GAO

United States General Accounting Office

Report to Congressional Requesters

September 1999 FOREIGN 

ASSISTANCE

Enterprise Funds’ 

Contributions to 

Private Sector 

Development Vary

GAO/NSIAD-99-221

Page 1 GAO/NSIAD-99-221 Foreign Assistance

United States General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-283261 Letter

September 14, 1999

The Honorable Benjamin A. Gilman

Chairman, Committee on International Relations

House of Representatives

The Honorable Doug Bereuter

Chairman, Subcommittee on Asia and the Pacific

Committee on International Relations

House of Representatives

In 1989, the United States authorized enterprise funds as an experimental 

model to support private sector development in selected countries of 

Central and Eastern Europe as they transition from centrally planned to 

market-oriented economies.1

 The funds, which are private, nonprofit U.S. 

corporations, are supposed to make loans to, or investments in, small- and 

medium-sized businesses in which other financial institutions are reluctant 

to invest. With the breakup of the Soviet Union in 1991, enterprise funds 

were subsequently established in the newly independent states. Currently, 

10 funds operate in Central Europe and the former Soviet Union, covering 

19 countries with authorized funding of about $1.3 billion.2

 Enterprise 

funds receive their funding through the U.S. Agency for International 

Development (USAID), and USAID has primary responsibility for 

monitoring the funds’ operations. 

At your request, we determined (1) whether enterprise funds are assisting 

private sector development; (2) what factors have affected the funds’ 

ability to carry out their activities; (3) whether funds still have a role in 

private sector development, given other private investment and 

international donor efforts; (4) whether the funds are likely to recoup their 

1

The Support for East European Democracy (SEED) Act of 1989 (P.L. 101-179) authorized the creation 

of enterprise funds in Poland and Hungary. Later, under the SEED Act and the FREEDOM Support Act 

of 1992 (P.L. 102-511), eight additional funds were established in Central and Eastern Europe and the 

former Soviet Union. We reported on the first four enterprise funds in March 1994; see Enterprise 

Funds: Evolving Models for Private Sector Development in Central and Eastern Europe

(GAO/NSIAD-94-77, Mar. 9, 1994).

2

Four funds operate in multiple countries. The Baltic fund includes Estonia, Latvia, and Lithuania; the 

Central Asian fund covers Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan; 

the Czech-Slovak fund operates primarily in the Slovak Republic, but also covers the Czech Republic; 

and the Western Newly Independent States fund covers Belarus, Moldova, and Ukraine.

Letr
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authorized capital; and (5) whether the funds are complying with recent 

changes in USAID reporting requirements. In a separate letter, we address 

issues related to “spin-off” venture capital organizations that the Polish 

fund helped establish as well as U.S. government plans to use funds 

generated from the sale of Polish fund assets to help establish a foundation 

for further private sector development in Poland and to return some funds 

to the U.S. Treasury.3

Differing economic conditions and legal and regulatory environments in 

each country and the length of time the respective funds have been 

operational make comparisons across funds difficult. To gain additional 

perspective and first-hand knowledge of fund operations, we visited the 

Russian and Romanian funds’ in-country offices; toured investment sites; 

and met with U.S., host government, and fund officials. Both funds have 

been operational for about 4 to 5 years, with Russia being the largest fund 

($440 million in authorized capital) and Romania one of the smaller funds 

($50 million). Although the report contains information related to all 10 

funds, we primarily relied on our examination of these 2 funds to address 

your interest in the continued relevance of enterprise funds. We also 

describe their investments, loans, and technical assistance activities in 

appendixes I and II, respectively.

Results in Brief To varying degrees, enterprise funds in Central Europe and the former 

Soviet Union have engaged in investment activities that support private 

sector development in their host countries. Taken together, the 10 

enterprise funds have made investments and loans in and provided 

technical assistance mainly to small- and medium-sized businesses totaling 

about $809 million through fiscal year 1998, using capital authorized in U.S. 

grants as well as investment proceeds. Nine funds have raised additional 

investment capital from investment partners on individual deals or by 

establishing private equity funds that attracted other investors. Capital 

raised this way totaled about $744 million, according to USAID. Most of the 

funds have taken steps to help strengthen financial institutions and 

encourage economic reforms. For example, the Polish, Russian, and 

Romanian funds trained bank personnel in credit risk evaluation and 

provided financing to small businesses; the Polish and Russian funds 

initiated residential mortgage programs that did not previously exist in 

3

See Foreign Assistance: Issues Concerning the Polish-American Enterprise Fund

(GAO/OGC-99-61R, Sept. 14, 1999).

Letr
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their host countries; and the Polish, Romanian, and Albanian funds 

invested in host-country banks.

Fund management and host-country legal, regulatory, and economic 

climates were key factors in the funds’ ability to carry out their activities. 

According to U.S. and fund officials, the Polish fund was able to invest in 

the private sector and attract additional capital because, at least in part, the 

board and senior fund managers worked well together from the outset in 

managing the fund’s assets. In contrast, U.S. officials characterized the 

Russian fund as slow to begin investing because its fund managers were 

not initially located in-country and were not involved on a daily basis with 

fund operations. Other key factors included the recent Asian and Russian 

financial crises, which frightened away many private investors and 

curtailed some of the funds’ investment activities, and, according to 

Russian fund officials, frequent changes in Russia’s legal and tax codes, 

which made it difficult for the funds to enter into timely investment 

contracts.

Based on our analysis of financial and investment patterns in Russia and 

Romania, the enterprise funds in both countries have a continuing 

development role for the foreseeable future. Despite private and 

international donor investments in these countries, the overall need for 

foreign investment capital and western business expertise in Russia and 

Romania continues unabated. For example, due in large measure to the 

recent financial crises, International Monetary Fund (IMF) statistics 

indicate that foreign direct investment in Russia decreased by 65 percent in 

1998, underscoring the need for the fund’s continued involvement. 

Furthermore, the nature of most foreign investment in Russia is different 

from much of the Russian fund’s investments. Among other things, other 

foreign investment is predominantly in stocks and bonds and does not 

involve the direct transfer of western management skills. In contrast, the 

Russian fund has focused on making direct investments in an attempt to 

influence long-term business and management reforms in the private 

sector.

Determining whether enterprise funds will recoup their authorized capital 

is difficult because funds have 10- to 15-year life spans and, thus, long 

maturity periods for their investments. Enterprise funds are venture 

capital-type funds that involve an inherent risk of financial loss—individual 

investments will fail, but, in the long term, successful ventures are 

supposed to offset the losses. Although the Polish fund has not sold all its 

investments, it has finished making new investments and is expected to 
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recover its original authorized capital. Similarly, USAID officials expect the 

Hungarian and Romanian funds to recoup their authorized capital as well. 

In contrast, while the Czech-Slovak fund has not finished making new 

investments, U.S. and fund officials say that its early losses make it unlikely 

that the fund can recoup its authorized capital. 

The enterprise funds were reporting financial and related information, as 

required. In 1997, USAID increased enterprise fund reporting requirements 

due to congressional concerns about the extent to which the U.S. 

government was monitoring fund progress, using a standard set of 

indicators. USAID now requires each fund to prepare a “strategic 

framework matrix” with multiyear investment projections and break-even 

analyses, as well as information on other key areas, such as investments in 

small- and medium-sized firms and other private capital raised. 

Background Enterprise funds are governed by boards of directors consisting of private 

citizens of the United States and host countries that have experience in 

areas such as investment banking or have geographical and other relevant 

expertise (see app. III). The fund boards are responsible for establishing 

their own operating and investment policies and directing their corporate 

affairs in accordance with U.S. legislation and grant agreements. The 

funds’ senior managers are generally American. The funds’ investment 

staffs, including senior investment officers and other investment 

professionals, are comprised of combinations of American, host-country, 

and third-country national employees. The funds are generally supposed to 

target viable small- to medium-sized private businesses in the funds’ host 

countries. However, the Russian fund has the flexibility to invest in 

medium- to large-sized companies as well.4

 The funds can invest in start-up 

companies and privatized state-owned enterprises, and can invest solely or 

through joint ventures and separate private equity funds that attract other 

U.S., host-country, third-country, or multilateral organization investors.

The Department of State Coordinators of Assistance for Eastern Europe 

and the New Independent States are responsible for overall coordination of 

assistance activities in the region and are responsible for overseeing 

4

The Russian fund was created in 1995 through the merger of two already existing funds—the 

Russian-American Enterprise Fund and the Fund for Large Enterprises in Russia—incorporated in 1993 

and 1994, respectively. The first fund was supposed to operate like other enterprise funds, but the 

second focused on larger businesses and had less of a development focus than the others. When the 

two funds were merged, the new Russian fund assumed the roles of both.
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enterprise funds on policy and other matters arising outside of the funds’ 

grant agreements. USAID oversees the funds’ operations. 

Funds Are Assisting 

Private Sector 

Development

The enterprise funds have assisted private sector development in their host 

countries primarily by making investments and loans in and providing 

technical assistance to small- and medium-sized businesses, using capital 

authorized in U.S. grants and fund investment proceeds. Nearly all the 

funds have also raised additional investment capital by finding investment 

partners or establishing separate private equity funds that attract outside 

investors; however, the amounts of capital varied widely. Most of the funds 

have taken measures to help strengthen financial institutions and provide a 

“demonstration effect” that encourages economic reforms through new, 

market-oriented activities in their host countries, although the types and 

extent of such efforts varied among the funds. 

Making and Providing 

Investments, Loans, and 

Technical Assistance

The 10 enterprise funds in Central Europe and the former Soviet Union 

have made investments and loans and provided technical assistance 

primarily to small- and medium-sized businesses totaling about

$809 million as of September 30, 1998. Some funds have invested more 

than their authorized capital, using additional monies generated through 

their investment activities, while others have invested less than their 

authorized capital. For example, as of September 30, 1998, the Polish fund 

had received nearly all of its $264 million in authorized capital and invested 

about $300 million, using a combination of its authorized capital and 

monies generated from investment proceeds. The Polish fund has stopped 

making new investments with U.S. grant funds and has begun liquidating 

some of its investments. As of the same date, the Hungarian fund had also 

received about 80 percent of its $72.5 million in authorized capital and 

invested about $81 million, also using a combination of both authorized 

capital and monies generated through investment activities. The Russian 

fund had received over one-third of its $440 million in authorized capital 

and invested about $125 million. The Romanian fund had received almost 

70 percent of its $50 million in authorized capital and made investments 

totaling about $35 million. It is important to note that the funds are at 

varying stages of their life spans—in 1998, the Polish and Hungarian funds 

were in their eighth years of operation, while the Romanian and Russian 

funds were in their fourth and fifth years, respectively.

Most funds have also used funding to provide technical assistance to 

businesses in which they invest. Funds have provided employee training, 
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upgraded management information and financial reporting systems, and 

provided advice and technical support in a variety of other areas to such 

firms. However, according to USAID officials, funds often do not identify 

technical assistance activities separately from their investment activities, 

when such assistance is provided in support of specific investments. 

Therefore, figures shown for technical assistance provided do not fully 

reflect some funds’ actual technical assistance activities. Table 1 shows the 

amount of capital authorized in USAID grants for each fund and the 

amounts that each of them invested or specifically identified as technical 

assistance provided as of September 30, 1998.

Table 1: Enterprise Fund Capital Authorized and Invested and Technical Assistance Provided as of September 30, 1998

a

The amount of capital that funds invest can include monies generated through investment activities 

and, thus, can be larger than the amount of authorized capital received from USAID grants.

Source: USAID.

Most of the funds’ investment activities are focused on a wide range of 

small- and medium-sized enterprises. However, the Russian fund has the 

flexibility to invest in somewhat larger enterprises. For example, the 

Russian fund’s largest project was a $15.5-million direct investment in a 

brewing company. The average size of the fund’s 28 equity investments as 

of September 30, 1998, was about $3.5 million. The Russian fund has 

invested in diverse industries, ranging from agribusiness to 

pharmaceuticals. The average size of the Romanian fund’s 16 direct 

Dollars in millions

Enterprise

Fund

Year

incorporated

Capital

authorized in

USAID grants

Capital

investeda

Technical

assistance

Total capital invested

and technical

assistance

Hungary 1990 $72.5 $75.0 $6.2 $81.2

Poland 1990 264.0 284.0 16.8 300.8

Czech-Slovak 1991 65.0 39.3 3.1 42.4

Bulgaria 1992 55.0 49.0 1.8 50.8

Russia 1993 440.0 123.3 1.7 125.0

Baltic 1994 50.0 25.1 1.7 26.8

Central Asia 1994 150.0 76.7 0 76.7

Romania 1994 50.0 33.7 1.0 34.7

Western Newly Independent States 1994 150.0 48.7 3.5 52.2

Albania 1995 30.0 18.3 0.3 18.6

Total $1,326.5 $773.1 $36.1 $809.2
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investments as of the same date was $1.5 million. The Romanian fund has 

also invested in diverse areas, ranging from financial services to 

construction materials. Both of these funds also target much smaller 

companies through their various loan programs. For example, the average 

size of the Russian fund’s 282 small business loans was about $75,000, and 

the average size of the Romanian fund’s 61 such loans was about $63,000.

Raising Capital From Other 

Sources

In addition to their authorized capital, nearly all funds have raised 

additional outside capital through the involvement of other investors. For 

example, according to USAID, the Polish fund has raised additional capital 

of at least $328 million through a combination of finding outside investment 

partners for individual deals and helping establish separate private equity 

funds that attracted outside investors. The Romanian and Hungarian funds 

have raised $80 million and $50 million, respectively, through a similar 

combination of methods. The Russian fund raised capital from outside 

investment partners totaling approximately $244 million. In contrast, the 

Baltic fund has not raised any outside private capital. Table 2 details the 

amount of capital raised from outside sources by each fund as a percentage 

of its authorized capital in USAID grants.

Table 2: Fund Capital Raised From Other Sources as a Percentage of Authorized Capital as of September 30, 1998 

Source: USAID and enterprise funds.

Dollars in millions

Enterprise fund Year incorporated

Capital authorized

in USAID grants

Capital raised

from other sources

Other capital as a percent

of authorized capital

Hungary 1990 $72.5 $50.0 69

Poland 1990 264.0 328.0 124

Czech-Slovak 1991 65.0 3.4 5

Bulgaria 1992 55.0 20.1 37

Russia 1993 440.0 244.3 56

Baltic 1994 50.0 0 0

Central Asia 1994 150.0 2.9 2

Romania 1994 50.0 80.0 160

Western Newly Independent States 1994 150.0 15.2 10

Albania 1995 30.0 0.4 1

Total $1,326.5 $744.3 56
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Strengthening Financial 

Institutions and 

Encouraging Economic 

Reforms

Most of the funds have taken measures to help strengthen financial 

institutions and provide a “demonstration effect” that encourages 

economic reforms through new, market-oriented activities in their host 

countries, although the types and extent of such efforts vary among the 

funds. All but the Western Newly Independent States fund have worked to 

strengthen financial institutions by undertaking activities such as training 

bank personnel and providing financing to businesses through partner 

banks. All but the Czech-Slovak fund have provided a demonstration effect 

through activities such as delivering capital to previously underserved 

segments of the economy or establishing previously nonexistent market 

institutions such as mortgage and micro-sized loan programs. Table 3 lists 

some of the activities in which funds have engaged.

Table 3: Examples of Fund Activities to Strengthen Financial Institutions and Provide a Demonstration Effect

Enterprise fund

Strengthening financial 

institutions Demonstration effect

Albania Established (and wholly owns) the American Bank 

of Albania.

Established the American Bank of Albania, the first 

western-style bank in Albania.

Baltic Established a residential mortgage program that 

was replicated by banks.

Established a residential mortgage program that was 

replicated by banks; also one of few lenders to provide 

small- and medium-sized loans,a

 emphasizing women and 

rural areas.

Bulgaria Established (and wholly owns) the 

Bulgarian-American Credit Bank, which serves as 

a conduit for fund investments.

Created Home Mortgage Lending Program; also one of 

few sources for medium-term financing (focusing on real 

estate and hotels).

Central Asia Established (and wholly owns) the Asian 

Crossroads Loan Company, which serves as a 

conduit for loans to small- and medium-sized 

businesses.

Created micro- and small-sized loan programs.a

Czech-Slovak Trained about 50 bankers in the loan application 

development process. 

None.

Hungary Created micro- and small-sized loan programs 

that have been replicated by commercial banks.

Established the Hungarian Innovative Technologies Fund, 

the first in the region devoted exclusively to funding small 

entrepreneurs and developing innovative technologies. 

Poland Created First Polish-American Bank; also trained 

bankers in western-style corporate governance 

and financial management systems.

Established Polish-American Mortgage Bank for residential 

mortgages; also provided capital to housing developers.

Romania Purchased Banca Romaneasca, which serves as 

a conduit for small- and medium-sized loan 

program; also trained bank personnel in cash-flow 

lending techniques. 

Established micro-, small-, and medium-sized loan 

programs,a

 the only such funding mechanisms available to 

Romanian entrepreneurs.

(continued)
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a

Enterprise fund micro-, small-, and medium-sized loans vary in size and other characteristics among 

the funds, including the two where we conducted case studies. The Russian fund’s micro-sized loan 

program involves loans of between $1,000 and $20,000 to enterprises with fewer than 20 employees, 

and its small-sized loan program involves loans of up to $150,000 to businesses with fewer than 100 

employees. The Romanian fund’s micro-sized loan program involves loans of between $2,500 and 

$15,000 (with no requirement regarding the number of employees), and its small- and medium-sized 

loan program involves loans of up to $150,000 to businesses with 200 or fewer employees.

Source: USAID and enterprise funds.

As illustrated in table 3, some funds have helped strengthen financial 

institutions by assisting selected banks. For example, the Russian and 

Romanian funds have developed relationships with “partner banks” and 

use these banks to implement loan programs. The Russian fund is 

providing technical assistance by training bank personnel in credit 

methodology and underwriting as well as other key skills. The Romanian 

fund has implemented training programs for bank staff that allow the 

consideration of a firm’s earnings history and profit potential rather than 

using only a company’s assets to determine loan eligibility, as Romanian 

banks had done in the past. 

Funds have also invested in host-country banks as a method of 

strengthening financial institutions. For example, the Polish fund bought a 

controlling interest in a Polish bank and then merged the bank’s operations 

with the fund’s small business loan program. The Romanian fund invested 

about $5 million and is now the majority shareholder in a private Romanian 

bank with 12 branches throughout the country. Since taking controlling 

interest in the bank in December 1998, the Romanian fund now utilizes the 

bank as its partner institution to implement its entire small- and 

medium-sized loan program. The Albanian fund recently opened a bank 

that is wholly owned by the Albanian fund. 

Funds have provided capital to previously underserved segments of the 

economy. For example, the small- and medium-sized loans that the Russian 

and Romanian funds offer address a segment of the economy not 

previously served by financial institutions. According to Romanian and 

Russian fund officials, banks in their host countries traditionally made little 

effort to provide loans to small entrepreneurs, preferring to make loans to 

Enterprise fund

Strengthening financial 

institutions Demonstration effect

Russia Used Russian “partner banks” for small- and 

medium-sized loan program; also trained bank 

personnel in credit methodology and underwriting.

Established one of the first residential mortgage programs 

and the first auto loan program in Russia; also operates 

micro-, small-, and medium-sized loan programs.a

Western Newly 

Independent States

None. Received the first-ever license for a non-depository 

financial institution to make loans and leases in Ukraine.
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large companies or to invest their capital in instruments such as 

government securities. 

Funds have also established previously nonexistent market institutions. 

For example, the Polish fund pioneered the concept of home mortgage 

lending in Poland and operates the Polish-American Mortgage Bank as a 

subsidiary of the fund. The Russian fund also operates a residential 

mortgage lending program and initiated the first auto loan program of its 

kind in Russia. The Romanian fund established a micro-sized loan 

program—a new lending mechanism in Romania. The fund implements the 

program through two U.S.-based, nongovernmental organizations, which 

have provided micro-sized loans to enterprises in many sectors of the 

economy, such as manufacturing, trade, and services.

Fund Management and 

Host-Country 

Conditions Affect 

Funds’ Activities

Fund management’s early involvement in fund activities and host-country 

conditions play key roles in the funds’ ability to execute their activities. 

Fund management was a key factor in the success of the Polish fund and 

the early losses of the Czech-Slovak fund, and affected the investment pace 

at the two funds where we conducted case studies—Russia and Romania. 

The legal and regulatory environment and economic conditions in the 

funds’ host countries affected fund operations as well.

Fund Management USAID, State, and fund officials agreed that enterprise fund management 

plays a critical role in the funds’ ability to execute their activities—

especially at the outset. According to USAID and State officials, the Polish 

fund’s success was due in part to having a well-functioning board of 

directors and good management from the beginning. Conversely, the 

officials said that a poor investment strategy and mismanagement of the 

Czech-Slovak fund’s resources were major factors in that fund’s early 

losses. One USAID evaluation cited the fund’s decision to avoid the service 

and retail sectors of the economy as one reason the fund had not 

performed better financially. Another pointed to management’s insufficient 

supervision of its investments and an operational strategy that emphasized 

saving costs over maintaining staffing continuity. Eventually, the entire 

board of directors was replaced, and the fund essentially terminated its 

activities in the Czech Republic, concentrating its remaining activities in 

the Slovak Republic.

Our case studies in Russia and Romania highlighted fund management’s 

influence on investment pace. Fund officials in Romania told us that policy 
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and operational disagreements by board members and management 

delayed investment decisions and adversely affected staff morale. 

However, after key changes in management and on the board of directors, 

the pace of investment and staff morale improved. Russian fund officers 

and USAID and State officials said that an absence of in-country leadership 

and frequent senior management turnover contributed to the Russian 

fund’s early slowness to invest. For example, fund officials in the United 

States and Russia told us that leadership and management turmoil had 

delayed the Russian fund’s investment progress from 12 to 18 months. The 

current Chief Operating Officer of the Russian fund lives in-country, and 

fund officers and USAID and State officials told us that the fund’s 

operations had improved significantly as a result of this change.

In an attempt to measure management efficiency, we also examined the 

funds’ operating expenses as a percent of their capital. Fund and private 

sector officials told us that private sector venture capital funds typically 

charge a management fee of 2 to 2.5 percent of authorized capital 

throughout the life of the fund to manage the fund. The combined rate of 

operating expenses for all enterprise funds was 2.8 percent during 1998. 

However, as shown in table 4, the rates varied widely from fund to fund. 

Fund and private sector officials said that operating expenses are normally 

higher than 2.5 percent during the initial years of a fund’s existence 

because of start-up costs and lower than 2 percent during the last few years 

of a fund’s life. 
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Table 4: Enterprise Funds’ Operating Expenses as a Percentage of Authorized Capital for 1998

a

Hungarian and Polish fund operating costs are shared with the funds’ associated private equity funds.

Source: USAID and enterprise funds.

Host-country Conditions Economic conditions and host-country legal and regulatory environments, 

over which funds have little control, also affected fund operations. 

Immediately following the August 1998 Russian financial crisis, the Russian 

fund halted many of its activities for 30 days and focused its efforts on 

protecting its existing portfolio by restructuring loans and assisting its 

portfolio companies in developing post-crisis strategies and restructuring 

plans. Financial documents that we reviewed during our visit to Russia 

indicated that the 1998 Asian and Russian financial crises had substantially 

negative effects on nearly all of the Russian fund’s portfolio companies. 

For example, the fund had to increase its loss reserves to about 17 percent 

of its total direct investment portfolio and 22 percent of its small loan 

portfolio. As a result, the fund reported loan and investment losses totaling 

over $13 million for the fiscal year ended September 30, 1998.

Romanian fund officials told us that high tax rates consume large amounts 

of private firms’ working capital and discourage investment in that country. 

Similarly, Russian fund officials told us that frequent changes in the 

Russian legal and tax codes make it time-consuming to address issues of 

law and taxation in investment contracts. USAID officials told us that poor 

economic conditions had caused a number of funds to exercise caution in 

Dollars in millions

Enterprise fund Year incorporated

Capital authorized

in USAID grants Operating expenses

Operating expenses as

a percent of capital

Hungary 1990 $72.5 $2.5 3.4a

Poland 1990 264.0 2.0 0.8a

Czech-Slovak 1991 65.0 1.7 2.6

Bulgaria 1992 55.0 1.8 3.2

Russia 1993 440.0 9.0 2.0

Baltic 1994 50.0 2.7 5.4

Central Asia 1994 150.0 7.5 5.0

Romania 1994 50.0 3.4 6.8

Western Newly Independent States 1994 150.0 6.2 4.1

Albania 1995 30.0 0.8 3.0

Total $1,326.5 $37.7 2.8
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making investments in order to safeguard fund assets. For example, the 

Bulgarian fund pursued a cautious investment strategy in the early years of 

its operations due to economic uncertainties in that country. Later, as 

economic conditions improved, fund officials accelerated their investment 

pace. 

Russian and Romanian 

Funds Have a 

Continuing 

Development Role

The overall capital needs in Russia and Romania can accommodate the 

activities of all investors, even with occasional competition. The Russian 

and Romanian enterprise funds have a continuing development role, 

despite other private investment flows and other donors that provide equity 

and debt financing in those countries. For example, foreign investment by 

private investors in Russia is predominantly portfolio investment in stocks 

and bonds, without the substantial influence on company operations and 

transfer of western financial and management expertise that the Russian 

fund’s direct investments entail. Also, the funds’ direct investment 

programs employ different operating approaches and target different 

market segments than those of other donors.

Capital Needs in Russia and 

Romania

The overall capital needs in Russia and Romania are large. One way to 

view a country’s capital needs is by considering the country’s investment 

levels in the context of its population. Per capita foreign direct investment 

in Russia and Romania is relatively less than investment in other countries 

in the region. For example, IMF statistics indicate that in 1997—the year in 

which Russia’s foreign investment was at its peak—its foreign direct 

investment was only $42 per capita compared to $127 in Poland, where the 

enterprise fund is only beginning to curtail its operations. Romanian per 

capita foreign direct investment was $54 in 1997, less than half of Poland’s 

and slightly more than Russia’s.

In 1998, foreign direct investment in Russia decreased significantly due to 

the Asian and Russian financial crises. The country’s $2.2 billion in foreign 

direct investment during 1998 was 65 percent less than the $6.2 billion that 

it received in 1997. On a per capita basis, 1998 foreign direct investment in 

Russia was only $15, compared to $163 in Poland. USAID, State, and 

Russian fund officials said that the dramatic drop in foreign direct 

investment in Russia underscored the need for the fund’s continued 

involvement in that country. 

During the first 9 months of 1998, Romania’s foreign direct investment was 

11 percent less than it was for a comparable period in 1997. However, the 
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U.N. Economic Commission for Europe reported that the Romanian 

government sold several large, state-owned enterprises at attractive prices 

to foreign investors at the end of the year because of its need for funds.5

 

This skewed the 1998 year-end total of foreign direct investment in that 

country upward to $1.6 billion, or 32 percent more than the $1.2 billion that 

it received in 1997. Despite these unusual investment flows, per capita 

foreign direct investment in Romania was only $71 in 1998, less than half of 

Poland’s.

The funds have occasionally competed with other private investors and 

donors in Russia and Romania. For example, Romanian fund officials said 

that a private investor made an equity investment in a pharmaceuticals 

packaging and distribution firm that the fund was prepared to make. The 

Russian and Romanian funds’ small business financing programs’ 

approaches and targets are similar to those of other donors. For example, 

the European Bank for Reconstruction and Development (EBRD)6

 has 

programs in Russia and Romania that provide loans to small businesses 

through intermediary banks, as do the Russian and Romanian funds. 

Officials for two companies that we visited in Russia said that they had 

actively considered similar loans from an intermediary bank associated 

with EBRD but that they chose the Russian fund’s loan because the terms 

were better and the funding could be provided in a more timely fashion. 

The International Finance Corporation (IFC)7

 also has an in-country 

program that provides loans to small businesses through intermediary 

banks in Russia. IFC, which recently opened an office in Romania, 

provided a $5-million loan commitment to assist the Romanian fund in 

expanding its small loan program. 

Officials from EBRD, IFC, the Russian and Romanian funds, USAID, and 

State all said that the market for small business financing in Russia and 

Romania is large enough for all donors. They added that some competition 

among donor organizations is healthy and normal at the working level. 

None of these officials said that the competition diminished the relevance 

of any of their programs. Moreover, Russian fund officials said that the 

5

Economic Survey of Europe, 1999 No. 1 (New York and Geneva: Secretariat of the Economic 

Commission for Europe, United Nations, 1999), p. 169.

6

EBRD promotes private sector development through lending, investment, and other activities in 26 

countries in Central Europe and the former Soviet Union. 

7

IFC is affiliated with the World Bank and promotes the growth of the private sector through lending, 

investment, and other activities in its 174 member countries.
B-283261

Page 15 GAO/NSIAD-99-221 Foreign Assistance

competition for individual direct investments has greatly diminished since 

the Russian and Asian financial crises, when many investors left Russia.

Foreign Investment in 

Russia

Foreign investment in Russia has been dominated by portfolio investment 

(stocks and bonds), not direct investment. For example, in 1998, total 

foreign investment in Russia amounted to $10.9 billion. Approximately

$8.7 billion, or about 80 percent of this amount, was comprised of portfolio 

investment, which is oriented toward short-term profits and does not entail 

investor participation in governing the recipient firms. During the same 

year, only $2.2 billion, or about 20 percent of Russia’s total foreign 

investment, consisted of direct investment, which targets long-term 

opportunities and entails investor involvement in the recipient companies.

In contrast, the Russian fund’s equity investments are generally direct 

investments. Russian fund officials told us that the fund normally attempts 

to acquire a large enough share in recipient companies to have a significant 

influence on their operations. The Romanian officials told us that they 

follow the same approach.8

 USAID and fund officials consider this type of 

active involvement as an essential tool for influencing market-oriented 

reforms in the recipient firms of transition countries. 

Other Donor Programs The funds’ direct investment programs tend to make smaller investments, 

target smaller companies, or employ different investment instruments than 

other donors. For example, in Russia and Romania, EBRD invests in large 

infrastructure projects in the form of loans in sectors such as energy and 

telecommunications as the core of its activity. These projects are generally 

much larger than the Russian and Romanian funds’ equity investments. For 

example, an EBRD official in Russia told us that the size of the bank’s 

major infrastructure projects range upward to about $1 billion, whereas the 

Russian fund’s investments range in size from $75,000 to about $15 million. 

In Romania, EBRD’s average investment for similar projects is nearly

$64 million, while the Romanian fund’s investments range from about 

$42,000 to almost $5 million.

In addition to large infrastructure projects, EBRD has regional venture 

capital funds that operate in Russia and Romania. However, Russian fund 

officials told us that the EBRD program targets firms smaller than those 

8

Unlike Russia, foreign direct investment represents the largest share of foreign investment in Romania.
B-283261

Page 16 GAO/NSIAD-99-221 Foreign Assistance

that the fund currently focuses on through its direct investment program. 

Romanian fund and EBRD officials told us that, although the potential for 

competition between the fund and EBRD exists because they are targeting 

similar investments, it has not presented a problem to date because of the 

large, unsatisfied demand for capital.

IFC has direct investment programs and offices in Russia and Romania. 

However, according to IFC officials in Russia, IFC does not compete with 

the Russian fund because IFC’s direct investment program targets larger 

investments than the Russian fund. Further, IFC’s investments are in areas 

such as energy and general manufacturing, which are not areas the fund 

emphasizes. The largest part of IFC’s direct investment program in 

Romania focuses on public infrastructure projects and other investments 

that are larger than most enterprise fund investments. IFC provides 

additional capital to existing private venture capital companies for 

investments in Romania that are comparable in size to some Romanian 

fund investments. However, Romanian fund and IFC officials said that 

these private funds do not compete with the Romanian fund because, like 

with EBRD, of the large, unsatisfied demand for private equity capital in 

that country.

The Overseas Private Investment Corporation9

 (OPIC) also has a private 

investment fund program that operates in transition countries in Central 

and Eastern Europe and the former Soviet Union. However, the objectives 

and focus of its program are different from enterprise funds. OPIC 

operates its program through existing American venture capital companies, 

using long-term, secured loan guaranties and loans to help the firms 

establish and capitalize regional investment funds.10 OPIC’s objective is 

primarily to support and protect U.S. companies and investors, while 

enhancing U.S. development objectives and furthering stability in foreign 

countries. However, the individual private investment funds make 

commercially based investment decisions in order to realize a profit and do 

not have the same development mandate as enterprise funds.

9

OPIC is an independent U.S. government corporation that assists U.S. investors overseas by providing 

political risk insurance, financing, and other investment services.

10As of March 31, 1999, including accrued interest, OPIC had made loan guaranties and loans of about 

$677 million in Russia and $22 million in Romania, of which about $330 million and $16 million, 

respectively, had been invested.
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Whether Funds Will 

Recoup Authorized 

Capital Is Problematic

Current USAID guidance to enterprise funds is that the funds should aim to 

have assets worth at least the amount of their original grants when they 

terminate their operations. This expectation has evolved over time. When 

enterprise funds were first established, many U.S. officials did not expect 

funds to recoup their original grants. In 1993 and 1994, USAID made 

changes to its grant agreements with the funds, setting forth options for the 

use of remaining fund assets upon termination of operations. Over time, as 

the likelihood increased that some of the more mature funds might recover 

their original authorized capital, USAID raised the target to the same level 

for the other funds.

USAID currently expects that at least three funds will recover their 

authorized capital through their investments and one will not. The Polish 

fund has finished making new investments with U.S. government funds and 

has begun to liquidate some of its investments. USAID expects the Polish 

fund to recover its original authorized capital. The fund’s estimated net 

worth was $270 million—$15.5 million more than the amount that it 

received through its authorized grant—as of September 30, 1998. 

Currently, USAID officials also expect the Hungarian and Romanian funds 

to eventually recoup their original authorized capital. In contrast, although 

the Czech-Slovak fund has not finished making new investments, it sold the 

Czech portion of its portfolio at a loss of 92 percent of its invested capital in 

1997, making it unlikely that the fund can recoup its original authorized 

capital when it eventually ceases operations.

For the other funds, determining whether they will ultimately recoup their 

original authorized capital is not reasonably possible until they are closer 

to liquidating their investments. According to enterprise fund and other 

private venture capital officials, markets for the funds’ investments—and a 

way to determine “fair market” value—often do not exist in the transition 

countries where the funds operate. Also, the funds have intended life spans 

of 10 to 15 years, and, therefore, potentially long periods for their 

investments to be profitable. Table 5 shows the funds’ assets as of 

September 30, 1998.
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Table 5: Enterprise Funds’ Grant Amounts and Estimated Asset Valuation as of September 30, 1998

Source: USAID and enterprise funds.

Enterprise fund investment decisions are supposed to balance financial 

soundness with the funds’ development mandate. Making investments 

where traditional financial institutions are reluctant to invest means some 

investments will not be successful, especially in the early stages of a fund’s 

operations. However, by the end of a fund’s operations, the successes are 

supposed to outweigh the failures. Individual investments made by the 

Russian fund illustrate the element of risk involved in enterprise fund 

investments.

• In 1995, the Russian fund wrote off the entire amount of its $3.8 million 

investment in U.S. Global Health, which operated a western-style 

medical clinic in Moscow. The clinic failed because lower than 

expected revenues combined with start-up and operating costs depleted 

the firm’s capital before it was able to make a profit.11

• In 1996 and 1997, the fund also wrote off approximately $3 million it 

invested in ZAO Giant, Ltd.—a supermarket chain in the Vladivostock 

Dollars in millions

Enterprise fund Year incorporated

Capital authorized

in USAID grants

Grant amount

received Net asset value

Hungary 1990 $72.5 $56.6 $28.2

Poland 1990 264.0 254.5 270.0

Czech-Slovak 1991 65.0 46.2 12.5

Bulgaria 1992 55.0 44.5 28.7

Russia 1993 440.0 165.0 89.6

Baltic 1994 50.0 31.1 22.4

Central Asia 1994 150.0 87.0 38.4

Romania 1994 50.0 35.2 28.2

Western Newly Independent States 1994 150.0 64.3 39.0

Albania 1995 30.0 16.0 14.0

Total $1,326.5 $800.4 $571.0

11This investment was originally made in 1994 by the Fund for Large Enterprises in Russia, which 

merged with the Russian-American Enterprise Fund in 1995 to form the current Russian fund. The 

USAID Inspector General reported on the reasons for this investment failure in March 1997: Audit of 

the Request for Review of the U.S. Russian Investment Fund’s Investment in U.S. Global Health Limited, 

Audit Report No. A-00097-003P (Washington, D.C.: USAID, Office of the Inspector General, Mar. 26, 

1997).
B-283261

Page 19 GAO/NSIAD-99-221 Foreign Assistance

and Nakhodka regions of the Russian Far East—before the company 

had ever stocked its stores with initial inventory. Fund officials said that 

it refused further support of the company when it became clear that the 

company had not put appropriate managers and financial controls in 

place to address serious operating and expenditure problems that were 

occurring in setting up the operation.12

• More recently, in 1999, fund officials feared that the fund’s 1998

$2.4 million investment in Lomonosov Porcelain—a porcelain tableware 

producer in St. Petersburg—could deteriorate considerably in value 

because the company’s general director and senior managers opposed 

the fund’s and other investors’ takeover of the firm. However, fund 

officials said that they have since established a working relationship 

with the company’s managers and expect, along with other investors, to 

assume control of the company shortly. The officials added that the 

company now has an excellent opportunity to significantly increase its 

sales, production volumes, and profitability.

Similarly, investments made by the Romanian fund also demonstrate the 

uncertain nature of enterprise fund investment operations.

• The fund’s 1996 investment of $471,000 in Multiprint—a commercial 

printing company in Northeast Romania—encountered financial 

difficulties due to factors such as late payments from the firm’s debtors 

and the overall decline of the Romanian economy.

• The fund’s 1996 investment of $229,000 in Doriela—a Bucharest farm 

equipment services and leasing firm—performed poorly because of a 

decrease in demand. The fund reported that the purchasing power of 

potential buyers had diminished and that expected agricultural 

subsidies had not materialized in Romania.

• The fund’s 1996 investment in Multicolor—a label and packaging plant 

in northeast Romania—demonstrated weak performance because of 

poor management, stronger than expected competition, and other 

factors. A fund-financed evaluation of Multicolor’s difficulties led the 

company to negotiate the rescheduling of its debt payments, replace its 

general manager, and completely restructure its maintenance 

department. 

12The original commitment for this investment was made in 1995 by the Russian-American Enterprise 

Fund.
B-283261

Page 20 GAO/NSIAD-99-221 Foreign Assistance

Funds Are Complying 

With Increased 

Reporting 

Requirements 

Since we reported on enterprise funds in 1994,13 USAID has increased fund 

reporting requirements due to concerns about the extent to which the U.S. 

government was systematically monitoring fund progress using a standard 

set of indicators. In 1995, the USAID Inspector General reported that 

USAID had not established a comprehensive set of specific objectives and 

measures by which the performance of the funds could be judged.14 In 

1997, partly in response to these concerns, USAID strengthened its 

semiannual reviews of the funds by asking the funds to submit a “strategic 

framework matrix” providing data on fund activities in key areas, such as 

investments in small- and medium-sized enterprises and capital raised from 

other sources. The matrix also included other data, such as multiyear 

investment projections and break-even analyses.

According to USAID and State officials, the economic conditions in each 

host country, the length of time the respective funds have been operational, 

and the substantial operational latitude that funds were given in responding 

to their host-country situations make it difficult to establish clear and 

objective standards that can be applied equally to all of the funds. 

Therefore, USAID does not use the matrixes to hold funds to standardized 

performance targets or to make comparisons across funds. However, it 

does work with each fund to independently establish investment 

projections and target dates for breaking even.

We found that the funds are providing the information requested, although 

the information has not always been in the requested format. For example, 

while some funds may not have fully completed sections of the strategic 

framework matrix, they provided the required information in other 

reporting documents.

USAID and State officials told us that the additional reporting requirements 

had enhanced their ability to oversee the funds’ activities. Russian and 

Romanian fund officials also told us that the current level of oversight is 

appropriate. They said that they have a responsibility to safeguard U.S. 

government funds that are provided to them in the form of grants and 

added that the reporting requirements are not burdensome. In addition, 

much of the information reported to USAID is data that the funds would 

13Enterprise Funds: Evolving Models for Private Sector Development in Central and Eastern Europe.

14Audit of the Economy and Efficiency of Four Central and Eastern Europe Enterprise Funds, Audit 

Report No. 8-180-95-015 (Washington, D.C.: USAID, Office of the Inspector General, Aug. 25, 1995).
B-283261

Page 21 GAO/NSIAD-99-221 Foreign Assistance

collect in their normal course of managing fund activities and is similar to 

information that private investors would expect to have available.

Conclusions The enterprise funds in Central Europe and the former Soviet Union have 

supported private sector development in their host countries. Most have 

also helped strengthen financial institutions and encouraged economic 

reforms. A fund’s success is largely dependent on its management’s early 

involvement in the fund’s operations and host-country legal, regulatory, and 

economic climates. Based on our analysis of financial and investment 

patterns in Russia and Romania, the enterprise funds in both countries 

have a continuing development role for the foreseeable future, and the 

overall need for investment capital in these countries continues unabated. 

Determining whether enterprise funds will recoup their authorized capital 

is problematic; yet, U.S. officials expect several funds to recoup their 

authorized capital and have raised expectations that other funds will do the 

same. Finally, due to congressional concerns about U.S. oversight of the 

funds, USAID increased enterprise fund reporting requirements in 1997. 

We found that the funds are providing the requested information, and 

USAID and State officials told us the additional information has enhanced 

their ability to oversee the funds’ operations.

Scope and 

Methodology

We reviewed the activities of all 10 enterprise funds in Central Europe and 

the former Soviet Union. To gain a first-hand view of fund operations, we 

also visited the Russian and Romanian funds’ U.S. and host-country offices; 

toured in-country investment sites; and met with U.S., host government, 

and fund officials. These funds were selected based on congressional 

interest, to provide geographical coverage in both Central Europe and the 

former Soviet Union, and to offer contrasting fund sizes. We traveled to 

Romania and Russia in January 1999.

To determine whether enterprise funds are assisting private sector 

development and what factors have affected the funds’ ability to carry out 

these activities, we interviewed cognizant officials and analyzed program 

documentation. Specifically,

• In Washington, D.C., we interviewed officials in the offices of the 

Department of State Coordinators of Assistance for Eastern Europe and 

the New Independent States, USAID’s Bureau for Eastern Europe and 
B-283261

Page 22 GAO/NSIAD-99-221 Foreign Assistance

the New Independent States, and the Romanian fund’s U.S. offices. We 

also met with members of the Romanian fund’s board of directors and 

interviewed other private venture capital firm officials. We reviewed 

enterprise fund grant agreements, annual fund reports, fund semiannual 

review documents, and other reporting documents; USAID evaluations 

of enterprise funds; and USAID Inspector General reports. In New York 

City, we interviewed officials in the Russian fund’s U.S. offices and met 

with members of the Russian fund’s board of directors and other private 

venture capital firm officials. From our analysis, we determined the 

type and extent of enterprise fund activities that support private sector 

development in host countries as they progress from centrally planned 

to market-oriented economies as well as the critical elements that 

facilitated or impeded funds in executing these activities.

• In Russia and Romania, we interviewed enterprise fund senior managers 

and investment officers, reviewed the funds’ investment and loan 

portfolios and fund technical assistance activities, and visited fund 

investment sites. We also discussed the fund’s private sector 

development activities with senior officials at the U.S. embassies and 

USAID missions as well as host government officials. In addition, we 

attended the Russian fund’s January 1999 semiannual review meeting. 

To determine whether funds still have a role in private sector development, 

given other private investment and international donor efforts, we 

primarily relied on our case studies of the Russian and Romanian funds. 

We analyzed foreign investment flows in these two countries and discussed 

with U.S. officials the activities of other private investors and international 

donors there. We also interviewed Russian and Romanian fund officials, 

recipients of Russian and Romanian fund assistance, host government 

officials, and other international donors to determine the similarities and 

differences among the various activities of the funds, other investors, and 

other donors.

To determine whether the funds are likely to recoup their authorized 

capital, we discussed with U.S. officials their expectations regarding the 

ultimate financial outcomes of individual funds and discussed with private 

venture capital firm officials the practice of valuing international venture 

capital-type investment portfolios. We also reviewed annual fund reports, 

fund semiannual review documents, other reporting documents, and State 

and USAID documents.

To determine whether funds are complying with recent changes in USAID 

reporting requirements, we interviewed State and USAID officials and 
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Page 23 GAO/NSIAD-99-221 Foreign Assistance

reviewed enterprise fund reporting for the two most recent semiannual 

review periods.

Also, in response to a specific question from your staff, we identified the 

primary law firms that enterprise funds currently employ. This information 

is in appendix IV.

We performed our work from September 1998 to August 1999 in 

accordance with generally accepted government auditing standards.

Agency Comments The Department of State and USAID provided written comments on a draft 

of this report (see apps. V and VI, respectively). State said that the report 

was a well-written and balanced analysis of the effectiveness of enterprise 

funds; USAID noted that the report detailed many accomplishments and 

development impacts of enterprise funds in Central Europe and the former 

Soviet Union. USAID also provided technical comments that we have 

incorporated, as appropriate. 

Unless you publicly announce its contents earlier, we plan no further 

distribution of this report until 30 days after its issue date. At that time, we 

will send copies of this report to the Honorable Madeleine K. Albright, the 

Secretary of State; the Honorable J. Brady Anderson, the Administrator of 

USAID; and interested congressional committees. We will make copies 

available to others upon request.

Please contact me at (202) 512-4128 if you or your staff have any questions 

about this report. Other GAO contacts and staff acknowledgments are 

listed in appendix VII.

Benjamin F. Nelson

Director, International Relations and

 Trade Issues
Page 24 GAO/NSIAD-99-221 Foreign Assistance

Contents

Letter 1

Appendix I

Romanian Fund 

Investments, Loans, 

and Technical 

Assistance

28

Appendix II

Russian Fund 

Investments, Loans, 

and Technical 

Assistance

30

Appendix III

Romanian and Russian 

Fund Boards of 

Directors

33

Appendix IV

Enterprise Fund Law 

Firms

37

Appendix V

Comments From the 

Department of State

38
Contents

Page 25 GAO/NSIAD-99-221 Foreign Assistance

Appendix VI

Comments From the 

U.S. Agency for 

International 

Development

39

Appendix VII

GAO Contacts and 

Staff 

Acknowledgments

41

Tables Table 1: Enterprise Fund Capital Authorized and Invested and Technical 

Assistance Provided as of September 30, 1998 6

Table 2: Fund Capital Raised From Other Sources as a Percentage of 

Authorized Capital as of September 30, 1998 7

Table 3: Examples of Fund Activities to Strengthen Financial Institutions 

and Provide a Demonstration Effect 8

Table 4: Enterprise Funds’ Operating Expenses as a Percentage of 

Authorized Capital for 1998 12

Table 5: Enterprise Funds’ Grant Amounts and Estimated Asset

Valuation as of September 30, 1998 18

Table I.1: Romanian Fund Direct Investment Program as of

September 30, 1998 28

Table I.2: Romanian Fund Loan and Other Small- and Medium-sized 

Business Program Disbursements as of September 30, 1998 29

Table I.3: Examples of Romanian Fund Technical Assistance Projects 29

Table II.1: Russian Fund Direct Investment Program as of

September 30, 1998 30

Table II.2: Russian Fund Loan Program Disbursements as of

September 30, 1998 31

Table II.3: Examples of Russian Fund Technical Assistance Projects 32

Table IV.1: Enterprise Fund Primary Law Firms 37
Contents

Page 26 GAO/NSIAD-99-221 Foreign Assistance

Abbreviations

EBRD European Bank for Reconstruction and Development

IFC International Finance Corporation

IMF International Monetary Fund

OPIC Overseas Private Investment Corporation

USAID U.S. Agency for International Development
Page 27 GAO/NSIAD-99-221 Foreign Assistance
Page 28 GAO/NSIAD-99-221 Foreign Assistance

Appendix I

Romanian Fund Investments, Loans, and 

Technical Assistance ApenxIdi

As of September 30, 1998, the Romanian fund had made investments and 

loans in and provided technical assistance to Romanian businesses totaling 

about $30 million. Most of the fund’s investments (nearly $23 million) were 

in Romanian small- and medium-sized businesses, including agribusiness 

and manufacturing of chemical products, technical rubber, and machine 

parts. The average size of the fund’s 17 direct equity investments was about 

$1.3 million, but over 40 percent of its investments was concentrated in two 

firms. The fund’s largest investment was $5 million in a paint 

manufacturing company, and the smallest was $42,000 in a financial 

services firm. Table I.1 shows the fund’s direct investments, including the 

recipient firms, types of businesses, and amounts invested.

Table I.1: Romanian Fund Direct Investment Program as of September 30, 1998

a

Includes purchase of Marmosim.

Source: Romanian fund.

As shown in table I.2, the Romanian fund had invested about $6.2 million in 

loans and other lending programs. Over half (about $3.2 million) of the 

Dollars in thousands

Name of firm Type of business Amount invested

Avicola Crevedia Agribusiness $200

Comtel Hotel development 1,300

Connecticut Manufacturing Machine parts manufacturing 1,373

Doriela Agricultural services 229

Dunarea Textile manufacturing 500

Hobas Tub Commercial pipe manufacturing 1,700

IPEC Porcelain manufacturing 680

Logic Telecom Telecommunications services 1,800

MotorActive Leasing services 100

Multicolor Label and package manufacturing 345

Multiprint Printing 471

Policolor Paint manufacturing 4,988

Regisco Financial services 42

Rolast Technical rubber manufacturing 4,125

TEC Miaco Agribusiness 2,500

Titan Mara Construction materials production 800

Transdata Telecommunications services 1,442

Total $22,595
Appendix I

Romanian Fund Investments, Loans, and 

Technical Assistance

Page 29 GAO/NSIAD-99-221 Foreign Assistance

investments were made through the fund’s small- and medium-sized loan 

program.

Table I.2: Romanian Fund Loan and Other Small- and Medium-sized Business 

Program Disbursements as of September 30, 1998

Source: Romanian fund.

The Romanian fund had provided about $650,000 in technical assistance, 

most of which supported the fund’s investments. Table I.3 offers some 

examples of technical assistance activities in which the fund engaged in 

support of its own investments or private sector development.

Table I.3: Examples of Romanian Fund Technical Assistance Projects

Source: Romanian fund.

Dollars in thousands

Program Amount disbursed

Small- and medium-sized loans $3,171

Micro-sized loans 2,430

Other small- and medium-sized business programs 554

Total $6,155

Name of firm Description of assistance

Multicolor Evaluated operations, finance, and human resource functions, 

and recommended changes in management personnel and 

inventory controls

Policolor Trained managers and marketing and sales personnel in 

marketing techniques and product distribution

Rolast Reviewed project planning and subsequently trained top 

management in methods for instituting organizational changes

Titan Mar Provided strategic consulting and advice on operations and 

technology

Transdata Evaluated human resources and helped establish 

performance-based incentive packages for managers and 

employees
Page 30 GAO/NSIAD-99-221 Foreign Assistance

Appendix II

Russian Fund Investments, Loans, and 

Technical Assistance ApenxIdi

As of September 30, 1998, the Russian fund had made investments and 

loans in and provided technical assistance to Russian businesses totaling 

about $125 million. Most of the fund’s investments were in small- and 

medium-sized businesses, but the fund had invested in some larger 

businesses as well. The Russian fund had made 28 direct equity 

investments totaling over $97 million in businesses in Russia, ranging from 

agribusiness to telecommunications. The average size of the fund’s direct 

investments was about $3.5 million, but over half of its total investments 

was concentrated in seven companies. The fund’s largest direct investment 

was $15.5 million in a brewing and bottling company, and the fund’s 

smallest was $75,000 in a dental clinic. Table II.1 details the fund’s direct 

investment program, including the recipient firms, the types of businesses 

they operate, and the amounts that the fund invested in them.

Table II.1: Russian Fund Direct Investment Program as of September 30, 1998

Dollars in thousands

Name of firm Type of business Amount invested

Agribusiness Partners International L.P. Agribusiness industry direct investment fund $5,000

Bitech Petroleum Corporation Petroleum production 3,000

Dieselprom Diesel engine manufacturing 3,660

Financial Center Financial services 600

Frank’s Siberian Supreme Ice cream production 211

FunTech Xerox copy operations and distribution of Xerox products 2,000

Genesee-Volkhov Connection, Inc. Photo processing center 900

Independent Network Television Holding Commercial network broadcasting 4,378

International Business Communication Systems, Inc. Telecommunications 5,000

Interstom Dental clinic 75

Invacorp Pharmaceutical distribution 5,000

Lomonosov Porcelain Factory Porcelain tableware production 2,375

Marine Resources Company International Seafood production and fishing vessel refitting 8,250

Nizhny Newsprint Holdings Newsprint and paper production 4,140

Phargo Alphagraphics business services 2,500

Plyko L.L.C. Plywood manufacturing 5,825

Polygrafoformlenie Packaging 2,799

Russian Petroleum Investor, Inc. Publishing and information services for oil and gas industry 1,950

Saint Springs Water Limited Production and distribution of bottled water 3,500

Segol RadioPage Wireless messaging systems 2,500

(continued)
Appendix II

Russian Fund Investments, Loans, and 

Technical Assistance

Page 31 GAO/NSIAD-99-221 Foreign Assistance

Source: Russian fund.

The Russian fund had made over $25 million in small- to medium-sized 

loans, consumer auto loans, residential mortgage loans, and micro-sized 

loans to entrepreneurs. However, over 80 percent of the fund’s lending 

activities were concentrated in loans to small businesses through the fund’s 

partner banks. Table II.2 shows the amount of loans disbursed through the 

fund’s various loan programs.

Table II.2: Russian Fund Loan Program Disbursements as of September 30, 1998

Source: Russian fund.

The fund had also provided about $1.7 million in technical assistance, most 

of which was in support of the fund’s own investments. Table II.3 offers 

some examples of technical assistance activities in which the fund engaged 

in support of its own investments.

Dollars in thousands

Name of firm Type of business Amount invested

StoryFirst Communications Radio and television broadcasting 5,000

SUN Brewing Limited Brewing and bottling facilities 15,500

Time Women’s clothing production 204

TsUM Retail department store 500

U.S. Global Health Medical clinic 3,770

Vita Plus Pharmaceutical distribution 5,000

ZAO Giant, Ltd. Supermarket chain 2,980

Zapsibinvest Wood processing and packaging 970

Total $97,587

Dollars in thousands

Program Amount disbursed

Bank partner program and other small- and medium-sized loans $20,863

Auto loans 4,000

Mortgage loans 250

Micro-sized loan program 438

Total $25,551
Appendix II

Russian Fund Investments, Loans, and 

Technical Assistance

Page 32 GAO/NSIAD-99-221 Foreign Assistance

Table II.3: Examples of Russian Fund Technical Assistance Projects

Source: Russian fund.

Name of firm Description of assistance

FunTech Installed management information and financial reporting 

systems

Genesee-Volkhov 

Connection, Inc.

Installed a management information system

Invacorp Upgraded the company’s existing management information 

system

Plyko L.L.C. Installed a management information system and retained 

an engineering consultant to assist in the installation of a 

new production line and recommend operational 

improvements

Saint Springs Water Limited Trained company employees in management development, 

strategic planning, and team building
Page 33 GAO/NSIAD-99-221 Foreign Assistance

Appendix III

Romanian and Russian Fund Boards of 

Directors ApenxIdi

The members of the Romanian and Russian funds’ boards of directors are 

private citizens of the United States or the host country. Although the 

members’ backgrounds are varied, they generally have experience in areas 

such as investment banking and business or other relevant expertise.

Romanian Fund The Romanian fund’s board of directors is comprised of 10 members. The 

members include several attorneys and others who have experience in the 

financial sector or investment banking, two former U.S. ambassadors, and 

one current and one former Romanian government official. Information on 

all 10 board members follows.

Director and Chairman of the Board

Mr. Harry G. Barnes, Jr.

Director, Conflict Resolution Program and Chair, Human Rights

 Committee, The Carter Center

Former U.S. Ambassador to India, Chile, and Romania

Director, President, and Chief Executive Officer

Mr. I. John Klipper

Former President of IVEX Corporation 

Romanian native

Former insurance and venture capital company executive

Directors

Mr. Mugur Isarescu

Governor, National Bank of Romania

Mr. Robert D. Joffe

Presiding Partner, Cravath, Swaine, and Moore

Board Member, Lawyers Committee for Human Rights

Executive Committee Member, Association of the Bar of the City of New

 York

Ms. Judy H. Mello

President and Chief Executive Officer, World Learning

Former Managing Director, Cambridge International Partners
Appendix III

Romanian and Russian Fund Boards of 

Directors

Page 34 GAO/NSIAD-99-221 Foreign Assistance

Mr. David M. Roth

Managing Partner, Levy & Droney

Ms. Ida F.S. Schmertz

Co-Chair, Volkhov International Business Incubator and Training Center

 of the Alliance of Russian and American Women

Principal, Strategic Investment International

Mr. Theodor Stolojan

Senior Economist, World Bank 

Former Prime Minister of Romania

Mr. Richard N. Viets

Vice President and General Manager, Web Tools Division, Secure

 Computing Corporation

Former U.S. Ambassador to Jordan and Tanzania

Mr. Gregory A. White

Chief Operating Officer, ValueQuest/TA

Former Executive Director, Massachusetts State Pension Fund

Russian Fund The Russian fund’s board of directors is currently comprised of nine 

members. The members include several individuals with experience in 

investment banking, venture capital, and financial services and others who 

have experience in business, law, and government, including a former 

assistant secretary of state and a former U.S. ambassador at large. The 

fund does not currently include any host-country citizens. Information on 

all nine board members follows.

Director and Chairman

Patricia M. Cloherty

President and General Partner of Patricof & Co., Ventures, Inc., a private

 venture capital company operating in six countries

Former President and Chairman of the National Venture Capital

 Association

Member of the Council on Foreign Relations
Appendix III

Romanian and Russian Fund Boards of 

Directors

Page 35 GAO/NSIAD-99-221 Foreign Assistance

Director, President, and Chief Executive Officer

David A. Jones

Former President of Clarendon Capital, an investment banking and

 consulting firm

Founding Partner of Dougery, Jones & Wilder, a venture capital firm

Former Vice President of Citicorp Venture Capital Ltd.

Directors

Frank J. Caufield

General Partner and Founder of Kleiner Perkins Caufield & Byers, a

 venture capital firm

Former President of the National Venture Capital Association

Former President of the Western Association of Venture Capitalists

Arthur DelVesco, Cofounder of Wind Point Partners, a venture capital firm

Former Director of Republic Telecom Systems Corporation

Former Senior Investment Manager at First Chicago Equity Group

D. Jeffrey Hirschberg

Vice Chairman and Senior International Counselor, Ernst & Young, LLP.

Former Special Attorney to the Deputy Attorney General

Director of the U.S.-Russia Business Council

Robert D. Hormats

Vice Chairman of Goldman, Sachs International

Board Member of the Council on Foreign Relations

Former Assistant Secretary of State for Economic and Business Affairs

Former U.S. Deputy Trade Representative

Karen N. Horn

Senior Managing Director and Head of International Private Banking at

 Bankers Trust Company

Former Chairman of the Board of Bank One, Cleveland, NA

J. Bruce Llewellyn

Chairman of Philadelphia Coca Cola Bottling Co.

Former President of OPIC

Former U.S. Ambassador at Large
Appendix III

Romanian and Russian Fund Boards of 

Directors

Page 36 GAO/NSIAD-99-221 Foreign Assistance

Richard D. Turner

Executive Vice President of South Shore Bank of Chicago

Creator of Polish-American Enterprise Fund small loan program
Page 37 GAO/NSIAD-99-221 Foreign Assistance

Appendix IV

Enterprise Fund Law Firms ApenxIVdi

As shown in table IV.1, four law firms provide the primary legal counsel for 

9 of the 10 enterprise funds in Central Europe and the former Soviet 

Union.1

 One such firm—Weil, Gotshal & Manges of Washington, D.C.—is 

the primary law firm for five of the funds, while another firm—Arnold & 

Porter of Washington, D.C.—is the primary law firm for two funds. 

According to U.S. Agency for International Development (USAID) officials, 

only the Albanian fund retains no primary law firm and, instead, contracts 

for legal services on an as-needed basis. In addition to their primary law 

firms, most funds employ host-country or other specialized law firms for 

individual investment deals and a variety of other legal matters requiring 

specific expertise that is not available from one firm. According to USAID 

officials, the funds have employed over 50 different law firms on a variety 

of legal matters since they began operations.

Table IV.1: Enterprise Fund Primary Law Firms

Source: USAID.

1

Two additional enterprise funds that we did not include in our review—the Defense Enterprise Fund 

and the Southern African Enterprise Fund—also employ primary law firms. The Defense Enterprise 

Fund’s primary law firm is Weil, Gotshal, and Manges of Washington, D.C., and the Southern African 

Enterprise Fund’s primary law firm is Long, Aldridge, and Norman of Atlanta, GA.

Law firm Corporate or business location Enterprise fund

Weil, Gotshal & Manges Washington, D.C. Baltic

Hungary

Poland

Romania

Russia

Arnold & Porter Washington, D.C. Czech-Slovak

Western Newly Independent States

Kirkland & Ellis Chicago, IL Bulgaria

McDermott, Will & Emery New York, NY Central Asia
Page 38 GAO/NSIAD-99-221 Foreign Assistance

Appendix V

Comments From the Department of State ApenxVdi
Page 39 GAO/NSIAD-99-221 Foreign Assistance

Appendix VI

Comments From the U.S. Agency for 

International Development ApenxVdiI
Appendix VI

Comments From the U.S. Agency for 

International Development

Page 40 GAO/NSIAD-99-221 Foreign Assistance
Page 41 GAO/NSIAD-99-221 Foreign Assistance

Appendix VII

GAO Contacts and Staff Acknowledgments ApexVnIdi

GAO Contacts Jess Ford, (202) 512-4268

A.H. Huntington, III, (202) 512-4140

Acknowledgments In addition to those named above, Michael Courts, Lee Kaukas, Jim Strus, 

George Taylor, Bruce Kutnick, and Richard Seldin made key contributions 

to this report.

(711353) Lret
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