Logjam in Russian Aid Pipeline Frustrates U.S. : Foreign policy: Clinton has made the plan a priority. Obstacles on both ends have blocked relief.

By DOYLE McMANUS

June 13, 1993 12 AM PT

TIMES STAFF WRITER

WASHINGTON — When they met in Vancouver at their first summit a little more than two months ago, President Clinton looked Russian President Boris N. Yeltsin in the eye and made a solemn promise.

“We need concrete aid, the kind of aid that ordinary people can see,” Yeltsin had pleaded, according to a U.S. official who was present at the Canadian summit.

“You’ll get it,” Clinton reportedly told his new friend, and he unveiled a new plan for U.S. aid to Russia--designed, the President said, to “provide immediate and tangible results for the Russian people.”

Since that meeting, Clinton has made delivering on his promise a top priority. “He applies the lash to us every week,” said Strobe Talbott, the former Time magazine reporter (and Clinton roommate at Oxford University) who now oversees the Russian aid effort. “He really wants results.”

But the 10 weeks since Vancouver have given Clinton and Talbott a sobering lesson in how difficult it will be to help huge and chaotic Russia transform itself from a ruined Communist state to a functioning capitalist democracy.

Of the $1.6 billion that Clinton promised Yeltsin, only $497 million, or less than one third, has even entered the U.S. end of the aid pipeline--a faster pace than normal aid programs but still frustratingly slow.

Clinton’s proposal for a $4-billion multinational program to turn Russia’s giant state-owned industries into private firms hasn’t gotten off the ground. His plan to build thousands of single-family homes for Russian army officers, to enable the Russians to withdraw from the neighboring Baltic republics, still exists only on paper.

And last week, a $1.5-billion loan for Russia that U.S. officials thought they had engineered was held up by the International Monetary Fund, which said it wasn’t satisfied with Yeltsin’s economic policies.

To be sure, there are bright spots. Next week, 250 fledgling Russian bankers land in Connecticut for five weeks of training in capitalism--the first of more than 2,000 Russian entrepreneurs, professionals and students scheduled to arrive on new exchange programs this year.

Russia’s drive to turn small and medium-sized businesses into private companies, financed largely with U.S. aid, has exceeded expectations. And several small programs to help the Russians build Western-style institutions, from the judicial system to private charities, are struggling to their feet.

But the pace has clearly been slower than either U.S. or Russian officials wanted. “Everybody in Russia knows that our two presidents signed an agreement, but nobody has seen the money,” complained Boris Nemtsov, the reformist governor in Nizhny Novgorod, Russia’s most “privatized” city. “That’s a very dangerous situation.”

Clinton’s plans are ambitious. Wrapping at least $5 billion in direct U.S. aid with more than $40 billion from other industrialized countries and international financial institutions, the President’s proposal would bring the total amount of Western help for Russia well over the $13.1 billion the United States spent on the Marshall Plan to rebuild Western Europe from 1948 through 1952. Over the next four years, the total could even top the $75-billion value of the Marshall Plan in inflation-adjusted 1993 dollars.

Whether spending all that money actually will work is another question. No one has ever tried to fix an economy as big, and as broken, as Russia’s. The Marshall Plan was much easier; Europe had the structures of capitalism in place and needed only a vigorous jump-start. Almost two years after the collapse of communism, Russia’s laws on land ownership are still murky and changeable and the government still pays millions of people to report to jobs at moribund state enterprises.

But Clinton decided he had no choice but to try. “The danger is clear if Russia’s reforms turn sour--if it reverts to authoritarianism or disintegrates into chaos,” he said before leaving for Vancouver. So he ordered Talbott and aides from the State Department and other agencies to whip up a program to get aid on the ground fast.

Many of the roadblocks to this effort have been on the Russian side. A $15-million program on nuclear power plant safety has been stymied because U.S. companies fear that they might face huge liabilities if a nuclear accident occurred while they were working on a plant; Russia’s government hasn’t issued regulations to protect them. Central ministries and local governments can’t agree on who should administer other programs, with their opportunities for insider access to lucrative private business.

But others have bogged down in Washington. Congress has blocked the use of $50 million for a Russian venture capital “enterprise fund” while it pursues questions about abuses at similar funds in Eastern Europe. And some critics fault the government’s main foreign aid arm, the Agency for International Development, as slow-footed in implementing the plan.

“Most of what we did that was innovative, we had to do over objections from AID,” said Richard L. Armitage, who ran the aid program in the George Bush Administration.

Malcolm Butler, director of AID’s task force for the former Soviet Union, conceded: “We are not known as the most agile organization in Washington. But we have been setting records with this one. We’re spending money five times faster than the normal AID program.”

Indeed, some State Department officials give Butler high marks for spurring his agency to unprecedented speed. But some AID officials worry they are being pushed too hard. “The people making the decisions (to move aid quickly) aren’t the ones the auditors will go after if it turns out the money isn’t spent wisely,” said one.

“In aid programs, there is a natural tension between ‘quick’ and ‘smart,’ ” said Thomas W. Simons Jr., a former U.S. ambassador to Poland who was recently chosen to coordinate the effort. “We have to be both--and that isn’t easy.”

In at least one program, “quick” may have collided with “smart” right at the start.

Even before Vancouver, Yeltsin told Clinton that he needed help providing for the officers of the once-proud Russian army. Yeltsin has promised to complete the withdrawal of more than 100,000 former Soviet troops from Estonia, Latvia and Lithuania. But thousands of their officers still have no homes to which to return. Yeltsin worried that an army led by angry, homeless officers could revolt against democratic rule.

Clinton responded at Vancouver with a $6-million program to build 450 single-family homes for officers withdrawn from the Baltic states. But the hastily devised plan estimated the construction cost of each 600-square-foot house at only $8,500. At an AID meeting in Moscow last month, U.S. and Russian builders dismissed that figure as unrealistic. “Anybody who tells you he can build a house for that is a liar!” a Russian contractor stormed.

The $8,500 price tag, it turned out, was based on a proposal submitted by the International Catholic Migration Commission, a charity that figured on significant amounts of free materials and free labor. “We are confident that we can do it at that cost,” said Andre Van Chau, secretary general of the Geneva-based commission. “But we would like to start soon, because inflation in Russia is pushing costs up all the time.”

AID says it is sticking with the original cost figures. But after U.S. firms said $8,500 could not build a habitable house, even in Russia--and also complained that the money was too little to be worth their while--the Administration decided to offer a higher price in future projects. Next year’s aid package will include as much as $150 million for 5,000 units of housing--an enticing $30,000 per unit.

“It’s a learning process,” said a senior official involved in designing both programs.

Meanwhile, AID has not yet awarded a contract for construction of the first, low-priced 150 units. Clinton told Yeltsin that the first houses would be ready in a year, but officials have quietly postponed the target to next July.

“It’s an exciting project, but a high-risk project,” one official said. “We don’t know what obstacles lie on the Russian side. How many ministries are going to get involved? Who issues the permits? How does construction get financed? How do you get sewer hookups and electricity? What jobs are going to be available for the people who get the houses?

“It’s easy to think simplistically about housing: You build houses, and people live in them. But if we aren’t careful, we could end up with a ’60 Minutes’ piece about 450 housing units with nobody in them,” he said.

Russian Aid

The Clinton Administration’s Russian aid program is partly an expansion of plans already launched by former President George Bush. But it also includes some innovations. Its first phase, the $1.6 billion President Clinton unveiled at a summit in Vancouver, Canada, included these parts:

* $925 million in food and medicine, including $700 million in old-fashioned loans to allow Russia to buy grain and other foodstuffs. So far, only about $216 million of this has been “obligated,” or designated for specific action. (And most obligated funds have not yet been spent.)

* $243 million to promote U.S. exports and investment to Russia; about $189 million has been obligated, most for loans and insurance for American investments not yet made.

* $148 million for programs to help build private enterprise in Russia; about $60 million has been obligated.

* $48 million for programs to help build democratic institutions, including expanded student-exchange programs; about $27 million has been obligated.

* $38 million to increase efficiency in Russia’s energy industry, improve safety at nuclear power plants and promote environmental policies; only about $5 million has been obligated.

* $215 million to help dismantle Russia’s nuclear arsenal under the Strategic Arms Reduction Talks treaty; none has been obligated, because Russia has been slow in completing formal agreements on how the work would be done.