NCPA - National Center for Policy Analysis

Misused Foreign Aid

April 27, 1999

Following the fall of communism in 1991, the U.S. began sending massive financial aid and economic advisors to Russia and Central and Eastern European countries to promote a transition to free markets. A new paper from the Cato Institute argues that the aid was "largely ineffective."

Here are some of the observations in "U.S. Assistance for Market Reforms."

  • Whether provided in the form of technical assistance, grants to political groups or nongovernmental organizations, loans and guarantees to the private sector, or direct financial aid to post-communist governments, that aid has been plagued by a number of problems.
  • Technical assistance has often been used to hire Western consultants whose advice is redundant or adds little to the development process.
  • U.S. consultants and advisors knew little of the countries they had been sent to assist -- and, in some cases, wound up being derided by citizens and officials.
  • Rather than help to dissipate the legacies of communism, U.S. economic aid has in some cases served to reinforce the legacies of suspicion, central planning, and political control over economic decisions.

Source: Janine R. Wedel (George Washington University and Georgetown University), "U.S. Assistance for Market Reforms: Foreign Aid Failures in Russia and the Former Soviet Bloc," Policy Analysis No. 338, March 22, 1999, Cato Institute, 1000 Massachusetts Avenue, N.W., Washington, D. C. 20001, (202) 842- 0200.


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