An Aid Program That Sows Seeds of Distrust : Russia: Whether in the form of humanitarian assistance or food, the help has produced few successes. Protectionist walls must come down.

Russia’s first democratic parliamentary elections-cum-constitutional referendum this week, followed by President Bill Clinton’s visit to Mos cow in January, will again bring into focus the pain and promise of the historic transformation of the former Soviet Union. The likely electoral victory of democratic elements will be followed by a renewal of “help Russia” pleading in the West. Impressive sounding aid amounts will be bandied about, agreements will be solemnly signed and politicians on both sides will make grand speeches celebrating Russia’s progress and Western generosity.

There are, however, two good reasons to pause and take stock of the aid experience so far. First, the defeat of the staunchly anti-reform faction has, for the first time, created political conditions congenial to genuine progress. Second, and more important, there are increasing signs that Western aid is falling far short of its ballyhooed promise, a reality that may be contributing to the Russians’ growing distrust of Western intentions.

Any such examination should begin with some basic questions about the objectives and limitations of development aid. It is worthwhile to keep in mind, for example, that foreign aid is not a necessary precondition, let alone a determining factor, for successful development. The two most successful cases of economic development in the last decade--China and Chile--received virtually no aid, while numerous long-term recipients of Western aid economically regressed.

This is not to say that aid cannot provide a meaningful and, at times, decisive impetus to development. To do that, however, a number of conditions must be satisfied.

First, a government dedicated to reform and willing to make the often unpopular decisions necessary for a transition to a market economy must be in place in the recipient country. Accordingly, Western aid programs must have a well-defined objective, encourage private enterprise and market solutions, have a realistic chance of success and be of limited duration. Most important, the aid programs must be driven by a clear understanding of the local realities and economic needs, rather than by the political imperatives of donor governments or the vested bureaucratic interests of aid agencies. They must also be careful not to unduly raise expectations.

Judged against these criteria, Western assistance to Russia to date has not done well on most counts. It has become clear, for example, that Western humanitarian aid, introduced with great fanfare during Mikhail S. Gorbachev’s tenure, and continued to this day, has proved, in the words of a recent European Community study, “unnecessary and inappropriate.” This kind of aid seems to have contributed as much to the well-being of organized crime as to that of the needy.

Similar misgivings have been raised by many Russians with respect to food aid. Some two-thirds of all Western assistance is in the form of commodity credits and loans tied to the purchase of specific goods. The majority of these are earmarked for surplus food, of which both Western Europe and the United States have ample stocks. There is at least a modicum of truth in the bitter complaints of some Russian officials that Washington’s food-aid program is designed primarily to help U.S. farming interests, the heavily subsidized merchant marine and assorted labor unions rather than the aid recipients. In at least some known cases, food thus purchased has proved to be more expensive than buying it on the Russian market. No wonder Moscow has been reluctant to draw on some of the extended credit.

There have also been problems in the area of financial assistance, both in design and execution. Some programs even seem at odds with the declared Western emphasis on developing a strong private sector and encouraging foreign investment as the key to development. Thus, the European Bank for Reconstruction and Development, to which the United States is a key contributor, was set up for the expressed purpose of financing small and medium private businesses. Yet, so far, it has lent money primarily to large state-owned companies or Western multinationals. The World Bank recently announced a $600-million loan to the existing monopoly producers for the rehabilitation of Russian oil wells, even though this is an attractive sector for private investors because of the possible quick returns. It is difficult to avoid the impression that such decisions are made under political pressure to produce quick results regardless of the long-term implications.

Despite these and other problems with Western aid to Russia, the most serious potential obstacle to the economic rebirth of the country would be the failure to reintegrate it into the international trading community. It is worth remembering that the main U.S. contribution to European recovery during the Marshall Plan was the highly successful program of reviving trade ties through the European Payments Union.

Russia and, indeed, all Eastern Europe, face a protectionist wall when trying to market what few competitive goods they produce. The main culprit is the European Community, though the United States is not blameless. This is causing an understandable resentment with potential political complications. No amount of aid could compensate for the failure of the West to open its markets to Russia and the new democracies.

The results of Western aid efforts so far are not sanguine, but they are far from hopeless. The reformers in charge in Moscow are feverishly working on privatization and establishing the economic conditions to attract foreign investment. The Clinton Administration, seemingly aware of some of the problems besetting the aid effort, has promised new programs to assist private business directly. The practice of providing credits to a heavily indebted country as the main method of aiding it, which is akin to rehabilitating a drunk by plying him with booze, also needs to be reassessed.

Finally, the United States must make a serious effort at breaking the protectionist walls preventing the Russians and others from entering the world market place. If the Europeans refuse to come out of their protectionist cocoon, Washington should do it unilaterally. It is the right thing to do; it will also be profitable in the long term.

If these and other corrections of practice are carried out, Western aid may yet come to play the important role of a leavening agent in the momentous transformation of Russia into a normal market economy. The proof of its success will be when aid is no longer needed and relations with our former Cold War adversaries can proceed on the basis of that tried and true old Yanqui maxim, “Trade not aid.”