No. 338
March 22, 1999
U.S. ASSISTANCE FOR MARKET REFORMS
Foreign Aid Failures in Russia and the Former Soviet Bloc
by Janine R. Wedel
Executive Summary
been used to hire Western consultants whose
Since the fall of the Berlin Wall in 1989 and
advice is redundant or adds little to the develop-
the subsequent breakup of the Soviet Union in
ment process. Aid has become an end in itself,
1991, the governments of the United States and
and, in prominent instances, has resulted in con-
other Western countries have provided massive
flicts of interests or self-enrichment of aid-
aid to promote a transition to the free market in
financed advisers. Because providing official
Central and Eastern Europe and the former
funds to countries in transition is an inherently
Soviet Union. But aid for market reforms in the
political process, reform efforts often backfire
region has been largely ineffective. Whether pro-
when they are perceived to follow an agenda set
vided in the form of technical assistance, grants
by Western governments. Those efforts have
to political groups or nongovernmental organi-
been further discredited by the West's strategy of
zations, loans and guarantees to the private sec-
supporting specific groups or individuals in
tor, or direct financial aid to post-communist
Russia whose actions depart from their pur-
governments, that aid has been plagued by a
ported interest in liberal "reform." The United
number of problems. The failed $22.6 billion
States and other donor countries should not
bailout of Russia by the International Monetary
continue their dubious aid-for-reform approach
Fund in July 1998 only confirmed the flawed
if they wish to encourage the development of
nature of the aid-for-reform approach.
democracy and true market reform.
Technical assistance, for example, has often
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Janine R. Wedel, author of Collision and Collusion: The Strange Case of Western Aid to Eastern Europe
19891998 (St. Martin's, 1998), is a research professor of anthropology and a research fellow in the Institute of European,
Russian, and Eurasian Studies at The George Washington University and an adjunct professor in the Graduate Public Policy
Institute at Georgetown University.