The U.S.-Russia Investment Fund and the $75-million Question

A final decision is about to be reached by the U.S. Agency for International Development (USAID) and Congress regarding a sum of approximately $150 million in liquidated assets from the U.S.-Russia Investment Fund (TUSRIF). In an ideal scenario half of the $150 million would go to the U.S. Treasury as a “thank you to the American people” and half would be invested in the Russian people as part of the U.S.-Russia “reset.” How will the liquidated assets of TUSRIF be divided? And, how should $75 million be spent to improve U.S.-Russia relations?

The U.S.-Russia Investment Fund was established in 1995 by consolidating two earlier funds. TUSRIF’s mandate was to foster a healthy investment climate in Russia and to support the growth of private enterprise in the country. As one of several enterprise funds established by Congress during the George H.W. Bush administration to support the development of free market economies in the former states of the defunct Soviet Union, approximately $328.87 million in public monies was allocated to TUSRIF to both invest and fund development activities. When the fund began to liquidate its assets in 2004, it was agreed that 50 percent of the proceeds would be used to establish a legacy foundation—the U.S.-Russia Foundation for Economic Advancement and the Rule of Law (USRF)—and 50 percent would return to the U.S. Treasury. USRF was set up with an endowment north of $100 million and registered in the United States as a nonprofit corporation in 2008 and was registered in Russia in 2009.

Given the current challenges to democracy and civil society in Russia and the fiscal realities of future U.S. budgets, it will become increasingly difficult to maintain a traditional foreign assistance infrastructure in Russia over the next three to five years. The United States should be preparing for that inevitable moment. Therefore it is critical that we use the current opportunity provided by the liquidation of TUSRIF’s assets to support civil society, democracy promotion (in the broadest sense), and the engagement of the Russian people with these funds.

At a time of increasing darkness in Russia, we should use those monies to “keep the lights on” for civil society. Supporting a strong, professionalized civil society and assuring a deep set of private ties among Russia, Western Europe, and the United States will ensure that Russia’s upcoming generations can participate in and choose to join more fully in the transatlantic community in the medium to long term.

Q1: Should the additional TUSRIF monies be used to “plus up” the existing U.S.-Russia Foundation (USRF) Endowment?

A1: We argue not to “plus up” USRF, which is doing great work and is sustainably endowed. Rather, after extensive interviews, studies, and a site visit to Moscow in October 2011, we conclude that should $75 million be made available then those monies should be invested in shaping Russian attitudes and interests in the political and civil society spheres over the next 10 to 20 years.

Since opening its office in Russia in early 2009, USRF spent $4 million on 31 projects, which was matched with $2.1 million from Russian partners. USRF is focused on the “long-term development of Russia’s economy” and the strengthening of bilateral ties. As the current legacy foundation of TUSRIF, USRF is well managed, has a clear strategy, and is off to a great start. It is also relatively well funded. Given its focus and its strategy of seeking Russian and other funding partners, we believe that USRF has enough resources to accomplish its goals.

Additional TUSRIF assets are still being liquidated. A hold was placed on the 50/50 split of TUSRIF’s proceeds by the Senate and House Authorizing and Appropriating Committees. Some Senators argued that the remainder of TUSRIF’s liquidation assets should go to USRF. When the smoke clears there will be approximately $150 million of final proceeds to allocate from this successful enterprise fund. Some in the Obama administration are recommending that half of the proceeds be returned to the general accounts of the U.S. Treasury and that half be used to fund projects in Russia that reflect the spirit of the Freedom Support Act of 1992 (Freedom for Russia and Emerging Eurasian Democracies and Open Markets Support Act, FSA, HR 282) that created the Enterprise Fund.

Q2: How should the $75 million be used?

A2: Given Russia’s autocratic system, money must be invested in the Russian people through programs that “globalize the Russian mind” and deepen the enabling environment for civil society and private charitable giving. These monies should be matched by a variety of private and public funders in Russia and elsewhere and should be invested through organizations that will support partnerships.

Support the globalization of the Russian mind. Out of the $75 million, $30–50 million should create a large-scale exchange program to familiarize a generation of Russians with the United States and the West. A limited number of Russian students and professionals participate in U.S. educational exchange programs each year. These exchanges for recent graduates and young professionals should be increased. We recommend that programs be established to globalize the generations of Russian professionals who will lead the country in the next 10 to 20 years. The program should focus on career-related fellowships, allowing for personal and professional development, improved acquisition of English-language skills, and the opportunity to fully understand how a field or industry operates in the United States. Such an exchange could be modeled on the legacy foundations of the Hungarian-American, Baltic-American, and Slovak-American Enterprise Funds—the Hungarian-American Enterprise Scholarship Fund, the Baltic-American Freedom Foundation, and the Slovak-American Foundation—which provide professional training opportunities for Hungarian, Estonian, Latvian, Lithuanian, and Slovak young professionals.

Support capacity-building programs for civil society. Put $25 million into a sinking fund to support Russia’s civil society as it moves to an enabling environment, meaning strengthen the corporate and privately funded philanthropic culture over the next 10 to 20 years. The sinking fund should be housed in an existing grant-making institution with experience in raising matching funds from private donors. The initiative should run training programs on NGO management, fundraising, and development, as well as design course curriculum for university departments to offer certification programs and courses on civil society.

Provide “anchor” opportunities for reformers in the transatlantic community. Some monies might be allocated—perhaps between $10 and $20 million—so that Russia might participate in already established transatlantic networks such as the German Marshall Fund of the United States or other institutions with a transatlantic mission. These monies should be provided in the form of a sinking fund with the express goal of including Russian participants in a wide variety of transatlantic activities and should be leveraged by private, Russian government, and European official donors.

Daniel F. Runde is director of the Project on Prosperity and Development and holds the William A. Schreyer Chair in Global Analysis at the Center for Strategic and International Studies in Washington, D.C.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2011 by the Center for Strategic and International Studies. All rights reserved.

Daniel F. Runde
Senior Vice President; William A. Schreyer Chair; Director, Project on Prosperity and Development

Ilona Teleki