Corruption Fears Cloud U.S. Food-Aid Deal for Russia

Fearing food shortages this winter, Russia secured tentative approval Friday for its largest food-aid package in nearly six years--one that will deliver 3.1 million tons of surplus American grain, meat, soybeans and powdered milk to Russians and earn $625 million for U.S. producers.

The aid is supposed to benefit the neediest Russians, especially retired people and inhabitants of remote northern and Far East settlements that are running out of food and the money to buy more.

However, a week of negotiations here between U.S. and Russian officials failed to settle key objections raised by critics of past American aid programs that saw some donated food aid vanish onto Russia’s black market and benefit corrupt bureaucrats.

Nevertheless, officials of both countries welcomed the deal and said it will be hammered into a formal agreement in time to get the first food supplies here by January.

“This understanding is good news for the Russian people,” U.S. Agriculture Secretary Dan Glickman said in Washington. “And it is good news for America’s farmers and ranchers, who are facing economic hardships related to large supplies and low prices.”

Russia’s economy has been teetering since the ruble collapsed in mid-August. The government warned this week that it cannot make any of the $21 billion in payments coming due to foreign creditors by 2000 and will instead seek to renegotiate those debts.

The ruble’s crash has crippled Russia’s ability to pay for imported food, which normally constitutes a third of what Russians eat. Reeling from the country’s worst grain harvest since 1953, authorities in grain-growing regions have blocked sales to needier areas.

Friday’s food-aid deal was part of a double dose of relief. It came as Japan pledged to release an $800-million credit to Russia before Prime Minister Keizo Obuchi visits Moscow next week.

Russian Deputy Prime Minister Gennady V. Kulik said he won the best possible terms for the food aid.

Washington will buy the commodities from U.S. farmers, donate about half to Russia and sell the rest on a 20-year credit at 2% annual interest with no payment due until 2004. U.S. taxpayers will also pay $260 million to ship the food.

The donated food includes 1.5 million tons of wheat and 100,000 tons of various commodities that would be given directly to needy Russians through private, voluntary organizations.

About two-thirds of the donated wheat is supposed to be given away in Russia. The rest would be sold at market prices in areas were food is in short supply, along with the 1.5 million tons of food that Russia will buy from Washington--500,000 tons of corn, 500,000 tons of soybeans and soybean meal, 200,000 tons of wheat, 100,000 tons of rice, 120,000 tons of beef, 50,000 tons of pork and 30,000 tons of nonfat dry milk.

American negotiators said they went to great effort to win a pledge that Russian officials will not tax sales of the food inside their country. However, two sensitive questions were left for further talks.

One question is which Russians will benefit from those food sales.

U.S. officials wanted all the income to go to Russia’s state pension fund, which is months behind on payments to millions of retired people. At Russia’s insistence, the money will be divided among the pension fund and certain private social welfare funds to be agreed upon later.

Critics of the Russian government said some private funds mentioned in the talks, such as one for victims of the 1986 Chernobyl nuclear accident, are notorious “black holes” of disappearing aid. They also note that Kulik, the chief Russian food-aid negotiator, has been accused in print of illegally diverting public funds to a private company when he was Russia’s agriculture minister in 1991. He denies the allegation.

The other lingering question is who will channel the food through Russia’s vast and famously inefficient distribution system.

One likely distributor is Roskhlebprodukt, a partially state-owned agency that sat in on the talks. The last time Washington sent major food aid to Russia, in early 1993, Roskhlebprodukt was assigned to dole it out. Much of the food ended up on the black market, independent researchers say.

U.S. officials brushed aside both sets of concerns.

“I’m convinced there will be sufficient safeguards to prevent any potential abuses,” said Chris Goldthwait, general sales manager for the Department of Agriculture, the top U.S. negotiator. Corruption aside, some Russians wonder whether their government can get donated food to the remotest settlements. Under the deal, Washington will pay to get it only to Russia’s ports.