Is aid to Russia academic?

As Blair and Yeltsin meet in Moscow, Peter Koenig asks if the pounds 4bn spent on Western consultants has been a good use of taxpayers' money

Tall, handsomely greying at the temples, with a self-consciously languid air and a manner of speaking in crisply articulated verbal flourishes, Michael Emerson cut a dashing figure in Moscow between 1991 and 1995.

As the European Commission's ambassador to Russia, the 57-year-old international bureaucrat helped get Western aid up and running in the wake of the Soviet Union's collapse. "Michael was everywhere," remembers an American academic in Moscow in the days following Boris Yeltsin's takeover from Mikhail Gorbachev. "Very high profile."

But last year, following his return to Brussels misfortune struck. Emerson fell in love and reaped the whirlwind. He became romantically entangled with a colleague, Elena Prokhorova, a 42-year-old Russian linguist and journalist working for the EC. He decided he would leave the EC and start a new life with his new love. He considered a move to the private sector, building on his knowledge and contacts in Russia.

But Prokhorova's dumped husband went after Emerson. He passed on documents - which he obtained by undeleting files from his wife's computer - to Emerson's bosses at the EC.

The EC looked at the documents to see if any impropriety had occurred and concluded that Emerson had done nothing wrong. An EC spokesman, John Phillips, says: "Emerson was given a clean bill of health."

"It was a terrible episode in my life," Emerson says. "But that's how the cookie crumbles."

Meanwhile, the affair got into a Belgian paper and from there into the British press - a colourful tale of post-Soviet Russia.

In contrtast to the Cold War tales of John Le Carre, where spies fell in love locked in the death dance between Democracy and Communism, here was a tale of love and economics in the new Russia.

In this way Emerson's tale, although it disclosed no impropriety, focused attention on one of the least understood but most sensitive aspects of Russia's transition to a market economy - the role of Western consultants in Russia. Russian reform has been financed in significant part with Western taxpayers' money. The question is, how well has this money been spent?

According to calculations from the Group of Seven leading industrialised nations, 30 countries and international organisations have committed pounds 50bn in Russia since 1991. Most of this has been in loans or subsidised credits through the World Bank and export credit agencies. But 8 per cent, or pounds 4.2bn, has gone to Western consultants earning up to pounds 1,500 a day for something called "technical assistance".

Technical assistance includes everything from supplying computers, to training, to research, to policy implementation and advisory services. It started out as a system for helping the very top layer of Russian policy makers to set the country on a new footing. In 1991 Professor Richard Layar, of the London School of Economics, wrote in The Coming Russian Boom: "There were perhaps fewer than 50 in the Russian government who could think effectively about change."

Increasingly, however, technical assistance is offered at the micro level. The Know-How Fund, for example, Britain's agency for assisting Russia, sponsors a project through which the BBC is helping to broadcast a Russian version of The Archers. The Russian Archers worry not about Mad Cow Disease, but problems like private property and coming to grips with fluctuating prices.

As the technical assistance programme has matured, moreover, it has attracted critics. These critics wonder how useful the services purchased for more than pounds 4bn have been. Lorne Heuckroth, director of Canadian aid in Moscow, says: "In 30 years in the business I have never seen anything quite like it. Russia is the most dynamic political and economic environment I've ever seen. Frankly, you cannot believe some of the stuff that goes on. For those looking to milk the system, there are plenty of gateways."

Jeremy Kinsman, Canada's ambassador to Moscow when the Soviet Union broke up, puts aid to Russia in an historical perspective: "It began in early 1990 with the Germans going around saying we have an obligation to the reformers because these guys are trying for democracy."

In 1991, Kinsman continues: "Gorbachev came to the G7 summit in London and the idea of pledging assistance got started. In 1992 in Munich it was no longer Gorby but Yeltsin. In 1993 Boris Federov, the Russian finance minister, actually participated in the preliminary sessions of the Tokyo summit determining how big the pledges were going to be.

"All along, though", Kinsman says, "we had an almost existential problem: how can you do state-to-state aid if the whole purpose of the exercise is to build a non-state sector? Our solution was consultants."

Kinsman says that, initially, most Western consultants in Russia were academics. "Academia", he says, "was starved of funds. Western aid to Russia became a kind of academic subsidy programme. A whole new culture grew up - the culture of the academic hustler."

This culture has attracted particular criticism from communists. In the Duma, crypto- communist parliamentarians have called Western consultants jackals in league with wily reformers selling out to the West.

At a more moderate level, middle-of-the-road Russians point out that some of the technical assistance provided by Western consultants could better be provided by Russian specialists themselves. Ivan Zolatov, economic attache in the Russian embassy in London, reports that Moscow is pressing the EC to allow Russian academics to participate in the technical assistance programme. "We have many fine research institutes," he says.

There has been growing criticism in the West as well. The sceptics say that the aid programme has resulted in a frenzy of empire-building in academia - as a result of which master consultants have become "stars" in the academic world, while the actual grunt work is performed by lower- downs functioning as sub-contractors.

"Some of the consulting has been as good as you get in the West," says Heuckroth. And some, he adds, has been sub-standard - "where, say, you have a 27-year-old teaching accounting in Siberia because no one else wants to do it."

Peter Derby, a Russian-American who is chairman of Dialog Bank in Moscow, is even more scathing: "Russians see the money going to Western consultants as a slush fund. They go into discussions with the consultants thinking about how this money will be divided up."

Scott Antel, a tax partner at accountants Arthur Andersen in Moscow, says: "The consultants being paid by Western agencies have not offered good value for money." Antel reports that Andersen has shied away from technical assistance contracts. He says that Andersen, which now has 600 people in its Moscow office, has concentrated on developing business directly with Russian customers.

In May, meanwhile, the Western aid to Russia programme was hits by its first real scandal.

The US government accused Harvard University of sponsoring consultants in Russia who were abusing their professional positions for private gain.

One Harvard employee was allegedly found to be dealing in Russian bonds while on the job, and another to have been using programme resources to set up a Western-style mutual fund business in Moscow.

Harvard yanked the two individuals from its Russian operation, which had contracts from the US Agency for International Development worth $57m (pounds 35m) and was co-ordinating $285m of technical assistance grants to other contractors.

"We have zero tolerance for anybody associated with [our] projects investing in the countries in which they are advising," Jeffrey Sachs, director of the Harvard Institute for International Development, declared at the time.

The Harvard scandal could open the door on a whole raft of questions about Western consultants in Russia. But the ultimate question is simple: how much have Western consultants helped Russia, and to what extent have they reinforced the view among many Russians that capitalism is a con game for hustlers? Tony Blair's visit to Russia and the theme of anti- corruption he will take up with Boris Yeltsin may bring a new level of attention to this issue.