Tainted Transactions

National Interest, The, Spring, 2000 by Janine R. Wedel

Maintaining that Russian economic reform was so important, and the "window of opportunity" to effect change so narrow, U.S. policymakers granted the Harvard Institute special treatment. Between 1992 and 1997, the Institute received $40.4 million from the U.S. Agency for International Development (USAID) in non-competitive grants, and--until USAID suspended its funding in May 1997--had been slated to receive another $17.4 million. Harvard-connected officials in the Clinton administration, citing "foreign policy" considerations, largely bypassed the normal public bidding process required for foreign aid contracts. The waivers to competition were backed by friends of the Harvard Institute group, especially in the U.S. Treasury. [4] Approving such a large sum of money mostly as non-competitive amendments to a much smaller award (the Harvard Institute's original award was $2.1 million) was highly unusual, according to U.S. government procurement officers and U.S. General Accounting Office (GAO) officials, includi ng Louis H. Zanardi, who later spearheaded GAO's investigation of HIID activities in Russia and Ukraine. Indeed, the U.S. government delegated virtually its entire Russian economic aid portfolio--more than $350 million--for management by the Harvard Institute. The Institute was also provided the legal authority to manage other contractors (some of whom were its competitors), leaving it in the unique position of recommending U.S. aid policies while being itself a chief recipient of that aid. In 1996 the GAO found that the Harvard Institute had "substantial control of the U.S. assistance program." [35] According to U.S. government procurement officers and GAO officials, delegating so much aid to a private entity was unprecedented.

In Russia, the Harvard representatives worked exclusively with Anatoly Chubais and the circle around him, which came to be known as the Chubais Clan. [6] The interests of the Harvard Institute group and those of the Chubais Clan soon became one and the same. Their members became known for their loyalty to each other and for the unified front they projected to the outside world. [7] By mid-1993, the Harvard-Chubais players had formed an informal and extremely influential transactor group that was shaping the direction and consequences of U.S. economic aid and much Western economic policy toward Russia.

Providing pivotal support to the Harvard-Chubais transactors was Lawrence Summers, earlier a member of the Harvard faculty and at this time chief economist at the World Bank. Summers had strong ties to the Harvard team, including Shleifer, the economist who served as project director of the Harvard Institute's program in Russia. [8] Soon, Summers would play a principal role in designing U.S. and international economic policies at the U.S. Treasury, where he would occupy the posts of undersecretary, then deputy secretary and, finally, secretary.

The Chubais transactors advertised themselves, and were advertised by their promoters, as the "Young Reformers." The Western media promoted their mystique and overlooked other reform-minded groups in Russia. [9] Western donors tended to identify Russians as reformers not on the basis of their commitment to the free market but because they possessed personal attributes to which the Westerners responded favorably: proficiency in the English language; a Western look; an ability to parrot the slogans of "markets", "reform" and "democracy"; and name recognition by well-credentialed fellow Westerners. Members of the Chubais team possessed all of these qualities. By their sponsors in the West, they were depicted as enlightened and uniquely qualified to represent Russia and usher it down the road to capitalism and prosperity. Summers dubbed them a "dream team", [10] which, given his position and status, was a particularly valuable endorsement.