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GAO-01-8 Foreign Assistance: International Efforts to Aid Russia's United States General Accounting Office Report to the Chairman and to the GAO Ranking Minority Member, Committee on Banking and Financial Services, House of Representatives November 2000 FOREIGN ASSISTANCE International Efforts to Aid Russia’s Transition Have Had Mixed Results GAO-01-8 Contents Executive Summary 6 Chapter 1 24 Introduction Chapter 2 39 The International Community Agreed on Fundamentals Donors Have Adopted Regarding Russia’s Economic Transition but Lacked a Different Strategies Comprehensive Strategy for Assistance 39 and Means for Assistance Programs Have Pursued Similar Objectives With Different Instruments and Strategies 42 Providing Assistance Coordination of Assistance Has Proved Difficult, With Some Improvements Over Time 62 Chapter 3 67 Russia’s Economic Performance Over the Decade Has Been Poor 67 Institutions and Success of Individual Projects Has Been Mixed 70 Donors Have Had Success of Assistance Programs Has Been Hindered by Conditions Limited Success in in Russia and Limitations of Programs 73 Four Policy Areas Illustrate Challenges and Interdependencies Across Meeting Their Assistance Objectives 82 Objectives Changes in Assistance Programs Reflect Commitment to Staying in Russia 99 Chapter 4 105 Donors Assessing Status of Russia Programs 105 Conclusions and Conclusions 106 Lessons Learned Lessons Learned 107 Appendixes Appendix I: Additional Information on International Monetary Fund Programs in Russia 110 Appendix II: Additional Information on World Bank Assistance to Russia 130 Appendix III: Additional Information on European Bank for Reconstruction and Development Programs in Russia 150 Page 1 GAO-01-8 Foreign Assistance to Russia Contents Appendix IV: Additional Information on the U.S. Freedom Support Act Program in Russia 163 Appendix V: Additional Information on the European Union's TACIS Programs in Russia 181 Appendix VI: Time Line of Key Economic and Political Events in the Russian Federation, 1990-2000 193 Appendix VII: Additional Information on Economic Trends 195 Appendix VIII:Comments From the Department of State and USAID 210 Appendix IX: Comments From the Treasury Department 213 Appendix X: Comments From the International Monetary Fund 215 Appendix XI: Comments From the World Bank 217 Appendix XII: Comments From the European Bank for Reconstruction and Development 219 Appendix XIII:Comments From the European Commission 221 Appendix XIV:GAO Contacts and Staff Acknowledgments 223 Related GAO Products 224 Tables Table 1: Highlights of the IMF’s Assistance Strategy for Russia, 1991-2000 43 Table 2: Highlights of the World Bank’s Assistance Strategy for Russia, 1991-Present 48 Table 3: Evolution of the EBRD’s Strategy for Russia, 1991-2000 51 Table 4: Development of the U.S. Assistance Program for Russia, 1991-Present 55 Table 5: Evolution of TACIS’ Strategy for Russia, 1991-2000 60 Table 6: Funding History of IMF Programs for Russia 113 Table 7: Status of World Bank Loans for Russia, From Fiscal Year 1993 Through September 2000 133 Table 8: Foreign Currency Debt Service of the Russian Federation in 1999 205 Figures Figure 1: Disbursements to Russia by Five Institutions and Donors, 1991-September 2000 10 Figure 2: IMF Disbursements and Russian Repayments, 1992-2000 30 Page 2 GAO-01-8 Foreign Assistance to Russia Contents Figure 3: World Bank Approved Lending and Disbursements to Russia, 1992-2000 31 Figure 4: EBRD Annual Funding for Russia Projects, 1991-2000 32 Figure 5: U.S. Freedom Support Act Annual Funding for Russia, 1992-2000 33 Figure 6: TACIS Annual Funding for Russia, 1991-2000 34 Figure 7: World Bank Approved Adjustment vs. Investment Lending, 1993-September 2000 50 Figure 8: EBRD Funding for Russia by Sector, 1991-2000 53 Figure 9: Freedom Support Act-funded Activities Grouped by U.S. Objectives, 1992-Present 58 Figure 10: Portions of All Freedom Support Act Funds Budgeted for Each U.S. Objective, Fiscal Years 1992-2000 59 Figure 11: TACIS Funding for Russia by Sector, 1991-98 61 Figure 12: Trends in Real Output for Russia, the Czech Republic, Poland, Romania, and Ukraine, 1989-2000 68 Figure 13: Russian Federal Government Budget Expenditures and Financing, 1992-2000 84 Figure 14: Russia’s Monthly Inflation Rate, 1990-2000 85 Figure 15: Real and Nominal Monthly Exchange Rate Indexes for Russia, 1994-2000 86 Figure 16: Trends in Approved World Bank Lending and Disbursements to Russia, Fiscal Year 1993 - September 2000 135 Figure 17: World Bank Lending to Russia, by Type of Instrument, Fiscal Year 1993 Through September 2000. 136 Figure 18: Status of World Bank Approved Loans to Russia as of September 2000 137 Figure 19: Russia’s World Bank Portfolio Performance, 1994 to June 2000 143 Figure 20: Russia’s World Bank Projects and Commitments Considered to Be at Risk, June 2000 . 144 Figure 21: Annual EBRD Funding for Russia Projects, 1991-2000 154 Figure 22: EBRD Lending and Equity Investment for Signed Projects by Sector in Russia, 1991-2000 155 Figure 23: Funding Levels for Major U.S. Programs With Russia Since 1992 (Budgeted and Expended, Respectively) 164 Figure 24: Funds Budgeted for Freedom Support Act Assistance to Russia, Fiscal Years 1992-2000 (in $millions) 170 Figure 25: TACIS Commitments and Disbursements for Russia, 1991-2000 185 Figure 26: TACIS Commitments by Sector, 1991-1999 186 Page 3 GAO-01-8 Foreign Assistance to Russia Contents Figure 27: Index of Russian Production, Consumption, Industrial Output, and Investment, 1990-1999, 1990 = 100 196 Figure 28: Average Russian Life Expectancy at Birth, in Years 198 Figure 29: Share of Russian Population Below Subsistence Level, December 1991-June 2000 199 Figure 30: Merchandise Trade of Russia, January 1992-December 1999 (Billions of U.S. dollars) 200 Figure 31: Composition of Russian Exports, 1994-98 201 Figure 32: Composition of Russian Imports, 1994-98 202 Figure 33: Russia's Foreign Debt, 1990-99 (Billions of U.S. dollars) 203 Figure 34: Debt Components of the Russian Government, End 1999 (Billions of U.S. Dollars) 204 Figure 35: Gross Foreign Investment in Russia, 1993-99 (Billions of U.S. dollars) 206 Figure 36: Per Capita Cumulative Foreign Direct Investment in Transition Economies (1988-99) 207 Figure 37: Estimate of Capital Flight From Russia, 1994-98 (Billions of U.S. dollars) 209 Page 4 GAO-01-8 Foreign Assistance to Russia United States General Accounting Office Washington, D.C. 20548 November 1, 2000 The Honorable James A. Leach Chairman The Honorable John J. LaFalce Ranking Minority Member Committee on Banking and Financial Services House of Representatives This report responds to your request that we review the strategies of international institutions and donors to assist Russia in its economic and political transition to a market economy. We are sending copies of the report to the Honorable Madeleine K. Albright, the Secretary of State; the Honorable Lawrence Summers, the Secretary of the Treasury; to the heads of the institutions we included in our review (Horst Köhler, Managing Director, International Monetary Fund; James Wolfensohn, President, the World Bank; Jean Lemierre, President, the European Bank for Reconstruction and Development), and to Christopher Patten, Director General for External Relations, the European Commission, as well as other interested parties. If there are questions regarding this report, please contact Harold J. Johnson at (202) 512-4128 or Thomas J. McCool at (202) 512-8678. GAO contacts and staff acknowledgments are listed in appendix XIV. Harold J. Johnson, Director International Affairs and Trade Thomas J. McCool, Managing Director Financial Markets and Community Investment Page 5 GAO-01-8 Foreign Assistance to Russia Executive Summary Purpose Since the breakup of the Soviet Union in 1991, multilateral organizations and bilateral donors, including the United States, have provided the Russian Federation (Russia) with tens of billions of dollars in economic assistance directed at helping Russia’s transition to a market economy within a democratic state. The value of this assistance is difficult to assess, however, since Russia appears to be a long way from having a competitive, market economy, and its transition experience over the past decade has been more difficult than was expected. The approaches used to assist Russia, both in the past and for the future, continue to be debated. To help focus this debate, the Chairman and Ranking Minority Member of the Committee on Banking and Financial Services, House of Representatives, asked GAO to review the strategies of different lending institutions and donors in providing economic assistance to Russia with a view toward identifying lessons learned that might be valuable for making future decisions about assistance policies. Specifically, GAO examined (1) what types of assistance these institutions and donors have provided, what their program strategies were, and how the assistance has been coordinated; (2) how successful the institutions and donors have been in terms of meeting their assistance objectives and what factors have affected their success; and (3) what lessons can be learned that may have relevance for future policy decisions about Russia. The lending institutions GAO included in this review are the International Monetary Fund, the World Bank’s International Bank for Reconstruction and Development,1 and the European Bank for Reconstruction and Development. The other programs are U.S. bilateral assistance under the 1992 Freedom Support Act2 and the European Union’s Technical Assistance to the Commonwealth of Independent States program. From 1992 until September 2000, these five programs have provided about $36 billion in assistance to Russia, with U.S. bilateral assistance under the Freedom Support Act of $2.3 billion. 1 GAO examined the lending made to Russia by the International Bank for Reconstruction and Development because it has provided the vast majority of the World Bank Group’s funding to Russia. Two other parts of the World Bank Group that have provided funding to Russia are the International Finance Corporation and the Multilateral Investment Guarantee Agency in Russia.
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