The Autocrat's Emergency Bailout Fund

Are billions of dollars from Russia and the Gulf really worse than Western assistance?

A new trend is afoot in the world of foreign aid: The Autocrat's Emergency Bailout Fund. This past summer, Saudi Arabia, Kuwait, and the United Arab Emirates agreed to give $12 billion to Egypt after a military coup unseated a Muslim Brotherhood-led elected government which the Gulf states feared and despised. And now Russia's president, Vladimir Putin, has topped that reward all by himself with his $15 billion gift to Ukrainian President Viktor Yanukovych, who has been reeling from mass protests after he spurned a proffered partnership with the European Union. In both cases, the autocrats effortlessly outbid Western institutions.

Democracies are not, of course, pure of heart in matters of development assistance. Hans Morgenthau, that bleakest of realists, argued in his 1968 book, A New Foreign Policy for the United States, that development assistance was a perfectly effective instrument with which to bribe allies, though otherwise a waste of money. The billions of dollars in development aid which the United States has given Egypt since the Camp David Accord, like the billions it has given in military assistance, were just that. It was money given to reward a regime, just as is Egypt's new windfall from the Gulf, though in both cases the donor hopes to help the people as well.

Let us grant, then, that everyone has mixed motives -- even Vladimir Putin, who has said with a straight face that he was acting "not for the sake of the Ukrainian leadership but for the sake of the Ukrainian people." Nevertheless, it remains true that most Western aid is explicitly designed to encourage good political and economic governance, while the autocrat's bailout fund is designed to keep fellow authoritarians in place, and thus has the effect of encouraging bad governance. And because autocracies are better configured than democracies are to play and win this game, that's a serious threat to the cause of political and economic reform.

"Autocracy promotion" is not itself a new phenomenon. A 2010 study cited the examples of China's support for the Hun Sen regime in Cambodia and Russia's support for the increasingly autocratic regime in Kyrgyzstan as evidence that both countries, apart from promoting economic and geopolitical interests, sought to undermine democratic forces and consolidate authoritarian ones. Both like to keep their neighborhoods safe for autocracy.

What has, however, made this often ham-fisted policy far more effective is the redistribution of global wealth which has sent vast amounts of money sloshing through the treasuries and sovereign wealth funds of Russia, China, and the Gulf. Vast amounts of money are sloshing through the treasuries and sovereign wealth funds of Russia, China, and the Gulf. The aid competition now looks decidedly one-sided. The windfall from the Gulf enabled Egypt to decline a $4.8 billion loan from the International Monetary Fund. The grant from Russia, plus a sharp reduction in the price Russia will charge for natural gas, allowed Ukraine to reject a $4 billion package from the International Monetary Fund (IMF).

It's not just a matter of size, but also efficiency and speed. The wonderful thing about authoritarian states is that when a paramount leader decides to spend the country's money, the check can be in the mail next day. Western governments, by contrast, dithered for years over how to extend significant assistance to Egypt's civilian government. Prompt action might have done a world of good for the shaky legitimacy of President Mohamed Morsi.

And then there's the quid pro quo. The IMF and the European Union wanted Ukraine to clean up the rampant corruption and dysfunction that has plunged the country into economic crisis. The IMF demanded that Egypt increase revenue and reduce fuel subsidies. To have given the money without the accompanying demands would only have encouraged more reckless behavior. But only regimes with very strong popular support can afford to demand such painful sacrifices from their citizens. Morsi seriously considered concluding a deal with the IMF, but then backed off. Had he agreed, he might have been forced from office even earlier than he was. The Gulf states, of course, gave Egypt's generals the money with no strings attached, as Putin did to the "sister nation" of Ukraine. They were reinforcing behavior, not trying to change it.

The one Western institution with the power to make its demands stick is the European Union, which is prepared to provide tens of billions of dollars in order to prevent weak members like Greece or Spain from leaving the union, and thus has been able to exact painful sacrifices from both. Because of the sums involved, and because of the immense advantages of membership, the European Union is unique in its capacity to shape desirable behavior both among member states and aspirants to membership. Indeed, what has been extraordinary about the drama in Ukraine is that Russia has managed to trump the one Western institution which truly has adhesive power.

You'd like to think that a rational citizen would choose Western aid, even with all the encumbrances, over the autocratic quick fix. That assumes that the bitter medicine offered by the West will ultimately cure what ails weak states. There is actually not much evidence that this is so. In a 2003 paper, the development economist William Easterly compared the top 20 recipients of IMF and World Bank "structural adjustment loans" between 1980 and 1999 to a developing country sample and found that the economic outcomes of the two groups were indistinguishable. Many of the beneficiaries had received over a dozen such loans, and had kept finding artful ways to avoid the onerous conditions. The United States has tried to solve this problem through the Millennium Challenge Corporation, which offers development assistance to states which demonstrate good governance. But the funds amount to less than $2 billion a year, which means they have real leverage only with small states, and no other donor has adopted a similar policy. Easterly, an aid skeptic, argues that development assistance is generally ineffective in shaping desired behaviors.

That's not to say that Western aid and loans cannot produce better governance and wiser economic policies. You can find evidence that it has done so in fragile democracies like Liberia, or in relatively effective autocracies like Ethiopia. Such assistance only works, however, "if you really, really have an honestly keen recipient," as Charles Kenny of the Center for Global Development puts it. Some states have jumped through hoops to join the European Union, but President Yanukovych and his compliant parliament dragged their feet on the political and economic reforms the union required. Even had Yanukovych agreed to sign the "association agreement" offering free trade with Europe, he probably would have reneged on his reform commitments.

The bottom line, then, is that the autocratic bailout offers short-term relief, while the long-term benefits of conditioned Western assistance are less marked than they appear to be.The autocratic bailout offers short-term relief; the long-term benefits of Western aid are patchy.  We can guess who will win in that marketplace. The only limiting factors for the autocrats are, first, the high cost of bribing feckless states and, second, the danger of provoking the public. This is not a problem in Egypt, where the current regime enjoys widespread support, but it certainly is in Ukraine, where an aroused citizenry has mocked the nation's leader as a Russian pawn. And Moscow is, of course, a uniquely terrifying dance partner.

The obvious way for the West to start winning these contests is to imitate the European Union by offering irresistible incentives for good behavior. But that would require a commitment to aid, trade, and investment which Western states and institutions are not about to make. And it still might be a fool's errand, since bad regimes would take the money and slip the yoke of promised reform. Perhaps patience is the best policy. Given recent reports that Egypt will preserve its subsidy policy as is, and that the IMF views Ukraine as a basket case in the making, both countries' sugar daddies may conclude that they can't subsidize ruinous policies forever. 


Terms of Engagement

The Syrian Game-Changer

Why the shocking rise of al Qaeda is scrambling the war, ripping up the playbook, and turning enemies into partners.

Earlier this week, Foreign Policy invited me to participate in its Syria "PeaceGame," a role-playing exercise co-hosted with the U.S. Institute of Peace and designed to look for ways to bring a political solution to the war. Having vowed some while ago to stop writing about Syria for lack of anything even remotely hopeful to say, I thought I should at least see if others were less despairing than I was. No such luck: The overwhelming majority of the 45 participants -- many of them, unlike me, actual experts -- agreed that there was no meaningful prospect of a solution which would satisfy the most basic concerns of the rebels. Nevertheless, the exercise forced us to contemplate whatever tiny openings might be worth exploring.

Our moderator, FP CEO David Rothkopf, offered a crisp summation of our collective view: There was no prospect of ending the savage stalemate without forceful diplomatic (or military) intervention by outside actors, but all of the external players had found that they could live quite well with the status quo. For this reason, the most obvious analogies to Syria's sectarian civil war -- Lebanon in the 1970s and 1980s, the Balkans in the 1990s -- do not apply, because in those cases an outsider (Syria in the first instance, the United States and NATO in the second) ultimately concluded that the violence represented an unacceptable threat to their interests.

The regime's growing strength gives its chief backers, Russia and Iran, no reason to push for concessions. The Sunni states who support the rebels, chiefly Saudi Arabia, Qatar, and Turkey, are deeply unhappy with the current state of affairs, but unable or unwilling to do anything likely to tip the current balance of forces. And the United States, too, seems quite content to live with the status quo. Just take a look at President Barack Obama's speech last week at Brookings. Obama barely bothered to mention Syria, and he did so only to express satisfaction at the progress of the effort to remove chemical weapons. This is, of course, an unambiguously good thing, but it was never even among the administration's objectives in Syria before the Russians seized on the issue as a means to forestall an America attack.

The current and former senior Administration officials who spoke this week at an FP conference -- Deputy National Security Advisor Antony Blinken, former National Security Advisor Tom Donilon, Secretary of State John Kerry -- all described the weapons deal as a fundamental diplomatic breakthrough. Yet none explained how a transaction requiring the cooperation of the Assad regime could ultimately lead to the weakening of the regime -- for the simple reason that it can't. I don't doubt that White House officials are agonized over the suffering in Syria, but they are also prisoners of their past decisions.

What's more, the White House strategy of building up moderate rebel groups so that the Syrian regime will have no choice but to reach a deal with them has now become hopelessly threadbare. Those groups, enfeebled both by infighting and by the absence of consistent support, were unable to defend their own storehouse of American-donated non-lethal goods against an attack by the rival Islamist Front earlier this week. The United States responded by cutting off non-lethal aid, thus deepening the group's marginalization. The administration had hoped that at the planned meeting of Geneva II next month, the rebels could present an inclusive slate of Syrian leaders as an alternative to the Assad clan. That scenario, never plausible, now looks less likely than the splintering of rebel forces and the disintegration of their very shaky leadership.

If Geneva is not to deliver some miraculous deus ex machina, then we can forget about a political solution in the short term. This forces the question of what more remote events might upset Russian or Iranian satisfaction with the status quo. Put otherwise, what could turn Syria into something more like Lebanon or Bosnia -- places that seem dreadful compared to anywhere, save Syria?

The participants in the PeaceGame, prospecting for sources of hope, speculated that a breakthrough on nuclear talks with Iran might produce tectonic shifts in the region, with a more cooperative Iran prepared to rethink its support for Assad and a more pragmatic Saudi Arabia prepared to talk to the Iranians about deescalating tensions between Sunnis and Shiites. But even a less implacably hostile Iran is not going to be abandoning its revolutionary foreign policy anytime soon. Antony Blinken responded to a question on the subject by saying, "I don't put a lot of stock into a positive answer, but we should test it." He added that any American attempt to add regional issues to the nuclear talks risked losing America's negotiating partners.

Blinken mentioned a much more negative development, the ever-tightening grip of foreign jihadists over the major towns and cities of northern Syria which had, he said, "begun to concentrate the minds of critical actors outside of Syria." The Russians, Blinken suggested, "have a profound interest in avoiding the emergence of an extremist Syria." If the Russians conclude that Assad's continued presence is leading, not to restored stability, but to a vacuum that al Qaeda will fill, perhaps they'll be more inclined to dump Syria's ruler.

I ran this theory past an official at the conference who was familiar with and sympathetic to the Russian position. "I heard that too," he said. "But he wasn't talking about Russia; he was talking about Saudi Arabia and Qatar." Responsibility for the rise of extremists, he said, lies not with Assad but with the Gulf support for those extremists.

In short, don't count on Russia any more than on Iran. Washington does, however, have leverage with the Saudis. Administration officials say that the Saudis have begun to acknowledge that the rebellion has slipped from their control. The United States thus may be able to persuade Saudi Arabia and Qatar to end state support for extremists (though the far larger flow of private funds will be harder to choke off). Turkey may be prepared to do more to prevent foreign jihadists from crossing its southeastern border into Syria. And if one of the hundreds of Western jihadists now in Syria perpetrates a terrorist attack in the United States or Europe, as the administration now considers almost inevitable, the West will begin looking at Syria less as a human rights nightmare than as a new front in the war on al Qaeda. Just as eliminating chemical weapons has supplanted the goal of ending Assad's brutality, so the dynamic of the war on terror may soon supplant both.

Such a development would, in fact, constitute Assad's supreme triumph. Syria's strongman has always described the conflict as a war between secularism and extremism. It wasn't at first; but now, thanks in part to his cynical decision to release hardened extremists from jail in 2012, it is. Assad could thus become the lesser of two evils -- not only for the West but for many Syrians, who loathe and fear the holy warriors even more than they do the regime. Rebel leaders and activists I spoke to when I was in the border area in October told me that Salafists had formed the Islamist Front in order to counter the growing influence of the foreigners gathered under the banner of the Islamic States of Iraq and Syria, who were quite happy to destroy Syria in the name of their eschatological crusade to restore the caliphate.

The growing strength of ISIS is the development most likely to scramble existing alignments. Nowhere else in the world has al Qaeda gained control over a heavily populated, urbanized space. The United States may have to make common cause with the Salafists. The Gulf states may agree to work with the moderate rebels' military and political command. Some moderate brigades may even make common cause with the regime. It's a game-changer. But there's one game it won't change: Assad's monstrous crimes against his own people. Nothing, save surrrender, is likely to put that to an end.

Guillaume Briquet/AFP/Getty Images