The help that hurts.

The United States Agency for International Development administers billions of dollars of U.S. foreign aid, but it's better known for its scandals. U.S. AID officials were accused of running guns to the contras in the late 1980s, and under the Reagan and Bush Administrations, AID misled Congress about its expenditures and managed to misplace millions of dollars. During the 1992 Presidential campaign, however, Bill Clinton promised to "redirect and reorganize" AID, and right after the election, the agency readied itself for a radical change.

The scandal that finally prompted Clinton's reform promise concerned an AID "development" initiative that began in 1980 and continued through the Bush Administration. AID was encouraging American companies to move their operations to low-wage "export-processing" zones that it helped set up in Central America and the Caribbean Basin. "Rosa Martinez produces apparel for U.S. markets on her sewing machine in El Salvador," ran an ad financed by AID. "You can hire her for thirty-three cents an hour."

When reporters for 60 Minutes showed up in El Salvador posing as executives of a fake clothing company called New Age Textiles, U.S. officials offered further benefits. John Sullivan, the deputy director of AID's trade and investment office in El Salvador, promised the agency would split the cost of technical assistance and worker training for New Age Textiles. Sullivan also warned against "leftist groups ... trying to promote labor unions," but assured the bogus manufacturers that AID could provide a blacklist. "There are certain names that we know that you probably will not want to hire," Sullivan said.

Within two weeks of the 60 Minutes report, both houses of Congress had passed bills forbidding AID from financing export-assembly plants, maintaining blacklists, or luring American companies abroad. For their part, Bill Clinton and Al Gore began making an issue of U.S. foreign-aid policy at every campaign stop. They filmed an ad in Decaturville, Tennessee, where 650 people were put out of work when Decaturville Sportswear moved to El Salvador on the taxpayers' tab.

After the election, Secretary of State Warren Christopher promised to fulfill the President's mandate to "overhaul" AID. That overhaul has taken two directions.

One is to narrow AID's administrative focus. In late November, AID chief J. Brian Atwood announced plans to close twenty-one foreign-aid missions: It would be the first time since Harry Truman launched the Marshall Plan that the U.S. Government has cut the number of countries receiving U.S. aid. The Agency for International Development currently operates in more than 100 countries, with 2,000 employees in the field and nearly 10,000 contractors. Atwood wants to eliminate 1,100 employees and winnow the number of recipient countries down to fifty.

More importantly, Atwood's overhaul has opened a debate on the nature of American foreign assistance. AID is now exploring grass-roots development strategies that don't depend on sub-subsistence wages, blacklists, or American plant closures.

But despite its name, AID has never been in the development business wholeheartedly; it's a creature of the Cold War. For decades - at least since the 1961 Foreign Assistance Act - its purpose has been to use American economic clout to fight communism. Atwood, who calls the 1961 Act a "Cold War relic," drafted a new law in November and sent it to Congress. Under this legislation, instead of fighting communism or exporting U.S. jobs, AID would encourage "sustainable development" abroad.

Yet where this new direction will take the agency is not at all clear. For some, sustainable development means grassroots antipoverty projects in Africa, or environmental clean-up efforts in Latin America. For others, it means the aggressive promotion of American business interests in the former Soviet bloc.

Stephen Hellinger, one of the founders of the nonprofit Development Group for Alternative Policies, the effort to refashion foreign aid is "caught in the contradictions of the Clinton Administration."

More than twenty U.S. Government agencies comprise the core of the foreign-aid industry. Each has its own ideas about the purpose of foreign assistance. Richard Nixon summed it up neatly when he said that "the main purpose of American aid is not to help other nations but to help ourselves." Foreign aid is neither foreign - since it is designed to help the United States and, more specifically, U.S. companies - nor is it aid, since much of it actually hurts people in the less developed countries it is supposed to help.

A leaflet from U.S. AID gets right to the point. Entitled Foreign Aid: What's down" or "trickle-down" approach to development: All the relevant decisions are made in Washington, by people who don't know wheat from sorghum.

But part of the problem is also plain incompetence. In El Salvador, it seems, U.S. AID's troubles have been the most evident. Not only was it financing sweatshops, it simply couldn't keep track of all the money it was spending. Nor could it figure out whether the money was making any difference.

Three years and $70 million into its Salvadoran project, AID determined in an internal agency audit that it was "impossible" to "accurately assess the cost-benefits or the impact of the project." The audit found that U.S. AID spent more money than authorized and had diverted funds to shore up private companies.

An independent organization, the RESULTS Educational Fund in Washington, also investigated AID. In El Salvador, it questioned AID's "willingness and ability to directly reach the poor." The problems were not just in El Salvador, however. In 1988, Congress had earmarked $32 million for AID to disburse in small loans to poor people in ten countries who were trying to start up their own companies. Of this $32 million, RESULTS concluded that "only $5.2 million was spent in ways that would fulfill or approach Congressional intent," though AID told Congress otherwise.

AID's institutional resistance to change may be the greatest obstacle of the ongoing reform effort. The agency will not only have to improve its ability to reach the poor and its willingness to report to Congress, it will also have to redress its abysmal environmental record.

The huge export and agribusiness-based projects traditionally favored by AID - not to mention its maquiladora projects - have been environmentally destructive. Even the World Bank has been forced to reconsider its strategies to avoid more catastrophes like its Polomoroeste project in the Brazilian Amazon, or its development of the Narmada river basin in India, which displaced thousands.

Finally, the reform will have to refocus AID's priorities. AID's recent projects in Eastern Europe and the former Soviet Union already show signs of the strain between its twin imperatives - increased U.S. corporate investment and development in the Third World. AID gave a $3.2 million contract to the New Jersey-based drug maker Merck & Company, for example, for measles vaccine for children in the former Soviet republics. AID bypassed the usual competitive bidding process, but disgruntled staff members told Sheila Kaplan of Legal Times that UNICEF could have inoculated four or five times as many children for the same money.

Last year, AID also paid $6.2 million for Sawyer Miller, a U.S. public-relations firm, to run an advertising campaign boosting Russian privatization; it paid millions more for a dozen law firms to advise former Soviet and Eastern European governments (the senior partner of Latham & Watkins had AID approve a special salary ceiling waiver to pay him $2,200 a day), and $44 million for a conglomerate that includes RJR Nabisco, ConAgra, and the National Food Processors Association to revamp the "food systems" of the former Soviet Union.

AID administrators in Eastern Europe have also spent weeks consulting with firms like Waste Management, Inc. - which paid $5.4 million in EPA settlements in 1990, $8.1 million in 1991, pleaded guilty to six felony counts and $11.6 million in penalties for mishandling Superfund cleanups in 1992 - and Westinghouse Hanford Company, which owes the state of Washington a scant $100,000 for its environmental follies.

AID's own Inspector General, after looking at nine projects AID developed in Eastern Europe between May and December 1992, concluded that despite regulations, competitive bids were sought in only two cases. Nor does AID appear to have any mechanism to stop serious conflicts of interest: A number of the law firms AID has hired as advisers to Eastern European governments are giving lucrative advice to their American corporate clients on East European investments; nice for a company to know that its lawyer is writing the rules.

AID's new course was charted by the Clinton Administration's task force on foreign aid. Secretary of State Warren Christopher placed his then-deputy Clifton Wharton in charge; AID's Atwood steered the task force. The Wharton Commission produced at least fourteen drafts of its report on how to reform U.S. AID. With each draft, the recommendations have been watered down.

The Clinton Administration has been feuding over the direction of the reform. The hawks at the National Security Council thought that AID should be taking over the State Department. The bankers at the National Economic Council wanted it to have the mission of promoting free-market reforms in Eastern Europe and the former Soviet Union. AID itself was divided; old-time Cold Warriors faced off against more recent Peace Corps grads and antipoverty activists who want to see the agency pursue development for its own sake.

These field workers urged AID to become an entirely new agency, above the political fray, dedicated to grass-roots development and poverty relief. No more war waged on the government of Nicaragua, no more toxic defoliants dumped on the coca crops of peasants in Peru - and no more maquiladoras. Instead, they advocated "sustainable development," a policy geared to local needs, especially reducing poverty and hunger, in ways that are environmentally sound.

The good news is this approach seems to be holding its ground, at least rhetorically, in the Clinton Administration review process. "Sustainable development" is now at the heart of the "new vision of AID" put forward by the task force and by Atwood's legislation. "Sustainable development targets the elimination of hunger, poverty, illness, and ignorance, while protecting the natural resource base," says a late draft of the report.

By all accounts Atwood is serious about AID's new direction. But now, with the forced resignation of Deputy Secretary Wharton, the policy shift is in doubt. Wharton, trained as a development economist, was known to be an opponent of top-down development and an advocate of sustainable, participatory development strategies. His likely replacement by a starchy member of the foreign-policy elite will not be a good sign.

Even before Wharton was forced out, any promise of fundamental change had come under attack. Early drafts of the task force's report, for instance, talked about AID cutting its ties to U.S. national-security and business interests in order to focus on development and disaster relief But once Congress and the rest of Clinton's cabinet got their hands on the report, it changed dramatically. Subsequent drafts included the obligatory long sections on the merits of free trade and market integration in Eastern Europe and the former Soviet Union.

There was even a mention of the thousands of jobs that AID created - where else? - in the maquila industries in the Caribbean basin.

Andrew Cohen is a free-lance writer in New York City. Research for this article was supported in part by a grant from Essential Information, Inc.