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The Price of Reform

TO stabilize the ruble and join the world economic community, Russia and the former Soviet republics must pass through the doors of the International Monetary Fund.

To get through the doors and gain access to billions in capital and loans these states have to enact austerity programs overseen by the IMF. This requires some pain - an agreement to stop printing rubles, free prices (meaning higher energy and food costs), and cut fat from government.

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IMF strictures are designed to force discipline and efficiency on inexperienced governments. The agency loans real money and demands accountability.

Yet IMF strictures also have a real political impact. The Russian government's infighting last week sprang partly from parliamentary resistance to IMF-based austerity. Boris Yeltsin's reformers appear to have worked out a compromise with parliament.

East European states show a growing gap between decisions made by finance ministers and their Western consultants and the decisions of elected officials. As Susan Woodward of the Brookings Institution notes, "The first political consequence of the economic reform program is friction between the people and their government."

Are the conditions required by the IMF, World Bank, and European Bank for Recovery and Development (EBRD) too narrow and constrictive given the social dynamics of the countries involved? But other IMF-user countries - India, Egypt, Venezuela - have had to slash prices and fight for tax increases. Should the IMF make exceptions for former Soviet states and vassals?

Still, it may not be enough for Western institutions to say: "Here are the rules - find a way to play by them." The old East bloc is attempting enormous structural change overnight - new banks, currency, and politics. Their case is exceptional. It's unrealistic to expect that economics can be hermetically isolated from the churnings inside newly liberated states. Politicians supporting reform and austerity find themselves attacked by opportunists of every stripe.

Even Group of Seven nations find that rules don't eliminate political realities. Consider the history of the Gramm-Rudman deficit reduction plan in the US.

At the same time, the IMF, World Bank, and EBRD demand something former socialist states need - standards. Too much "play" in IMF rules may stunt reform, not further it.

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US Deputy Secretary of the Treasury John Robson strikes a reasonable balance by suggesting the IMF and others tailor their programs for the long haul, with the specific "political realities" of each state in mind. "It could mean programs stretched over a longer time period, with disbursements at more widely separated intervals.... Each case will be different."

This is especially true of the 14 former Soviet republics other than Russia. IMF president Michel Camdessus estimates $20 billion in aid and loans are needed this year in those new states. Over the next four years, says Mr. Camdessus, the whole of the former Soviet Union will need more than $100 billion in aid from various sources.

Getting involved in the ebb and flow of social and political change will be new for the IMF. It will require patience. But the alternatives make it worth doing.

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