980
million, or 35.6% of total) The bulk of U.S. grant technical assistance has gone
toward a variety of efforts to promote the development of a private sector in the FSU.
The main activities are:

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! Privatization. This project, considered by many to be the most
successful U.S. effort to date, has provided technical assistance and
equipment to GKI, the Russian body that has privatized 80,000 small
businesses and 14,000 medium and large enterprises. Much of this
privatization has been done through a national auction system that
is the progenitor of a stock market. Other republics are beginning to
follow suit. The project is also providing advice in land titling and
privatization of farms.
! Post-Privatization. U.S. advisors are beginning to implement a
number of activities in Russia to help businesses and farms once
privatization has occurred. One effort is to find ways to break-up
monopolies that are the heritage of large government enterprises,
including the food warehouse system and trucking industry. Another
is to help set up the basis of a payments system, allowing the transfer
and deposit of funds throughout the country, and an independent
securities and exchange commission. U.S. experts are also assisting
in the development of commercial laws. Further, a number of credit
related activities are underway, as noted below.
! G-7 Sponsored Programs. The United States has pledged $125
million to the Special Privatization and Restructuring Program, a G-
7 effort to provide post-privatization capital and technical assistance.
Of this, $100 million has created a Fund for Large Enterprises (1,000
to 10,000 employees) sponsored by OPIC and AID. The United
States has also contributed $9 million to an EBRD Small Business
Fund to assist microenterprise lending.
! Enterprise Funds. The Russian-American Enterprise Fund,
approved in September 1993, is eventually expected to receive a
total of $340 million to lend funds to and invest in small and
medium (up to 2,500 employees) business ventures and provide
some technical assistance. A Central Asia Fund and a Western NIS
Fund were established in 1994.9
! Economic Restructuring/Financial Sector Reform. This project
provides technical assistance to government and NGO (non-
governmental) entities to help reform basic economic structures,
including banking, regulatory, and taxation institutions, the latter
considered particularly important in creating a positive environment
for foreign investors. Projects include establishment of institutes to
train tax service employees and banking and financial service
providers.
9 In addition, a Defense Enterprise Fund, provided through the Nunn-Lugar program, is
providing loans to joint ventures converting defense industries to civilian activities in the
four FSU nuclear weapon states.

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! Agribusiness. Major U.S. agribusiness organizations are
conducting training and technical assistance programs in conjunction
with their own efforts to establish investments in the FSU
agricultural sector.
! Eurasia Foundation. Since July 1993, the Foundation has been
providing small grants to private organizations working in private
sector development, public sector reform, and the media. Through
September 1994, it has made 274 grants, averaging $46,071 in size.
! Person-to-Person Volunteer Technical Assistance. The Farmer-
to-Farmer Program (1,264 volunteers through FY1994),10 and the
International Executive Service Corps, respectively, provide short-
term individualized on-site training to farmers and businessmen. Up
to now, the Peace Corps (465 volunteers) is concentrating its efforts
on providing advice to small businesses and English language
training in eight of the new states.
Trade and Investment. (FY1992-FY1994: $335.8 million, or 12.2% of
total) In addition to direct funding provided from the NIS grant account to facilitate
U.S. trade and investment in the FSU, some U.S. agencies are involved in an effort
to encourage such relations using their own budgets. The major programs are listed
below.
! Energy and Environment Commodity Import Program (CIP).
This AID program will provide $90 million in foreign exchange for
purchase of U.S. energy efficiency and pollution control equipment,
serving the dual purpose of demonstrating U.S. environmental
technologies and encouraging U.S. business in this sector.
! Trade and Development Agency (TDA). TDA finances feasibility
studies for foreign infrastructure projects, thereby assisting the
entities concerned and U.S. business that might be more competitive
in winning project implementation contracts through its involvement
at the feasibility stage. Through FY1994, TDA approved over $30
million in studies for the FSU and anticipates another $21 million in
FY1995.
! Department of Commerce. With funding from AID, Commerce is
conducting several trade and investment programs. BISNIS collects
and disseminates information to U.S. businesses on how to do
business in the FSU. American Business Centers (ABCs)
established in locations throughout the FSU provide administrative
— phone, office space, secretarial — facilities to U.S. businesses
exploring commercial possibilities in the region. The Consortia of
American Businesses in the Newly Independent States (CABNIS)
10 The farmer-to-farmer program, managed by AID, is funded by USDA and not through the
Foreign Operations bill.

CRS-13
funds representation costs for U.S. associations promoting
commercial opportunities for U.S. business in specific sectors,
including the homebuilders, environmental technology,
semiconductor, telecommunications, and food processing industries.
! Export-Import Bank. The Bank provides export financing in the
form of insurance, direct loans, and guarantees. Although previously
drawing on its general budget, for FY1994 the Eximbank received
$300 million in subsidy costs to support its program in the FSU, the
first time Congress has earmarked a specific regional appropriation
for the Bank. Most activities to date have been in Russia, but the
Bank has also established operations in Belarus, Kazakhstan,
Turkmenistan, and Uzbekistan. So far, it has approved $1.5 billion
in medium-term guarantee commitments for Russia, including the
first tranche of a projected $2 billion oil and gas equipment deal.
! The Overseas Private Investment Corporation (OPIC). OPIC
offers political risk insurance,11 provides investment loans and
guarantees, and sponsors investment missions. In FY1994, it
guaranteed roughly $700 million in investment financing. OPIC has
contributed to three private equity funds to support U.S. business
investment — the Russia Partners, NIS Major Project, and NIS
Regional funds.
Democratic Initiatives. (FY1992-FY1994: $366.6 million, or 13.3% of total)
Democratic initiatives encompass two categories of assistance. There are
technical assistance activities targeted on aspects of democratic systems: governance,
judicial process, NGOs, and the media, in particular. There are also exchanges and
training programs which, while dispersed over an array of sectors, share the notion
that exposure to the United States, its people and business will inculcate an
appreciation for democratic ideals and behavior more successfully than other means.
The major initiatives under these categories are listed below.
! Exchanges and Training. The SABIT program implemented by
the Commerce Department provides internships in U.S. businesses
(more than 288 to end of FY1994). The USDA-implemented
Cochran Fellowships (174 in FY1994) and the newly initiated AID
reverse farmer-to-farmer program bring agriculture sector
individuals to the United States. The U.S. Information Agency
(USIA) and AID, however, are responsible for the bulk of exchanges
of varying lengths and academic and non-academic programs,
directed at, among others, businessmen, local government personnel,
journalists, teachers, and students at all levels of education ($234
million in NIS funds for AID and USIA through FY1994). AID
training programs generally supplement their sectoral activities.
11 Its insurance programs are self-financing. To date, OPIC has provided $1.7 billion in face
value insurance coverage to U.S. firms investing in the FSU.

CRS-14
Including other sources of funding, more than 27,000 exchange and
traineeships have occurred to date.
! Technical Assistance. The National Democratic Institute and
International Republican Institute are assisting political party
development. The Congressional Research Service is providing
training and equipment to facilitate legislative processes of the
parliaments of Ukraine and Russia. The Rule of Law program, run
by the American Bar Association and others, is helping institute jury
systems, train judges, and develop bar associations. Linkages are
being established between U.S. and proliferating, but weak,
indigenous NGOs in the FSU. Equipment and training are being
provided to encourage the growth of an independent news media. In
the FY1995 appropriations, Congress directed that $15 million be
used for law enforcement training. The FBI, Drug Enforcement
Administration (DEA), and other U.S. agencies are expected to
implement programs in the areas of organized crime, financial crime,
and narcotics smuggling.
Humanitarian Assistance. (FY1992-FY1994: $394.8 million, or 14.3% of
total) The NIS/AID account represents only a portion of the humanitarian assistance
that has gone to the FSU since FY1992. In addition, roughly $1.5 billion in food and
medical assistance has been provided under the auspices of USDA administered food
aid programs and Department of Defense food and medical excess stock donations
and transport assistance programs. The main Freedom Support Act efforts are listed
below.
! Food and Medical Aid. Although the United States is not paying
for the so-called “social safety net,” it is transporting and providing
food and medical assistance to some of the most highly vulnerable
groups affected by the transition and political disruptions in some of
the new states — particularly infants, pregnant women, lactating
mothers, pensioners, and families displaced by ethnic strife.
! Health Support. A hospital partnerships program links U.S. and
FSU institutions [227 partnerships to date], through which training
and equipment are being provided. In an effort to improve vaccine
and pharmaceutical production, technical assistance is being
supplied on manufacturing standards and regulatory practices,
equipment and raw materials have been supplied, and efforts are
being made to stimulate U.S. private sector investment.
Energy and Environment. (FY1992-FY1994: $283.1 million, or 10.3% of
total) Much of the FSU is an environmental disaster area with severe consequences
for human health and productivity. Furthermore, the region could save millions
every year if it instituted energy efficiency measures. Some of the major aid efforts
are listed below.
! Nuclear Reactor Safety. The Department of Energy and the
Nuclear Regulatory Commission are providing technical assistance

CRS-15
and equipment to make existing water cooled reactors in Ukraine
and Russia safer.
! Energy Efficiency. Technical assistance and demonstration project
equipment is being provided to help electric power utilities achieve
efficiencies and find energy alternatives. AID is also assisting in the
privatization of the electric power industry and establishing
appropriate regulatory mechanisms for the energy sector.
! Environmental Reform. A number of AID projects provide advice
to governments on policy reform and U.S. technologies in
environmental and natural resource management, particularly in the
areas of water and air pollution. For example, a sustainable land use
program has been developed and is now being implemented for Lake
Baikal. Further, AID is funding partnerships between U.S. and
indigenous environmental NGOs in order to strengthen local
capacities.
! Ukraine Energy Grant. In November 1994, the United States
provided Ukraine with a $72 million grant to cover the import of gas
from Russia (FY1995 obligation — amount not included in above
total). As a result, Ukraine has promised to adopt policy reforms in
this sector.
Housing Reform and Troop Withdrawal. (FY1992-FY1994: $214.5
million, or 7.8% of total) The United States is taking a two-pronged approach to help
develop a private housing sector in the FSU — policy reform and actual housing
construction.
! Housing Sector Reform. AID is helping to develop solutions to
various problems of housing ownership — it has helped privatize the
maintenance of apartment buildings whose individual units have
themselves already been privatized, it has helped establish a
condominium model of ownership, and is advising banks and
governments on the creation of a housing finance market and
mortgage lending.
! Officer Resettlement. In April 1993, President Clinton promised
the construction of 450 housing units for officers returning from the
Baltics. Construction is currently underway. An additional 5,000
units were to be constructed, but problems in the pilot project —
scarcity of serviced land, local corruption, inflation in construction
costs — led to a change of plan. Now, 2,500 units will be
constructed and 2,500 vouchers worth up to $25,000 will be

CRS-16
provided allowing officers to find their own housing. Many credit
the successful withdrawal of Russian troops to this program.12
Assistance Implementation Issues
Between December 1991 and April 1992, the first significant allocations of
funds for technical assistance and training were made.13 AID teams were sent to the
former Soviet Union to assess problems and propose projects. By the time contracts
were signed and the first wave of contractors, AID, and other Government personnel
appeared in Moscow and several of the other new states, it was late summer 1992.

What the assistance implementors encountered were societies with few of the
legal, political, economic, or social institutional frameworks that characterize most
modern free market industrial democracies: deficient or no commercial, taxation, or
civil law; a meager private sector with almost none of the financial or other service
institutions that support that sector elsewhere; and weak and undeveloped non-
governmental organizations of the sort that compose the bedrock of democracy in the
West. The U.S. assistance program sought to help change this.
At this time only a small part of the assistance program is more than two years
into implementation, and less than one-fourth of available funds for technical
assistance have been spent. Concrete achievements include the shaping of
privatization programs in Russia, Kazakhstan, and Kyrgyzstan; formulation of a
Russian civil code (part of which has been approved by the Parliament), and
introduction of jury trials in Russia. While there is movement on many fronts, it is
still too early to judge the success or failure of specific projects. Nevertheless, much
can be said regarding aspects of project implementation that might have a bearing on
success of the whole aid program and U.S. policy in the region.
The program has attracted widespread comment since its inception. Members
of Congress, analysts, and other observers question the pace of program
implementation, the development of an aid strategy, and the success of efforts to
coordinate a program implemented by numerous government agencies. They
question whether the assistance is getting beyond recipient governments to reach the
man-in-the-street and if the aid is being used for corrupt purposes. Many also are
concerned regarding the impact an extensive use of consultants and contractors is
having on the program and if the program is sufficiently utilizing and helping U.S.
business. Finally, observers — critics and supporters alike — want to know if U.S.
12 See CRS Report 94-812 F, Russian Officer Resettlement Program, by Steve Woehrel, for
further information.
13 In December 1991, the Bush Administration notified Congress of a $5 million Economic
Support Fund allocation. On March 31 and April 1, 1992, the House and Senate
respectively approved H.J.Res. 456, the further continuing appropriations bill, allowing the
President to utilize re-programmed ESF resources for further assistance. Another $230
million was provided.

CRS-17
assistance is being used effectively to meet U.S. policy objectives in the region. This
section examines the range of such concerns.
Is the Program Being Implemented Fast Enough?: Pressures
to Accelerate and Delaying Factors
Since the attempted coup in August 1991 that led to the dissolution of the Soviet
Union, policymakers and analysts have viewed this period as a rare and perhaps
fleeting window of opportunity to affect a successful transition to democracy and free
market economies. Prior to introduction of the FREEDOM Support Act in April
1992, many in Congress were highly critical of what they perceived as the Bush
Administration’s failure to react to these changes with an appropriate sense of
urgency in bringing foreign aid programs to bear on events in the region. In fact, the
Bush Administration had begun to formulate a program using the existing Economic
Support Fund (ESF) in December 1991. But the slow pace of implementation of this
program, even after it was supplemented with FREEDOM Support Act-based
appropriations in October 1992, continued to draw criticism.
Therefore, when the Clinton Administration sought to show support for
President Yeltsin’s reforms at the Vancouver Summit in April 1993, it made a point
of promising rapid implementation of its $1.6 billion package of assistance.14 By the
end of July 1993, officials stated that 64% had been obligated, and, by September 30,
97% had been obligated.15 The issue, however, was raised again following passage
of the $2.5 billion aid package for FY1994. By the end of June 1994, only $694
million of the $2.1 billion16 in FY1994 funds available under the NIS account had
been obligated.17 However, by December 1994, $1.8 billion, 86% of the FY1994
funds had been obligated.
Although obligations are a sign of movement, there can be a considerable gap
between the signing of contracts and the placement of technical assistance experts
and other in-country project activities leading to actual expenditures. For example,
the Russian-American Enterprise Fund, whose contract was signed at the end of
September 1993, did not provide a loan until July 1994. There is no question,
14 The Vancouver aid package consisted mostly of $700 million in Food for Progress
concessional aid, $194 million in food aid grants, $215 million in Nunn-Lugar. Only about
$260 million was AID assistance.
15 Obligations are the legal commitment of funds by the U.S. to recipient governments,
contractors, and other entities. Expenditures or outlays represent funds paid from the U.S.
Treasury.
16 Of the $2.5 billion, $300 million was provided directly to Eximbank, $55 million was
rescinded, and DOD kept $55 million earmarked for transfer (using it for NIS programs).
17 There were a number of plausible reasons for this delay, including congressional holds
and the sizable growth in the appropriation. Nevertheless, a three to four month gap
between the appropriation and transfer of DOD funds to AID appears to have been a delay
caused by bureaucratic snafu.

CRS-18
however, that, overall, more and more projects are coming “on line” and their
activities becoming visible in the field.18
AID has taken steps to shorten the project timeframe typical of projects
elsewhere in the world. Officials have eliminated paperwork and delegated
responsibility so that, at least in the case of the high priority privatization project, a
workplan for up to $2 million can be initiated without a cumbersome approval
process and a team can be put in the field 30 days after the workplan is completed —
a process that used to take 4-5 months now takes one. This policy, however, is
inconsistently applied, and many contractors complain of lengthy delays in getting
workplans approved. Procurement procedures have also been accelerated, but it still
takes five to seven months to select new contractors.
Obstacles. Ironically, in the name of expediency, most of the programs were
developed and, until recently, largely run from Washington rather than in the field
as is the case with most AID activities. Most decisions still have to be reviewed and
approved by Washington, both by AID and by the State Department’s NIS
Coordinator’s office. Further, squabbling between agencies has also slowed the
process (see below). AID, in particular, has been criticized for the length of time it
takes to approve the six month-workplans that each contractor has to submit prior to
taking action in the field.
In authorization and appropriations language, Congress established general
criteria and specific conditions on provision of assistance. Failure to meet these
conditions has been an obstacle to aid delivery. Many countries — Ukraine and
Belarus are examples — have not adopted basic economic reforms that might assure
U.S. assistance will not be wasted (recent commitments by Ukraine have led to a
dramatic increase in promised U.S. aid). Turkmenistan’s political and economic
situation discourages a large aid program there. The security situation in some
countries — Tajikistan, for example — prevent more than provision of humanitarian
aid. Those who criticize the Administration for not disbursing aid more widely to
non-Russia republics ignore these constraints, arguing that the assistance would help
to move events in a more positive direction.
Initial ignorance on the part of U.S. policymakers and aid implementors
regarding conditions, players, and problems in Russia and the rest of the FSU has
been a severe obstacle to rapid implementation. Contractor personnel — some with
no experience of the region — seem to have had difficulty getting their bearings and
establishing working projects on the ground.
The lack of knowledge of an uncertain and fluctuating situation within the FSU
led AID to establish broad sector projects using a “rolling design” process, in which
technical resources are drawn from pools of consultants as needs and appropriate
local counterpart organizations are identified. But the imprecise and flexible nature
of these projects has made the detailed notifications congressional committees are
accustomed to receive difficult to draft. Some projects were put on hold while
18 Annual expenditures have increased from $231 million in FY1993 to $609 million in
FY1994. AID expects expenditures to rise to $1 billion in FY1995.

CRS-19
negotiations were conducted with the appropriations committees. Consequently,
notifications to obligate funds are provided only 30 to 90 days prior to obligation
when greater detail of project activities can be supplied. Some believe this process
diverts AID staff time to briefings and paperwork rather than project implementation.
A variety of legal and procedural concerns have further slowed things down.
Nuclear industry representatives refused to begin work on an AID project to help
improve safety at FSU nuclear power plants until their liability in the event of a
future accident was established. The enterprise funds for the FSU were unable to go
forward until problems and concerns raised in practice by the Eastern Europe funds
were resolved to the satisfaction of the House Appropriations Foreign Operations
Subcommittee. And, according to one report, lengthy congressional review delayed
by 11 months independence for the Eurasia Foundation.19
Too fast? Some would argue that the program has in some ways been
implemented too rapidly. They say that the political impetus to show U.S. action led
to poorly thought out projects. Some suggest that, in order to obligate funds quickly,
the larger U.S. consulting firms received amounts of funding far greater than these
regionally inexperienced firms knew what to do with them. Meanwhile, smaller,
more grassroots and culturally knowledgeable organizations, they say, were left to
await funding as sub-contractors.
Is the Program Well Coordinated?
At least 16 U.S. agencies are playing an implementing role in the U.S. assistance
program, leading to early criticisms of coordination. Project duplication, little project
complementarity, and no coherent aid strategy are among the complaints heard
during the past two years.
As the FSU program got underway in December 1991, President Bush, having
already faced similar criticisms of the Eastern Europe aid program, appointed an aid
coordinator in the Department of State — Deputy Secretary of State Lawrence
Eagleburger, and Richard L. Armitage as his deputy. Under President Clinton,
Ambassador Thomas W. Simons, Jr., has served as aid coordinator and the focal
point for the U.S. assistance program.20
Congress, in the FREEDOM Support Act, made the State Department
Coordinator responsible for designing an overall assistance strategy, ensuring
coordination among U.S. agencies, pursuing coordination among other donors,
insuring proper management, implementation, and oversight by those agencies, and
resolving disputes between them. In recognition of the foreign policy importance of
19 Management Systems International, Evaluation of Cooperative Agreement with Citizens
Democracy Corps, April 15, 1994, p. 11.
20 Strobe Talbott, who served as Ambassador-at-Large for the NIS, until he was replaced in
February 1994 by James Collins, has played a prominent role in the program. Until he
became Deputy Secretary of State, the appointment of Talbott was said to have improved
aid coordination partly because, unlike Eagleburger, he could devote full attention to the
region and add his clout to interagency squabbles.

CRS-20
the assistance program, a Presidential charter of May 1993 put Ambassador Simons
in charge of the Assistance Coordination Group, an interagency body under the
direction of the Policy Steering Group, headed by Strobe Talbott, and all under the
National Security Council. According to the charter, the Assistance Coordination
Group was responsible for the “allocation of U.S. assistance resources and the
interagency process for design and implementation of all policies and programs
dealing with bilateral assistance.”
Both Bush (January 1993) and Clinton (January 1994) Administration strategy
statements contain general guidelines that tell what the U.S. objectives are, outline
specific approaches (i.e., emphasis on use of the private sector, for example), and
explain broad country goals and priorities. Changes in the assistance strategy during
the first year of the Clinton Administration illustrate the role of the Coordinator’s
office in setting broad guidelines for assistance. In the course of 1993, an effort was
made to make the assistance program target more grassroots, people-to-people,
activities, focus added assistance on the private sector and non-governmental
organizations, and concentrate on areas outside Moscow. This approach is reflected
in the January 1994 strategy statement. It may be some time before its programmatic
changes are actually implemented in the field by the numerous agencies involved in
the program. But, in theory, the assistance strategy is the marching order for the U.S.
assistance program in the FSU.
Table 3. Major U.S. Government Assistance Providers:
Obligations from NIS Account through FY1994
(in
millions)
AID
1,922.5
Department of Commerce
30.6
U.S. Information Agency
149.2
Department of State
17.6
Securities & Exchange Commission
1.0
Health & Human Services
0.6
Department of Agriculture
70.3
Department of Energy
100.9
Nuclear Regulatory Commission
13.6
Peace Corps
13.9
Environmental Protection Agency
11.8
OPIC
61.2
TDA
31.0
Department of Treasury
17.1
Congressional Research Service
2.9

CRS-21
During the past year, the Coordinator’s office, with input from other agencies
as well as U.S. embassies in the FSU, has also begun to develop and produce
individual country aid strategies. These are slightly more detailed than the regional
statement, and try to tailor the program to fit country needs. The strategy for Russia
was approved on May 19, 1994, for Ukraine on June 23, for countries of Central Asia
on July 8, and Armenia and Azerbaijan on October 31. Strategies for Belarus and
Georgia are expected to follow.
The ability of the Coordinator to translate broad policy into aid programs and
projects has been questioned. Some believe that the Coordinator acts more as an
arbitrator of agency differences than a dictator of policy. Much of the time, it handles
the bickering and disagreements of the numerous implementing agencies. In the face
of agency heads with their own influence in the Administration, it appears that the
Coordinator has had insufficient clout to dictate action in many cases.
The Coordinator’s authority to allocate resources does allow him to mold
program content. The Coordinator strongly supported the housing construction
program, the enterprise funds, and a special OPIC fund, in the face of adamant
opposition from some agencies. When it was decided to spend $200 million on
educational exchanges and training, the Coordinator reviewed the different programs
and allocated funds between AID and USIA. He mandated funding of Peace Corps
operations through the FSU account budget over AID opposition.
When the Trade and Development Agency (TDA) proposed support for the Russian
land commission’s privatization effort and AID opposed it on the grounds that the
body was not sufficiently reformist, the Coordinator’s Office led the inter-agency
discussions that led to a final determination on which Russian body would receive
U.S. support. The Coordinator was also reportedly responsible for a new shift in
emphasis and resources from technical assistance to trade and investment leading up
to the Yeltsin summit in September 1994.
Nevertheless, there has been a widespread impression that the Coordinator
Office has little power. Part cause or part effect of this is the rise of other centers of
decisionmaking on assistance issues. The White House National Security Council
and the Gore-Chernomyrdin Commission have played major roles in determining
assistance priorities during the past year.
In April 1994, then congressional leaders, Richard Gephardt and Robert Michel,
produced a memo to Secretary Christopher severely criticizing the coordination
effort. The initial response to this congressional criticism was to seek replacement
of Coordinator Thomas W. Simons, Jr., despite wide respect for his competence and
knowledge. The State Department was said to have been looking for a higher profile
person who might have more clout with other agencies. Two such people reportedly
turned down the position and Ambassador Simons has been continuing in his post.
Many, however, believe it is the power of the office, not the occupant, that needs
strengthening.
AID and other agencies. Much of the NIS Coordinator’s time has been
employed allocating resources and resolving turf wars between agencies. Most of the
disputes appear to involve friction between the Agency for International

CRS-22
Development and other agencies, not surprising because most of the assistance funds
ostensibly flow through AID. Allocations or transfers from AID to other agencies
totalled $524.6 million, or about 21% of NIS Account fund obligations made to the
end of FY1994.
Although AID sees assistance programs as its charge, the unusual foreign policy
motivation of the FSU program and the weakness of AID in recent years — resulting
from poor management and perceptions of incompetence — have given other
agencies an opportunity to carry out these programs, first in Eastern Europe and now
in the FSU. Some argue that Russia is not like a number of developing countries, and
AID is ill-equipped to run a program there. But other agencies have not operated in
the FSU either and do not have the management experience AID can argue it
possesses for insuring effective project monitoring and financial accountability.
The legal argument for or against AID’s sense of ownership of the funds —
“they call them `our’ funds, not the taxpayers,” say critics — is not entirely clear
cut.21 House report language on the FREEDOM Support Act suggested that, where
there was expertise within the U.S. Government, it should be used, but it also
expected that AID would be responsible for overseeing and implementing the
majority of U.S. bilateral assistance. The final bill adopted a Senate provision that
provided a blanket authorization for all agencies conducting Eastern Europe activities
to conduct activities in the FSU as well, but it did not attach specific agencies to
projects in the way the SEED Act had done.22 It gave chief authority for
implementation to the State Coordinator, but subsequent appropriations legislation
has insured that funds would be funneled through AID to other agencies involved in
the program.
Funds move from AID to other agencies in two ways. Under section 632(a) of
the Foreign Assistance Act, funds are transferred to other agencies which then
obligate them under certain terms and conditions. AID is not expected to monitor or
evaluate the use of those funds. Alternatively, under section 632(b) transfers, AID
has oversight responsibilities. Funds are provided for use by another agency, but they
are considered part of AID’s budget, obligated by it, and the recipient agency must
allocate funds and meet AID reporting requirements as though they were an AID
contractor. In the first year of the FSU aid program, most transfers were 632(b).
Now they are mostly 632(a) and inter-agency friction has reportedly diminished.
According to the FREEDOM Support Act (sec. 102(d)), implementing agencies
are accountable for funds made available to them. Providing funds to other agencies
through AID, whether 632 (a) or (b), unfortunately, creates the problem of focusing
all blame on AID and, in the view of its own Inspector General, is no excuse for not
monitoring their use. However, other agencies have much less experience
monitoring programs and do not have many or any field personnel in place. One AID
21 See AID/IG Report of February 26, 1993, AID’s Oversight Role for Interagency
Agreements Under the Central and East Europe and NIS Programs Needs Clarification, #8-
000-93-02.
22 The Support for East European Democracy Act of 1989, P.L. 101-179, authorizes
assistance to the states of East and Central Europe.

CRS-23
officer who dealt extensively with 632(b) transfer agencies has remarked on the
inability or unwillingness of some to provide AID with even the most basic budget
information.23 If true, this may stem from a simple failure to recognize congressional
requirements for accountability, lack of experience with corruption in other countries,
or agency resistance to being managed by AID like a contractor. From AID’s point
of view, contractors are preferable to agencies — the former have a financial
incentive to show impact, while the latter cannot be controlled.24
Field Coordination. How coordination or the lack of it affects actual project
implementation in the field is a concern for policymakers. When many agencies and
contractors fail to coordinate programs, redundancy — the most often cited
consequence — is only part of the problem. In the Volga region, there were repeated
seminars during 1993 on privatization, banking, and related topics conducted by the
Peace Corps and AID’s privatization contractors. It is not so much that one may
repeat what the other has done, but that there may be an overload of activities
targeted at the same audience that produces a level of frustration and disillusionment
with the aid program among the recipients. This is particularly exacerbated by the
lack of strategic planning that a failure to coordinate simply reflects. Everyone in the
field admits that the real need of fledgling businessmen and farmers alike is credit at
reasonable interest rates. But U.S. aid projects have until recently only been able to
offer seminars and advice. A comprehensive and integrated program might link up
Peace Corps business advisers with private sector consultants and a micro-and small
business-credit program in one region alone where sufficient funds might be made
available to make a difference.
Until the past year, there has been a failure to make the assistance program one
of teamwork. As late as September 1993, Peace Corps volunteers most in touch with
local businessmen in the Volga region had no contact with USIA regarding
exchanges that might benefit their clients. VOCA (Volunteers in Cooperative
Assistance) farmer-to-farmer officers were aware of some of the exchange
opportunities offered by AID and USDA, but only because of their own spadework,
not any coordinated outreach on the part of U.S. Government officials. During 1994,
however, AID began to develop a more integrated program. It is establishing at least
ten small business development centers throughout Russia that draw on IESC, Peace
Corps, the MBA Enterprise Corps, the AID Education and Training projects, the
Citizens Democracy Corps, and other assistance efforts.
There are a number of factors in the field that have exacerbated the coordination
problem up to now. Decisionmaking is still made in different agencies in
23 According to the AID/IG report, “reports are often not submitted....”, p. vi, Feb 26, 1993
report.
24 According to AID, OMB Circular A-76 says that government agencies should be used
only where they are uniquely suited and not competitive with private enterprise. Two
examples suggest that an inclination of agencies to use their own personnel, rather than
contractors, can cause problems. EPA reportedly had begun sending a stream of its staff to
do a series of tasks, leading the Russians to complain about the lack of continuity and having
to explain the same things over and over again. The Center for Disease Control reportedly
sent out junior fellows to advise the Russians.

CRS-24
Washington and feedback from field personnel has been dispersed among them,
rather than directed at the State Coordinator’s office. The AID mission presence
remains small, concentrated solely in Moscow for the Russia program; Almaty for
all of central Asia; Kiev for all the Ukraine, Moldova, and Belarus; and Yerevan for
all of the Caucasus. Only a few other agencies — USIA, Commerce, Peace Corps,
Agriculture — have field mission personnel who could be responsible for developing
complementary programs. While relationships between agency personnel in the field
are said to be cordial and interagency meetings are regularly held in the AID office
to discuss what others are doing, there was little effort in the first two years of the
program to create an inter-relationship and teamwork among consultants and project
implementors. There was no mandate for them to do so; contractors coordinated
activities among themselves on an ad hoc basis.
To insure that coordination has an impact at the implementation level of the
assistance program, the Gephardt/Michel memo recommended that a deputy
coordinator be placed in Moscow. The idea of a local “coordination czar” had been
considered for some time previously and appears to have been adopted by State in the
form of an assistant to the Ambassador, Susan Johnson, who arrived in Moscow in
early autumn 1994.
Is Assistance Reaching the Grassroots?
Many critics argue that U.S. assistance does not directly reach the man-in-the-
street and is not allocated in a way that lets the general public in the FSU know the
United States is supporting reform. In response to these concerns, the Clinton
Administration announced in April 1993 that it was seeking to make its assistance
program more visible to the average Russian citizen. The President claimed that 75%
of new Russian assistance would be used outside of Moscow and the same proportion
would be provided to non-governmental bodies.
It is plausible that the Administration’s numerical target will eventually be met.
However, it likely to take a long time before FSU populations are broadly cognizant
of the impact or source of U.S. assistance programs. For one, the level of U.S.
assistance is simply not substantial enough to blanket the FSU with programs.
Secondly, different types of assistance affect discrete groups and have different
repercussions for the economic and political transition in the region. These impacts
should be kept in mind when the United States allocates assistance or observers judge
its success.
For example, humanitarian activities — food aid to vulnerable groups and
provision of vaccinations in Central Asia — directly benefit the grassroots.
However, while these are highly beneficial to particular groups, and possibly serve
to still political discontent, they are short-term solutions, not contributing directly to
the political and economic transition (and represent only a small proportion of the
NIS account). Although the idea of providing a social safety net was supported by
a number of prominent analysts, including Harvard economist and Russian
government adviser Jeffrey Sachs, the United States never considered it as something
it could do alone — it would require immense sums.

CRS-25
Policy reform projects deal closely with FSU government agencies and often
appear to have the least direct impact and least visibility at the grassroots level.
However, many would argue that it is precisely such programs that might have the
most long term and widespread impact on people’s lives and on the success of the
transition. Privatization reform, for example, although largely conducted at the
national level, has pervasive impact on how the grassroots live and conduct business.
Although many consider these activities the most successful use of U.S. aid funds in
Russia, the concern that Russian nationalist sensitivities not be exacerbated by an
overt and obtrusive U.S. presence has led the program to maintain a low profile.
Further, as local reformers are identified, policy reform technical assistance is
increasingly being provided at the oblast and municipal levels.
Those favoring “grassroots” programs, while not opposing humanitarian or
policy reform assistance, call for greater support — financial and programmatic —
for a wholly different approach. They argue that grassroots programs are often more
effective in transferring skills and knowledge to emerging entrepreneurs and
government personnel than other technical assistance programs because they are
more responsive — and quicker to respond — to the needs of people, are more
culturally sensitive, establish long term relationships with the U.S. private sector and
therefore carry a multiplier effect, and build local non-governmental institutions that
are the building blocks of both free markets and democracies.25
There are many different grassroots programs and each has different impacts.
“Volunteer” technical assistance programs — the farmer-to-farmer program, the
Peace Corps, and the International Executive Service Corps (IESC) — bring U.S.
volunteer specialists to the FSU. “Exchange” programs bring FSU nationals to the
United States, including educational exchanges, the reverse farmer-to-farmer
program, and the SABIT program that provides internships in U.S. businesses. NGO
support programs — Eurasia, ISAR, and the NGO development program — fund
institutional development of local organizations.
The key feature of most of these programs is that they attempt to reach out to
local people and assist them directly. To do this most have set up field offices
outside of the major capitals, often employing young and culturally sensitive
Americans, and many more FSU nationals. Eurasia Foundation grants and the
development projects of NGOs and PVOs (private voluntary organizations) are good
examples of grassroots activities that may have a broad impact. Although a high
proportion of their funds go through U.S. organizations,26 the emphasis of their small
grants is to reach local NGOs and others in joint programs that might develop the
local organization, assist in local policy reform, or facilitate management and
administrative training to entrepreneurs. Tens of thousands of small local NGOs
have sprung up throughout the FSU in the past few years. In a country which always
depended on government and has lost its charitable traditions, the success of these
PVOs and NGOs is essential to any sustainable democracy. But assisting them
25 A forthcoming study by Nancy Lubin for the Project to Reform Aid to the NIS, funded by
private foundations, highlights the achievements of grassroots projects.
26 As Eurasia Foundation establishes more field offices (three new ones in FY1994), it
expects a higher proportion of direct grants to FSU organizations.

CRS-26
carries some risk in that many are likely to fail due to poor management and limited
funding sources and many are suspect in their intentions and leadership.
Environmental programs run by a U.S. organization, the Institute for Soviet-
American Relations (ISAR), are repeatedly praised by observers. With AID funding,
ISAR has supported environmental organizations throughout the FSU. It has
established an electronic mail network linking these organizations (currently more
than 60 groups are linked in this way), provides grants to support educational and
other programs, disseminates information on environmental activities elsewhere in
the world, and is supporting joint projects between U.S. and FSU groups. Reports
on farmer-to-farmer volunteers consistently attribute significant increases in
production or sales to well-placed advice — for instance, a five-fold increase in the
productivity of a private fruit and vegetable storage facility due to suggestions on use
of labor incentives and better hiring practices.27
Some, however, question the cost effectiveness and impact of grassroots
approaches. They argue that grassroots technical assistance generally affects only
individual farms (actually, former collectives — now budding agribusinesses),
industrial firms, or NGOs, not the agricultural or commercial systems as a whole the
way assistance to governments can. In fact, while volunteers tend to be targeted on
a specific farm or organization, they are often utilized on a wider scale and the
demonstration effect of their work also has a broader impact. While small-scale
grassroots operations — volunteers and for-profit — are usually, if not always, less
expensive than experts, when operational costs and length of service are taken into
account, it is difficult to calculate the relative value of these activities vis-a-vis
“experts”.28 In the end, impact depends on the match of volunteer or grassroots
worker to recipient organization, the length of service, and the experience,
connections, and knowledge of the individual concerned.29
Similarly, some believe that educational exchanges and training, strongly
promoted by some members of Congress, are costly and have an impact on the
relatively few who can be brought to the United States.30 These exchanges (in
FY1994, there were 8,300 funded by AID and 9,300 by USIA) appear to be largely
discrete activities, not bonded together as part of any coherent program as was the
27 ISAR Mid-term evaluation. July 22, 1994, by Mary Heslin and Edward Hodgman.
Internal Evaluation for Farmer-to-Farmer Program in Russia of Tri Valley Growers, Inc.,
March, 1994, by Ted Weihe.
28 During 1993, 153 IESC volunteers each served roughly eight weeks in the FSU, at a cost
to taxpayers, calculated on a worldwide basis, of roughly $31,000 each. In 1994, Peace
Corps volunteers serving one year in Russia cost about the same. Expert costs (both
salaries, housing, and benefits), by comparison, can be as high as $252,000 per annum.
29 Even volunteers must be matched to reformers if there is to be an impact. For example,
see “Underwhelmed in Ukraine”, Across the Board, May 1994, p. 48-50.
30 Perhaps the best defense of bringing people to the United States is the old Russian saying,
“better to see once than to hear seven times.”

CRS-27
case, for instance, during the Marshall Plan.31 But, again, their impact depends
largely on who is targeted (from what sector, and qualifications) and what kind of
training they receive (length and quality, i.e. internships, degree programs,
specialized tour). High school student exchanges managed by USIA have little
immediate impact on institutions in the FSU but may be good public relations and
an investment in the future.32 Short term — up to six-week — visits for government
and business people may have little impact unless tailored for individual needs,
perhaps making specific business connections or transferring a particular skill.33
Some charge that exchanges are chiefly benefitting the old guard elite — who
are more likely to speak English and to have access to U.S. officials. If volunteer and
NGO programs located in the field are drawn upon for candidate nominations, the
exchanges are more likely to represent grassroots needs. There is evidence to suggest
this is beginning to happen.
Alternatively, many believe setting up management and accountancy training
facilities in the FSU itself would affect more people and be more sustainable in the
long-term. The Director of the volunteer MBA Enterprise Corps, for example,
asserts that the “most useful” assistance would be education and training to create an
understanding and prepare people for participation in the private sector, and most
effective would be instruction of the entire staff of an enterprise, something that
31 Some analysts argue that a cost-effective exchange model provided by the Marshall Plan
be extended to the FSU program. The “productivity campaign” provided highly specialized
study tours of U.S. industry to managers, labor officials, engineers, and the like with an
emphasis on how U.S. management, marketing, and production techniques had made it the
world’s most productive country, a lesson not without relevance to the FSU. The campaigns
had the virtue of extensive follow up. For instance, they required participants to write
handbooks of what they learned for later dissemination to their peers back home, and they
helped set up productivity centers in each country to provide training materials and other
assistance to enterprises. A media campaign worked in tandem.
According to some analysts, enterprises experienced a 25- to 50-percent increase in
productivity within a year of exposure to the campaign. While industrial conditions in the
FSU require more than this — a complete restructuring and a dramatic change in the policy
environment — the model shows what good follow-up and a comprehensive approach —
thousands of enterprises participated — can do. See “Jump-Starting Ex-Communist
Economies: A Leaf from the Marshall Plan”, by James M. Silberman, Charles Weiss, Jr.,
and Mark Dutz, in Foreign Affairs, Jan-Feb 1994, v. 73, p. 21-26. According to AID
officials, the FSU assistance program does pay some attention to follow up concerns. For
each trainee or student, $1,000 is allocated to support follow-up activities — it can be used
for a course, professional workshop, or journal subscription, and many trainees are part of
a larger project that may maintain contact in the long-run.
32 In FY1994, 4,631 NIS students came to the United States and 2,195 U.S. students went
to the NIS.
33 A September 1993 AID/IG audit of the Department of Commerce SABIT program that
sends Russians to intern in U.S. businesses found returned interns interviewed reporting
favorably of the experience. Participants said it exposed them to U.S. business practices and
promoted understanding between Americans and NIS citizens, but half (of a rather small
sample) doubted they would be able to use their training.

CRS-28
could only feasibly be done in the FSU.34 AID has begun to support a series of
training institutes located throughout the FSU.
What Is the Appropriate Role of U.S. Consultants and
Contractors?
A corollary to the assertion that aid funds are not making it to the people of the
FSU is the complaint that all the funds are going to U.S. consultants. As a Wall
Street Journal article put it, “hordes of U.S. consultants...are gobbling up much of
the U.S. aid pie.”35 Among other concerns, some have suggested that consultants get
paid too much, there are too many of them, and contracting procedures are unfair and
bureaucratic.
Consultants. In addition to other major components of U.S. assistance —
humanitarian aid, educational exchanges, infrastructure equipment, and loans to
business — technical assistance provided by U.S. consultants, whether high-priced
financial market specialists or low-stipend Peace Corps volunteers, is an essential
element. The purpose of U.S. consultants here, as in foreign aid programs
worldwide, is to transfer knowledge and skills in short supply in the recipient
country. In this case, it can be argued that Americans have no experience in the
transition process from communism, but they do know substantially more than locals
regarding the structure and function of free markets and democratic institutions.
There are, however, a number of legitimate concerns regarding the use of
consultants. Russians are bothered that they have to rely on others for help — but to
some extent this is an unavoidable price of receiving aid. There is, nevertheless, a
concern regarding a strategy of assistance that might ignore the cultural norms of a
recipient country or fail to utilize sufficiently the expertise and skills of local people,
which in the case of the FSU is considerable. Such a program would not be likely
to successfully adapt U.S. advice to the social and political environment of that
country and would fail to be accepted. At times, the assistance program has been
charged with exactly this deficiency.
The gap between announcement of the aid program and actual implementation
in the field, the predominant use of U.S. contractors, and the delay in establishing
grassroots programs noted above helped foster the sense that local people were not
being used at all. Lack of familiarity with the recipients and difficulty in identifying
appropriate local expertise likely inhibited their use in the early stages and may still
be a factor. However, while for practical and political reasons most project experts
are going to be drawn from the United States, local personnel are being used
increasingly in support and other roles. For one thing, as U.S. contractors have set
up offices and initiated their projects, they have generally hired local staff at all
34 Jack Behrman, Assisting Private Sector Transformation in Russia, Business & the
Contemporary World, 1994. Behrman specifically argues against training of single
managers in the United States.
35 “U.S. Aid to Russia is Quite a Windfall — for U.S. Consultants,” Wall Street Journal,
February 24, 1994, p. 1. See also, “Faltering Western Aid Helps Bring Defeat for Russian
Reformers”, Wall Street Journal, Europe edition, December 15, 1993.

CRS-29
levels. Especially in the chaotic political and economic environment of the new
states, successful contractors will lean heavily on local expertise.
One example of this is the large privatization project that has essentially joined
forces with the State Property Committee (GKI), the government body it largely
assists. The secret of its success to date, according to AID staff, is the high level of
Russian involvement and commitment to the purposes of the project throughout.
Actual privatization activities began at a grassroots level with various pilots — first
one in one region, then ten in ten regions. Once a model was perfected, the project
expanded to the national level. In addition, while foreign experts were dominant in
its early experimental stages, once it became a highly visible national program, it
evolved much more into a Russian program, run largely by Russians trained for the
tasks required.
Russians have also expressed displeasure at the “fly-in and fly-out” methods of
many consultants.36 In the first two years, the majority of technical assistance experts
were in the FSU on a short-term basis of a few months or less.37 This approach has
been criticized because it implies a lack of knowledge of the local situation, but,
some suggest, is also less effective because the FSU culture is a highly personalized
one — where ideas are more likely to be accepted on the basis of friendship than
merit alone. Both AID and State say they are now aware of this problem and are
emphasizing longer-term assignments.38
Another concern regarding use of U.S. consultants arose when it was suggested
by the Wall Street Journal and others that they were paid extremely high salaries,
funds that could have been spent “directly” on Russians. Except in the case of Peace
Corps and the other volunteer programs, it is true that U.S. experts are paid
substantially higher salaries than those of the recipient country. First, the discrepancy
between recipient country economies and that of the United States is one of the
reasons the aid program exists. Second, in the case of the FSU in particular, the
United States is seeking to provide the most sophisticated expertise to facilitate a
complex economic transformation. In some cases, U.S. financial market, accounting,
etc. experts have accepted less than their usual salaries to gain experience in the
36 According to a Moscow-based U.S. official, Russians also complained regarding the
number of assessment teams at the beginning of the Rule of Law project. They did not
understand the visits and delays in project activities, leading to a perception that the United
States was doing little except talk.
37 Most egregious according to some American Peace Corps volunteers were the public
relations activities on privatization — one-day seminars provided by fly-in consultants with
little or no advance preparation in different centers around the country.
38 Even the volunteer programs, IESC and farmer-to-farmer, by their short term nature, are
subject to this criticism. The farmer-to-farmer program, for example, has been asked
repeatedly by Russians to lengthen the term of service for its volunteers, now roughly three
weeks. But this move has to be weighed against the numerous demands for experts in other
locations and a possible diminishing value over time. Limiting short-term assignments
means a loss of specialized expertise. One response, by the Treasury Department has been
to assign long-term economic advisers who provide continuity for both the recipient
government and short-term advisers brought in for specific tasks.

CRS-30
Russian market.39 Even so, U.S. aid salary levels were distorted in the press to
include the overhead for their office operating expenses. There is a fixed U.S.
Government-wide ceiling on salaries — low by U.S. private sector standards — that,
according to AID, has only been breached for ten individuals, all in FY1993.
As a result of these criticisms of technical assistance, some have suggested that
other types of assistance — specifically some kind of cash transfer — might be
emphasized. Many in the Russian government would have preferred direct grants
made to the foreign aid body they set up to coordinate the activities of the various
donors — the Office for International Cooperation and Development. It would then
delegate funds to the programs it thought useful. Others recommend using assistance
funds for central government budgetary support, to reward policy reform efforts.
However, U.S. funding levels may not be high enough to make much of a dent on
FSU debt or have much leverage over policy. The one exception is Ukraine to which
the United States in November 1994 committed $72 million to cover costs of gas
imports from Russia. Some energy-related policy reform will be a condition of this
aid.
Meanwhile, in Russia, requests for cash transfers have been replaced by requests
for more support for trade and investment. In September 1994, the Administration
responded by shifting $100 million in resources from the NIS account to OPIC and
related agencies. In a November letter to Secretary Christopher, Russian Ambassador
Vorontsov specifically requested that trade and investment funding be emphasized
in the Administration’s FY1996 aid request. Although the long-term trend in the aid
program will likely be for increased amounts for this sector while technical assistance
begins to dwindle, Foreign Minister Kozyrev has told a delegation of U.S. Senators
that Russia also needed U.S. technical assistance and wished it to continue.40
Contractors. Within the United States, many concerns have been raised
regarding the contractors, i.e. the private for-profit firms or charitable private
voluntary organizations (PVOs), which provide the consultant experts. These
implement the vast majority of U.S. assistance projects worldwide. In the case of the
FSU, there have been complaints regarding the absence of a competitive selection
process, the amount of paperwork involved in applying for AID grants, a
geographical imbalance in those selected, and an unfair preference for those with
prior AID experience.41
Presumably due to its high profile and political import, thousands of public
organizations, universities, and private firms have sought to participate in some
fashion in the FSU program. In addition to formal project bidding, there have been
numerous unsolicited proposals submitted to AID — 983 to date, requesting up to
$4.7 billion in funding. Of this amount, roughly $84 million has been granted.
39 Some critics see harm in this. It is, however, consistent with the U.S. strategy of
“leveraging” assistance.
40 Interfax, September 6, 1994.
41 For example, see the testimony of Linas J. Kojelis, President of the U.S.-Baltic
Foundation before the Subcommittee on Foreign Operations, House Committee on
Appropriations, April 25, 1994, in FY1995 Hearings, part 3, page 608-615.

CRS-31
While there are legitimate grievances regarding the contracting process, it is difficult
to discern them among the gripes that emanate from hundreds of unsuccessful
bidders, many of whom lobby their representatives and the press.
Since undertaking AID work is a new experience for many successful as well
as unsuccessful bidders, the onerous paperwork requirements of the AID proposal
and contracting process are a shock.42 Many agree that reform of this process has
been long overdue, although a lot of the accountability requirements exist in order
to protect the interests of the taxpayer and are not peculiar to the FSU aid program.
Under political pressure, steps were taken early in the FSU program to try to
circumvent the traditional contracting process and speed up the program. For one,
instead of tens of small projects being put up for bid, several large “umbrella”
projects were established in major sectors. These were contracted to major firms
who then sub-contracted pieces of the whole project to other firms. This imposed
less burden on the sub-contractees and freed AID of much of the accounting and
program responsibility and consequent personnel and paperwork requirements that
managing numerous small projects would entail. Second, using its FREEDOM
Support Act waiver authority, AID let some contracts without going through standard
bidding procedures.
A consequence of these novel contracting procedures were complaints that AID
favored its usual roster of contractors, i.e. those with experience in developing
countries, and that, therefore, most of the contracts went to firms in the Washington
area. Members of Congress, in particular, have criticized the possible geographic
imbalance in the program, in some cases, pointedly remedying the situation by
recommending funding for Northwestern U.S. efforts in Siberia, and noting its
concern on this issue in report language.43 In selecting the primary contractor for its
umbrella projects, it stands to reason that AID, under time pressures imposed by the
State Department, would tend to go with known, experienced, quantities.44 Further,
AID would point out that the far more numerous sub-contractors represent a more
diverse pool of organizations and geographic locations. A rough count of major AID
beneficiaries as of August 1994 shows that Washington area firms and organizations
represent 57% of total primary contractors and grantees, but only 24% of sub-
contractors and grantees. Responding to congressional criticism, AID has
increasingly sought to attract procurement from outside Washington, advertising
opportunities in a wider range of publications, opening an office in California, and
holding procurement conferences in different regions.
42 In a dramatic gesture meant to illustrate the point, at hearings of the House Appropriations
Foreign Operations Subcommittee on May 10, 1994, Chairman David Obey held up a foot
high stack of paper saying that one contractor claimed that was what he had to respond to
in applying for an AID contract. According to an AID official, the stack included an internal
procedural handbook not related to contract requirements.
43 Most recently, in Senate Report 103-287 accompanying H.R. 4426, the Foreign
Operations, Export Financing, and Related Programs Appropriation bill, 1995, p. 72,
reported June 16, 1994.
44 On AID official has stated that, in general, only 25% of bidders had never worked with
AID before.

CRS-32
Some critics reserve a special disdain for the larger contractors because they
appear to encapsulate their perception of the worst features of the assistance program
— lack of knowledge of the region, high expenses, and little to show for it in the
field. To highlight these failures, these critics point out a disparity in performance
between the large firms and the small U.S. NGOs conducting programs throughout
the FSU. In the effort to spend money quickly, AID provided these large contractors
with tens of millions of dollars — technical assistance contracts amounted to $714
million in FY1994.45 The firms, critics say, had no experience of the region and
ended up spending much time and money sending out teams to help them figure out
what they should do with the funds. Several are still reportedly wondering how to
spend the money. In contrast, the NGOs have been able to act quickly, disbursing
funds rapidly, and working with local people. While there is an element of truth to
each of these charges, there may also be elements of distortion. AID does not
possess sufficient staff to monitor hundreds of small contracts; this is the job of large
contractors. The large contractors may not be versed in FSU culture, but they are
supposed to hire people who are to carry out the programs (this may not always
occur). Finally, some contractors have moved slowly, partly because project
objectives changed, FSU relationships have been slow to develop, and, poor
management.46
How Is the Program Helping U.S. Business and Investment
and Trade?
Consultants and contractors are not the only Americans who benefit financially
from the FSU aid program. Through both Bush and Clinton Administrations, the
executive branch and many members of Congress have argued that the U.S. private
sector, not government, would ultimately provide the critical financial resources to
transform the Russian economy and that one role of the aid program was to “mobilize
the U.S. private sector” to this end. Given the limited amounts of foreign aid
available, this was pure realism, but it has also been a way to draw political support
for the program, inasmuch as U.S. companies are expected to benefit substantially
from the increase in trade and investment in a more stable FSU.
As noted earlier, there are a number of ways in which U.S. agencies facilitate
U.S. private sector trade and investment in the FSU — TDA feasibility studies, OPIC
risk insurance and investment guarantees, USDA CCC agricultural credit guarantees,
P.L.480 concessional loans, Eximbank export guarantees, Commerce Department
business information and service centers, and trade missions conducted by all of
these. In addition, AID focuses considerable effort on getting the recipient countries
to make their political and economic environment more hospitable to U.S. business.
All these spigots received greater attention and emphasis during the visit of President
Yeltsin in September 1994, when roughly $1 billion in trade and investment
45 This was 34 percent of the NIS account. It should be noted that many of these funds are
later sub-contracted to smaller firms and NGOs.
46 See forthcoming study of the Project on Reform of Aid to the NIS for further views on
NGO successes.

CRS-33
understandings were signed, including $100 million in greater assistance through
OPIC, TDA, and Department of Commerce.
Of course, a major advantage of OPIC, USDA, and Eximbank guarantee
programs is that their main cost to the United States is the subsidy amount needed to
support repayment in case of default. Depending on the risk involved, a small
subsidy can leverage large sums of loan coverage. Of the $300 million subsidy
provided to Eximbank in the FY1994 appropriations bill, the $227 million utilized
in FY1994 leveraged $1.3 billion in loan guarantees.47 Some argue, however, that
the subsidy is too low and does not account for the high risk involved in lending to
the region. A recent GAO report calculates a 67.6% risk that Russia will default on
a loan and a 80.7% chance that Ukraine will default.48 Such concerns led the
Eximbank to structure a possible $2-billion oil and gas framework agreement so that
loan collateral will be generated from current production proceeds.
In the first two years of the aid program, trade and investment activities moved
slowly. On the Russian side, there was some reluctance to incur further debt,
especially following a temporary default in November 1992 on repayment of CCC
guaranteed loans that brought use of that program to a halt. Of roughly 165
applications referred by Eximbank for Russian approval in FY1992-93, Russia
approved about ten. In addition, FSU governments, which remain the largest
potential purchasers of U.S. goods and developers of projects that could utilize U.S.
investment, were not yet in a position to launch major development projects that
might use foreign investment. The uncertain business climate and lack of investment
laws also had its effect on U.S. businessmen. And like AID, OPIC has been
criticized by U.S. businessmen for being too slow in making decisions and offering
difficult terms for credit. Although OPIC and Eximbank reported large numbers of
“registrations” and “expressions of interest” in their programs by U.S. business early
on, actual commitments and final approvals were few. These numbers have grown
substantially in the past year. In FY1993, Eximbank guaranteed $184 million in face
value loans and OPIC $135 million. In FY1994, they covered $1.3 billion and $700
million, respectively.
It is not possible to say whether the insurance and guarantee programs, intended
to compensate for inherent risks, are having an impact on those who, otherwise,
would not have invested in the region or that the investments supported to date —
mostly in extractive industries — are helping to restructure FSU economies.
However, their very establishment, requiring agreements with the FSU governments,
is one factor in helping to create the “right” business environment. As noted above,
Russian officials have called for increased U.S. support for these programs.
In addition to these programs, the U.S. Government has also used its political
pull — through summits, the Gore-Chernomyrdin process, and trade delegations led
47 OPIC and Eximbank claims of funding activity represent face value coverage, not U.S.
government expenditures. Further, OPIC insurance is entirely paid for by the business and
brings a profit to the U.S. Government.
48 GAO, Credit Reform: U.S. Needs Better Method for Estimating Cost of Foreign Loans
and Guarantees, GAO/NSIAD/GGD-95-31, December 1994.

CRS-34
by high profile U.S. officials — to encourage completion of business deals. In
particular, the U.S.-Russian Joint Commission on Economic and Technological
Cooperation co-chaired by Vice President Gore and Russian Prime Minister
Chernomyrdin, initiated by the Vancouver summit in 1993, has been effective in
reaching agreements in the fields of business, energy, space, technology, and defense
conversion, that have in turn led to development of significant business transactions
supported, in part, by U.S. trade and investment agencies.
Is Assistance Being Used for Corrupt Purposes?
Evidence that Russia and the other republics are suffering from widespread
corruption and criminal activity coupled with suspicions regarding the susceptibility
to corruption of all foreign aid has led to charges that U.S. assistance to the region
is being used for corrupt purposes.49
To the extent that the FSU is riddled with corrupt officials and businessmen, the
program may be marginally benefiting these individuals. For example, some believe
members of the corrupt elite are benefitting from free trips to the United States
provided by exchange opportunities or, if they occupy key policy positions, that their
influence is increased by having a say over where U.S. technical assistance and
exchanges are provided. To the extent that aid is truly targeted at reformers, these
situations will be rare. Some would also add that the constructive purposes of the aid
are more important than whether a few members of the corrupt elite benefit
peripherally from it. A similar response might be provided those critics who charge
that criminal elements have benefitted from the privatization program, first by
forging vouchers that allow them to accumulate more than their legal share of newly
privatized company stock, and second, by evidently thriving in an emerging free
market economy.50 It seems unlikely that the privatization program was specifically
designed to facilitate criminal elements. Growing concern in the Administration and
Congress regarding the impact of crime on success of democracy and free markets,
however, has led to a $30 million earmark in the FY1995 appropriations to help the
FBI, Treasury, and Justice provide law enforcement technical assistance and training
to their FSU counterparts.
For the most part, however, the U.S. aid program is not structured in a manner
conducive to fraud or corruption by recipients in the FSU. Technical assistance, the
bulk of the aid program, is provided largely by American citizens. And much
procurement funded out of the NIS account — office equipment and energy and
environment equipment — is conveyed to Russian citizens under the presumably
watchful eyes of U.S. PVOs and consultants.
Foreign assistance can most easily be used corruptly where there are large
monetary sums or fungible goods made available. In this regard, the major
49 For example, see Seymour M. Hersh, The Wild East, in the Atlantic Monthly, June 1994,
p. 61-86.
50 Seymour Hersh says an unidentified government employee guessed that 30 to 50 percent
of AID money for privatization “is spent in a way that ultimately benefits criminal
interests.” (p. 82).

CRS-35
opportunity to put U.S. activities to corrupt uses has been the food aid program. Two
magazine articles in August 1993, though filled with errors and distortions, presented
examples of how U.S. food aid shipments to Russia and the other new states
encountered problems at ports as officials sought bribes and payoffs. They also
described the suspect roles of three Russian organizations responsible for handling
the donated commodities and shipping them to their end destinations.51
Following the shift from commercial agricultural exports to food aid shipments
as a result of Russian default in payments on USDA guaranteed loans in late 1992,
different laws and program terms took effect. Russian officials and others took
advantage of the chaos and the opportunities for financial gain that the new importing
arrangements offered, and in turn, some problems the articles allege likely did occur.
In response to these charges, Secretary of Agriculture Espy, however, countered that
food aid: (1) served the objective of delivering adequate volumes of food to those
who needed it, requiring that USDA deal with former state monopolies in Russia that
were the only organizations capable of doing so, and (2) constituted part of the
comprehensive U.S. assistance package - important to avert potentially destabilizing
food shortages in the short term and to ensure the survival of President Yeltsin’s
reform-minded government.52
The use of local currency funds generated by the sale of U.S. agricultural
commodities donated under section 416 presented another opportunity for corruption.
Here, food aid is monetized and provided to the Russian Humanitarian Commission
which is required to allocate it for rural development projects. Some knowledgeable
Americans report that the first round of grant distributions decided by the
Commission’s Tender Committee provided funds directly benefitting members of the
committee itself and for other questionable uses. Later, the Committee refused to
provide assistance to selected beneficiaries unless they maintained funds in a bank
selected by the Committee. It was inferred that members of the Committee were
receiving benefits from the particular bank. Although USDA has a representative on
the Committee, some believe it was more interested in getting food commodities into
Russia than in what happens to the monetized aid later.53 Reportedly, the State
Department has since raised the issue with USDA. As a result, local currency is now
distributed through new rural commissions, based on a successful model employed
in Poland. Both a USDA and U.S. NGO representative participate, and loans are
repaid to local communities which have a vested interest in insuring accountability.
While food aid is dwindling, ruble and dollar allocations of assistance are
increasingly likely to be made available directly to Russians through the growing
number of enterprise funds and grassroots grant programs intended to help the private
sector and encourage democratic institutions. Up to $25,000 in grant funding can be
provided without requiring a U.S. government audit — something most small FSU
51 “The old guard feeds at the aid trough”, U.S. News and World Report, August 23, 1993,
p. 38-42. “Food mischief”, Forbes, August 16, 1993, p. 40-41.
52 USDA’s response also offered a detailed rebuttal of the examples and incidents these
articles mentioned. In Congressional Record, September 23, 1993, p. E2240-2242.
53 For one version of this story, see “U.S. Aid to Russia Farmers Fails to Make It to the
Silo”, Los Angeles Times, Washington Edition, January 31, 1994, p.A1.

CRS-36
organizations are not equipped to accommodate. Many Eurasia Foundation grants
are, therefore, limited to this amount. Funds so allocated may not be used as
promised, but the issue here is not so much corruption as it will be careless
programming of the funds to begin with. One early AID project that provided grants
to FSU environmental NGOs dealt with fears of corrupt use of these funds by
providing initial grants of roughly one to two thousand dollars, offering more if these
sums were well used. Unfortunately, this is a highly labor intensive administrative
process, not practicable on a large scale.54 Managers of enterprise funds have
indicated that efforts would be made to insure that funds are not lent to criminally-
owned businesses, but identifying such business may be problematic.
Ultimately, the best defense against corrupt uses of assistance (as well as
bad project design and ineffective projects), is the presence of AID and other
implementing agency accountants and program managers in the recipient countries.
Identifying who can best utilize the aid and monitoring its use are two of the main
purposes of AID mission personnel. However, the large number of other agencies
now responsible for components of the assistance program may not be accustomed
to implementing projects abroad in a manner that will ensure adequate accountability.
Catching malfeasance after the fact would be facilitated by more regular auditing by
agency inspector general offices. As of September 1994, the AID Inspector General
has completed ten audits of projects representing roughly $117.8 million in
obligations. No criminal misuse of funds was found, but audits of large projects still
need to be done.
Is U.S. Assistance Being Used Effectively?
Ultimately, the success of U.S. assistance programs will be measured by the
outcome of political and economic events in the FSU, and this is dependent on a
great many more factors than the inputs of U.S. assistance.55 Some analysts view the
current flow of events in the region favorably, others are not so sanguine. It is just
too early to tell.
For the moment, without knowing ultimate outcomes, many policymakers are
wisely seeking to insure that the U.S. aid program is being run in the most effective
manner possible and the impact of U.S. assistance maximized to the extent possible.
The U.S. aid program has been in existence for less than three years and actual
implementation on the ground is, for most projects, much less than two years old.
While it hardly seems fair to make judgments at such an early stage, patterns and
problems have emerged in this time that may need correction if the program as a
whole is to be more effective in achieving U.S. aims.
54 ISAR Mid-term Evaluation, July 22, 1994, by Mary Heslin and Edward Hodgman.
55 Political events may have a very direct affect on the U.S. aid program as indicated by the
January 5, 1995, ban on foreign advisers by the new head of the privatization agency (GKI).
U.S. assistance to GKI has been a centerpiece of the U.S. aid program. Although overruled
by Anatoly Chubais, the first deputy premier and former head of GKI, the outcome was not
known as this report went to press. “Emboldened Russian Hard-Liner Threatens
Privatization Drive”, Washington Post, January 10, 1995, A14.

CRS-37
Views abound regarding possible flaws in the aid policy process, program
priorities, and project design and implementation. Many of these are subject to
skepticism; they generally fail to note constraints faced by the program, they
overlook its rapidly changing nature, and they are rarely argued with specific
examples. Although agreement on the ultimate objective — free markets and
democracy — is universal, everyone seems to have a different idea of how to use
assistance to get there.56 But certain underlying and inter-related problematic issues
— concerning focus, implementation, and risk — have troubled enough people that
some steps have been announced to address them, much to the credit of those who
have raised them and those in government who are moving to correct them.
Strategic Focus. Many of the criticisms of the aid program, most notably
those made by House leaders Gephardt and Michel in their April 1994 memo,
congregate around the issue of focus. There has been a general sense that no one has
a firm hand on the tiller. This relates strongly to the issues of coordination and slow
implementation discussed above, but ultimately leads one to ask what is being
coordinated and implemented — in what direction is the program going?
As the spending figures show, the United States is doing a little of everything,
diluting the effect of executive branch strategy statements. During 1992, the Bush
Administration initiated a range of projects, and Congress has since encouraged this
trend with multiple program and project allocation earmarks and recommendations.
State and AID officials argue that, without these allocations, they might provide aid
differently, on a more “rational” basis, foregoing sectors that, in their view, are less
critical and providing greater funding to countries and sector ministries that are more
reformist.57
While the executive branch may argue that congressional politics has skewed
“rational” prioritizing, others argue that the FSU aid program — profoundly foreign
policy-driven — has been “politicized” by the State Department. They say a number
of programs — SABIT and Peace Corps, for example — were started up to fulfill a
political need for visibility, for programs that sounded good or met desires of
different parts of the U.S. Government to be involved without due consideration of
a strategy of assistance or meeting specific development goals. One of the few
projects that most agree has been an utter failure — an effort to provide temporary
56 Among more interesting or well-argued viewpoints during the past year: Charlie Flickner,
“The Russian Aid Mess,” The National Interest, Winter 1994/95; Laurence Eubank, “Soul
of an Old Regime,” WorldView, Spring 1994; Kristin Brady and Michelle Maynard,
Assistance to the Newly Independent States: A Status Report, Staff Report to Committee on
Foreign Relations, U.S. Senate, February 1994; Ariel Cohen, Restructuring Aid to Russia:
Revising H.R. 4426, Heritage Foundation Bulletin, July 14, 1994; and Fund for Democracy
and Development, A New Strategy for United States Assistance to Russia and the Newly
Independent States, January 10, 1994.
57 In order to maintain its flexibility and not give the new states and supporting interest
groups the idea of aid entitlements, State avoided providing specific country budget figures
in the first years.

CRS-38
grain storage silos to Russia — was reportedly begun at the insistence of Secretary
of State Baker in the interest of offering a demonstration of U.S. support.58
Dispersing aid among numerous agencies and the rise of alternative power
centers has potential drawbacks; each has its own “policies” to promote. It appears
to be an accepted fact among many U.S. observers in Russia that all USDA-run
programs are designed primarily to facilitate agricultural exports, and that
development aspects of their projects are secondary. The Gore-Chernomyrdin
process skews the aid program toward promotion of environmental programs.
In the first two years of the program, the “little of everything” approach was
exacerbated by political pressure from both State and Congress to get activities
quickly on the ground. It was further aggravated by an environment where all
decisions were made in Washington and where information was still scanty on who
supported reform, who was corrupt, and who was worth helping in local government.
The first years were characterized by an effort to push out all kinds of assistance at
once, without a coherent strategy to guide the timing — training bankers when there
is no banking system, sending Peace Corps business advisors to assist new
entrepreneurs when no credit programs were yet available. This is what U.S. media,
business, and congressional observers reported that helped create a negative
impression in the United States of the initial aid program.59
Further lost in the play between different interests, some suggest, has been the
presumed target of this foreign policy, the citizens of the FSU. The periodic U.S.-led
pronouncements promising G-7 aid and then not appearing to deliver, the stream of
technical assessment team visits to FSU government and private sector officials that
appeared to lead nowhere, the apparent failure to cut through U.S. cultural and
political ignorance regarding the region by hiring sufficient numbers of FSU
specialists and requiring more grassroots programming despite the administrative
obstacles, may all have contributed to the reportedly disillusioned FSU public. If the
58 In early 1992, when many were concerned regarding possible famine due to the incapacity
of the food production and distribution system, the United States offered the region grain
storage silos (despite opposition from AID). Many observers believed the program was
inappropriate because the planned facilities were temporary; required a large investment (a
$3,000 contribution) on the part of the private farmers for whom they were intended; that,
for a similar investment, a permanent structure could have been designed; and that, at 2,000
metric tons capacity, they were too large for the small farmers for whom they were
supposedly intended. Eighty facilities were to be built by December 1992, but, as of March
1994, only one was fully installed, the others in varying stages of completion. A decision
to terminate the project was made in June 1994.
59 To some, the State Department appeared opposed to a strategic approach. AID
interviewees asserted that they were forbidden to use the word strategic on this program, and
that State had rejected AID proposals for strategic country planning. One outside evaluation
of the range of AID democracy projects, based on interviews with more than a dozen AID
officials (Management Systems International. Supporting Democracy. April 20, 1994,
p.16.), states, “The initial grants were described as having been “written on the back of an
envelope” at a time when the Agency was specifically enjoined from conducting
assessments or developing a strategy.” According to an AID official, it was AID that
initiated the FSU strategy development process.

CRS-39
conduct of the assistance program is leading to the alienation of its targets, one U.S.
foreign policy objective is well on its way to being lost.60
It must be said that none of the negatives described above have ever been true
across the board. Despite problems and obstacles, there have always existed good
projects welcomed by Russian officials as well as ones appreciated by local people.
And, by 1994, there were a number of positive signs for program implementation
generally. Knowledge of field conditions had certainly improved. A track record of
existing projects had begun to take shape. A Coordinator’s Office representative had
been placed in Moscow. Program weaknesses, some of which were pointed out by
congressional leaders of both parties, were being addressed in both regional and more
focused individually tailored country strategies. As a result, if sectoral priorities were
not as explicit as some would like, a number of guiding strategic principles of the
program seem to have become more sharply defined. The four most prominent are
approaches that support targeting of reformers, complementarity, linkages, and
leveraging of resources.
Targeting reformers is a strategy perpetuated from the first executive branch
statement in January 1993. It has always been U.S. policy to favor reforming
republics, as the levels of aid for Russia and most recent increases for Ukraine
demonstrate. Beyond this, at the local level, was the idea of bundling projects to
create what Secretary Eagleburger called “symbols of success”, under the principle
of, as Ambassador Simons put it, “aid following reform”. To support this concept,
officials in Simons’ office proposed concentrating all resources in select reformist
regions of Russia, to achieve maximum success. Congressmen Gephardt and Michel
called for a concentration on five regions. Current policy is to focus efforts on 13
cities in 5 reformist regions.
Related to the targeting of reformist efforts, is the bringing together of diverse
programs run by the different agencies in a way that would complement each other,
creating “synergy”. For example, AID and USIA are working together on a joint
media project, with AID doing the financial management technical assistance and
training and USIA handling journalist training.
A recurrent theme in program rhetoric is to create linkages between people in
the United States and the FSU. It links the desire for grassroots impact with those
who support U.S. private sector solutions. The argument made is that FSU nationals
are at a level of development and education to benefit most from people-to-people
experiences. Farmer-to-farmer, hospital partnerships, business internships, etc. also
create long term relationships that might benefit both parties beyond the immediate
U.S.-supported assistance activity.
Related to the creation of linkages is the idea of leveraging private sector
assistance that runs throughout much of the assistance program and is likely to grow
as trade and investment programs develop. It recognizes that the United States has
insufficient funds to maintain the program indefinitely, and that the Russians and
60 See “Overrun by Ugly Americans”, by Yelena Khanga, for one view. New York Times,
August 20 ,1994.

CRS-40
Ukrainians, in particular, are seeking private investment and trade opportunities. The
agribusiness projects, enterprise funds, OPIC, TDA, Eximbank, and other activities
are seeking to stimulate U.S. private sector commercial programs.
These approaches form a coherent strategy that, arguably, would make the
assistance program more effective. However, it is not yet clear whether the
Administration strategy is being enforced at the project level in a coherent,
consistent, and forceful manner.
Management and Evaluation. Actual implementation of whatever
programs and strategies are approved could be made more effective through
improved management and evaluation capacities.
One problem — contributing to ignorance of the recipient country and
inadequate coordination — has been the lack of a field presence. In its early stages,
projects were developed and run entirely by Washington-based management. AID
and other agencies formulated projects based largely on reports from visiting teams.
This approach, argued the State Department, was necessary for rapid creation of
programs.
The AID mission presence in Moscow only began in September 1992 and a
workable, although arguably still inadequate, staff presence of 23 direct hires cannot
be said to have been established until early in FY1994. These manage an AID
program with obligations ranging from $270 million in FY1993 to $843 million in
FY1994. By comparison, the FY1991 Kenya program of $35.5 million was managed
by 23 direct hires.61
As AID staff resources have grown, the Clinton Administration has shifted some
project development responsibilities and most project monitoring to the field. U.S.
embassy restrictions on the number of AID staff permitted in Moscow — partly due
to the need for reciprocity with the size of Russian embassy staff in Washington —
have hampered AID in this respect. There was, reportedly, a year-long hold on new
Moscow posts in 1992-93 because State needed to approve them, and State rejected
some AID posts in Ukraine. Even for the smaller posts in the NIS the approval
process had been time-consuming. Several positions requested in the spring of 1994
had not been approved by September.
Most other agencies have little or no monitoring presence in Moscow. In 1993,
USDA had three Americans and two nationals in Moscow to monitor and implement
a program in eleven countries. Other agencies now responsible for components of
the assistance program have been vying for posts in Moscow. It has been argued that
Eximbank in particular should have a presence, but instead it relies on the
Department of Commerce to represent its interests.
61 This comparison is a bit rough as mission management is supported as well by non-
national personal service contractors. In FY1994, the Moscow mission had 39 of these.
Kenya had 15.

CRS-41
One important role for monitoring agencies is to learn from the inevitable
mistakes and feed this knowledge back into the system. This is particularly
important in a tumultuous and shifting political environment where recipient agencies
— both the U.S. contractors and FSU organizations and political bodies — are
relatively unknown quantities. The evaluation process is an important indicator of
efforts to learn and correct mistakes. When the FSU program began it suffered from
a dearth of evaluations of Eastern Europe programs from which to learn, but
evaluations of on-going FSU projects seem to be occurring earlier in their term. As
of September, 17 formal outside project evaluations had been completed by AID,
representing, however, only $30 million in 1992 projects. None of the very large
programs, such as the privatization program, have been evaluated yet, although these
are scheduled for 1995.
The first round of inter-agency agreements neglected to include a budget line for
evaluations of project progress. This, reportedly, has been corrected. Further, the
Coordinator’s Office now requires that agencies receiving transfers have an
evaluation plan, a budget, and a description of the project with milestones, goals,
program for meeting goals and regular reviews. The Office also sends out its own
people to conduct periodic in-house assessments.
Ultimately, the extent to which evaluations and audits are utilized is a more
important issue. A negative audit of the crop storage program led to termination of
that program in June 1994. However, severe criticisms of that project had been in
circulation for more than a year prior to project termination. On the other hand, a
viable response to the question of misuse of local currencies by the Russian
Humanitarian Commission was formulated by State Department in the form of the
rural commissions. Whether the aid coordinator office is willing to take strong action
to identify, correct, or terminate questionable programs or activities does remain an
issue and crucial test of the usefulness of the position.
Risk and Accountability. From the start, the assistance program has
suffered from a tension between the desire for risk and accountability. From the
outset, the Bush Administration explained the FSU program as an experiment — they
were functioning in unknown territory, under pressure to act quickly, and with no
assurance of success at the end of the day. Although Russia is increasingly stabilized
as a political and economic entity, reports of corruption and crime and the sudden
plunge of the ruble are reminders of the unpredictability of the situation there. All
the other republics remain economically and politically fragile. Both Bush and
Clinton Administrations have had to face the issue of how much risk they are willing
to take with U.S. taxpayer dollars in order to achieve U.S. foreign policy ends.
In the FREEDOM Support Act, Congress allowed the executive branch an
unusual amount of flexibility, tempered by the need to inform and gain approval for
appropriations. It approved a “notwithstanding” clause that would allow the
President to ignore other legislative restraints.62 As the program was implemented,
62 According to the State Department, “notwithstanding” authority was used sparingly to
disregard certain bureaucratic procedures and accountability requirements. In effect, its use
(continued...)

CRS-42
Members of Congress and other observers encouraged the executive branch to act
boldly. On the other hand, Congress limited flexibility by earmarking funds for
specific sectors, pressuring the Administration to fund specific countries, and put
holds on proposed programs until they were explained in detail and accountability
concerns laid to rest.
These conflicting messages translated into an assistance program in which, some
believe, the United States has been too cautious in its approach and that aid
programming has not been creative enough to meet the challenges posed by the
transition. They assert that aid programs, including enterprise funds supposedly
designed to make risky investments, may be overly encumbered by accountability
requirements. The notwithstanding language is rarely applied. Both Administrations
have turned a deaf ear to radical suggestions for such things as social safety nets to
direct funding of Russian organizations and been accused of being overly
conservative and unimaginative as a result.
These charges must be weighed against the need for accountability. Many
believe the entire aid program would be undermined if reports of corruption, waste,
and bad programming became common. That is why a monitoring agency presence
and forceful action on the part of the aid coordinator to correct or terminate
questionable programs are necessary.
Conclusion: The Role of Congress
One of the most striking aspects of the FSU aid program has been its broad
bipartisan support in Congress. Each year, the program has been approved by wide
margins and, during the first two years, the chief criticism made by congressional
opponents in both parties was that the dollars requested were better spent helping
Americans.
In 1994, however, critical attention increasingly shifted to implementation of the
program itself, with both praise and condemnation delivered on a bipartisan basis.
Following a House delegation visit to the FSU in April, House leaders Gephardt and
Michel, reportedly with the close participation of then Minority Whip, Newt
Gingrich, wrote a well-publicized memo, laying out their critical concerns regarding
the leadership of the program and project priorities.63 In May, an amendment to the
foreign aid appropriations bill was offered by Representative Callahan that would cut
62 (...continued)
has allowed non-competitive selection of some contractors, permits the enterprise funds to
adopt a more private sector orientation, and allows hiring of “personal service” contractors
in Washington to beef up scarce career staff capabilities.
63 Specifically, the Members of Congress criticized the slow delivery of assistance and the
lack of strong coordination leadership, suggested targeting specific reformist regions for
assistance, recommended that the Russia Enterprise Fund target small investments, and
proposed greater emphasis on exchanges (50,000 visitors in FY1995) and assistance in tax
policy reform and law enforcement. According to the memo: “America’s current assistance
program is simply inadequate in its strategy, its intensity, and its implementation.”

CRS-43
funds for Russia, partly on the grounds that the assistance program had had no impact
yet on democratization and free markets. The House rejected the amendment in a
286-144 vote. In September, a bipartisan Senate delegation, led by the chairman of
the Appropriations Foreign Operations Subcommittee, Senator Leahy, visited the
region. Their trip report contains an extremely positive assessment of the assistance
program and its own set of project preferences.64 By the end of the year, there were
suggestions that the assistance issue was becoming more partisan.65 Surely, the
program will be closely scrutinized in 1995.
The FSU aid program is intended to support what many in Congress and
elsewhere continue to believe is the most important purpose of U.S. foreign policy
— assisting a peaceful transition in the FSU to stable, free market democracies. As
the program has developed over time, it was always likely to attract more criticism
from U.S. interest groups, consultants, business people, and analysts. Weeding out
the important criticisms from irrelevant or self-serving ones is of congressional
concern because unfounded criticism undermines support for the program while
legitimate critiques can be used to strengthen it.
Because its interest has been strong from inception — the Senate Foreign
Relations Committee called the FREEDOM Support Act “a joint executive-
legislative commitment” — many believe Congress itself must take some of the
responsibility for what happens to this program.66 Some suggest that it has been
sending mixed messages regarding the direction the program should take. Congress
provides unusual flexibility with its notwithstanding clause and other language, yet
adds program earmarks and report language recommendations; it asks that funds go
only to reformers, and then recommends funds for non-reformers. Individual
Members have criticized the program in every way this report has mentioned: not
enough risks are taken; too much waste; too much paperwork for contractors; too
many contractors; the program should be run with flexibility; AID should provide
more detail on programs, and so forth.
The disparity of congressional views on implementation of the aid program is
not unusual, except in terms of the relative unanimity of views that existed in
64 With Senators Thad Cochran, J. James Exon, and Hank Brown. Specifically, they praised
the privatization, agricultural exchange, farm privatization, OPIC, Peace Corps, and Eurasia
Foundation programs; recommended law enforcement programs and efforts to construct the
legal framework for private sector activities; and expressed caution regarding the New
Business Development program. According to the Codel report: “Although it took time, the
U.S. assistance program for Russia is now in full operation. Russian government and non-
government representatives with whom the delegation met were virtually unanimous in
praising the contributions of the program, and many requested increases in technical
assistance for elements of the reform program.” Congressional Record, December 1, 1994,
S15450-15453.
65 “Russian Aid Under Siege by G.O.P.”, New York Times, November 25, 1994, p. 25.
66 Senate Foreign Relations Committee, Report on S. 2532, Senate Report 102-292, June 2,
1992, p. 2. For complete discussion on congressional role in the Freedom Support Act, see
CRS Report 93-907F, The Former Soviet Union and U.S. Foreign Assistance in 1992: The
Role of Congress, by (name redacted), October 12, 1993.

CRS-44
establishment of the program. There are clear signs that the congressional consensus
has begun to fall apart. How to maintain consensus and work to strengthen the
effectiveness of the program is a concern to many in Congress.
Some would suggest that Congress might both evaluate the criticism and
improve congressional guidance of the program if it exercised more extensive
oversight. In 1992, as an aid policy for the region was being formulated and debated,
Congress held dozens of hearings, culminating in passage of several important pieces
of legislation, most notably the FREEDOM Support Act. In the past two years, the
number of hearings on the subject have dwindled to a handful. It continues to be the
most important foreign policy interest and therefore the details are a legitimate
concern of Congress.67
The FSU aid program has been evolving at a rapid rate. Many criticisms that
were legitimate a year ago, no longer hold true for the current program.
Nevertheless, there remain issues that Congress will likely wish to track carefully,
including the extent to which:
! programs reach the grassroots,
! corrupt uses of aid are avoided,
! privatization advances with U.S. assistance,
! agencies and disparate programs work together,
! programs produce visible results,
! projects are regularly evaluated,
! bad programs are terminated,
! reformers are targeted, and
! private sector funds leveraged.
The Administration has assured Congress that these steps are being taken. Congress
may now seek to insure these promises are kept.
67 The Marshall Plan, often held up by analysts and others as a model for foreign assistance
and for the FSU program in particular, might also offer an idea for congressional oversight.
As the Plan was formulated, it was subject to among the most extensive hearings and study
in congressional history. Recognizing its importance, Congress wrote into the authorizing
legislation the establishment of a non-legislative joint committee of Congress to conduct
oversight studies of the Marshall Plan program. Known as the Watchdog Committee, it
helped provide Congress with a continuing series of informative reports on all aspects of
program implementation, supplementing the ongoing oversight activities of authorization
and appropriations committees on the subject.

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