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. Last Updated: 07/27/2016

G-7 Aid: Now Comes the Hard Part

It began life as a four followed by nine zeros and, in its short existence, shrank to less than one-quarter that size.


But the growing, shrinking and now grown-again privatization fund to help newly privatized Russian enterprises has emerged from the Tokyo Group of Seven leading industrialized nations summit, albeit begrudgingly and in a substantially different makeup, at $3 billion.


Agreeing on the money, however, may turn out to have been the easy part. Still undecided is who will be in charge of the funds and how they will be spent.


Officials at foreign embassies in Moscow were anxiously awaiting word Monday from home offices on how to proceed.


"We're waiting to hear from Washington", said a Moscow official with the U. S. Agency for International Development.


Substitute Tokyo for Washington and the remark was the same from Masao Fujita, economic counsellor at the Japanese Embassy in Moscow.


Only the broadest outlines of how the fund will be used have yet been detailed. In a commentary that appeared Friday in the International Herald Tribune, Deputy Prime Minister Anatoly Chubais, who is in charge of privatization, said the fund is designed to "speed the privatization of remaining state-owned firms".


Part of the money, about $500 million, would be used to pay for social services, such as hospitals, housing and education, that are now provided by large enterprises. Chubais said other parts of the fund would be divided into several smaller regional funds to make investments in enterprises.


But the regional funds have yet to be established and the U. S. idea for managing the package by creating a G-7 office in Moscow is still far from happening, officials in Moscow said, raising questions about President Bill Clinton's pledge to provide assistance quickly


The need for a new institution to administer the money is just one of the objections raised by G-7 countries since the fund was first proposed by the Clinton administration in April.


But another key objection was obviously money. The United States initially proposed a $4 billion privatization fund, and Clinton put the idea at the center of his effort to assist Russia.


But while the fund counted on the support of the other G-7 nations, Clinton had no such commitments Germany felt it had already given too much to too many programs. Japan, with the issue of Russian ownership of the contested Kuril Islands still outstanding, was sticking to a pledge to provide $1. 8 billion in mostly tied export credits.


Finally, the issue came to a head two weeks before the Tokyo summit. Japanese Foreign Minister Kabun Muto labeled the idea of a $4 billion fund "preposterous". He said the fund could not work until Russian managers and employers understood a market economy and suggested it be scaled back to $500 million "or a bit less".


U. S. officials seemed to pick up the hint, and back in Washington began working on a much smaller fund, between $500 million and $1 billion.


Clinton, however, apparently called G-7 leaders before the summit and got $80 million from the Germans and $90 million in unused technical aid for the fund from the Japanese, essentially old money being recycled.


The United States will contribute $125 million in grant money to the fund, of a total of $500 million, and another $250 million for export trade credits, of a total of $1 billion. The remaining $1. 5 billion is to come from the World Bank and the European Bank for Reconstruction and Development.


The concession by the United States seems to have been in the makeup of the fund. Clinton had been pushing for the package to rely more heavily on grants rather than loans.


Russia, too, has been reluctant to accept more trade credits with the West, arguing that they help the donor more than the recipient. The end result was a $3 billion fund, that is only one-quarter grants and 75 percent loans.