The Harvard Boys Do Russia

After seven years of economic "reform" financed by billions of dollars in U.S. and other Western aid, subsidized loans and rescheduled debt, the majority of Russian people find themselves worse off economically. The privatization drive that was supposed to reap the fruits of the free market instead helped to create a system of tycoon capitalism run for the benefit of a corrupt political oligarchy that has appropriated hundreds of millions of dollars of Western aid and plundered Russia's wealth.

The architect of privatization was former First Deputy Prime Minister Anatoly Chubais, a darling of the U.S. and Western financial establishments. Chubais's drastic and corrupt stewardship made him extremely unpopular. According to The New York Times, he "may be the most despised man in Russia."

Essential to the implementation of Chubais's policies was the enthusiastic support of the Clinton Administration and its key representative for economic assistance in Moscow, the Harvard Institute for International Development. Using the prestige of Harvard's name and connections in the Administration, H.I.I.D. officials acquired virtual carte blanche over the U.S. economic aid program to Russia, with minimal oversight by the government agencies involved. With this access and their close alliance with Chubais and his circle, they allegedly profited on the side. Yet few Americans are aware of H.I.I.D.'s role in Russian privatization, and its suspected misuse of taxpayers' funds.

At the recent U.S.-Russian Investment Symposium at Harvard's John F. Kennedy School of Government, Yuri Luzhkov, the Mayor of Moscow, made what might have seemed to many an impolite reference to his hosts. After castigating Chubais and his monetarist policies, Luzhkov, according to a report of the event, "singled out Harvard for the harm inflicted on the Russian economy by its advisers, who encouraged Chubais's misguided approach to privatization and monetarism." Luzhkov was referring to H.I.I.D. Chubais, who was delegated vast powers over the economy by Boris Yeltsin, was ousted in Yeltsin's March purge, but in May he was given an immensely lucrative post as head of Unified Energy System, the country's electricity monopoly. Some of the main actors with Harvard's Russia project have yet to face a reckoning, but this may change if a current investigation by the U.S. government results in prosecutions.

The activities of H.I.I.D. in Russia provide some cautionary lessons on abuse of trust by supposedly disinterested foreign advisers, on U.S. arrogance and on the entire policy of support for a single Russian group of so-called reformers. The H.I.I.D. story is a familiar one in the ongoing saga of U.S. foreign policy disasters created by those said to be our "best and brightest."

Through the late summer and fall of 1991, as the Soviet state fell apart, Harvard Professor Jeffrey Sachs and other Western economists participated in meetings at a dacha outside Moscow where young, pro-Yeltsin reformers planned Russia's economic and political future. Sachs teamed up with Yegor Gaidar, Yeltsin's first architect of economic reform, to promote a plan of "shock therapy" to swiftly eliminate most of the price controls and subsidies that had underpinned life for Soviet citizens for decades. Shock therapy produced more shock--not least, hyperinflation that hit 2,500 percent--than therapy. One result was the evaporation of much potential investment capital: the substantial savings of Russians. By November 1992, Gaidar was under attack for his failed policies and was soon pushed aside. When Gaidar came under seige, Sachs wrote a memo to one of Gaidar's principal opponents, Ruslan Khasbulatov, Speaker of the Supreme Soviet, then the Russian parliament, offering advice and to help arrange Western aid and contacts in the U.S. Congress.

Enter Anatoly Chubais, a smooth, 42-year-old English-speaking would-be capitalist who became Yeltsin's economic czar. Chubais, committed to "radical reform," vowed to construct a market economy and sweep away the vestiges of Communism. The U.S. Agency for International Development (U.S.A.I.D.), without experience in the former Soviet Union, was readily persuaded to hand over the responsibility for reshaping the Russian economy to H.I.I.D., which was founded in 1974 to assist countries with social and economic reform.

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