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Can Russian Reforms Be Saved by West?

RUSSIAN economic adviser Jeffrey Sachs sounded upset. He had just heard that the Russian legislature had rejected President Boris Yeltsin's nomination of reformer Yegor Gaidar as premier.

"In important part that's the result of neglect by the West," he said in a telephone interview. "We barely lifted a finger this year, despite all the warning signs, all the indications of need. The Bush administration ran away from this. It is a real United States foreign policy blunder to have done nothing."

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The Harvard University professor says the vote against economist Gaidar makes the Russian political and economic situation more precarious, raising the risk of hyperinflation.

An official at the International Monetary Fund (IMF) notes that Mr. Sachs is not an entirely neutral observer. He was hired by Mr. Yeltsin for advise, perhaps even on getting foreign aid.

Whatever the case, other experts on Russia in the US are deeply concerned that political destabilization in Moscow will produce chaos or reversion to a more authoritarian system.

"The West will have to be a lot more generous than they have been," says Stanley Fischer, a former World Bank chief economist, now back at Massachusetts Institute of Technology.

He expects the Clinton administration to be more sympathetic to the Russian economic plight. But he doubts that sensitivity will translate into new aid to facilitate the economic reform process.

So far in 1992, the Group of Seven western industrial democracies have provided Russia with $13.9 billion in grants and credits - mostly loans to buy the G-7's farm products and other export credits, according to an IMF count. Another $4.4 billion in payments on Russia's approximately $55 billion in foreign debts was deferred. But nothing has been heard of a $6-billion ruble stabilization fund that was part of a $24-billion package the G-7 talked about April 7.

The IMF itself in August made a $1 billion loan, but with provisions that have kept Russia from actually drawing much of it. The World Bank has lent $600 million for various projects, with another $100 million to $200 million in the pipeline.

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For the IMF, the problem is that the Yeltsin government has not been able to meet the conditions for further loans of as much as $4 billion. Russia was supposed by now to have cut its budget deficit to a level of 5 percent of total national output. Instead the deficit is running two or three times that. Inflation was to have fallen to a single-digit level. It is running 30 percent per month.

Jan Vanous, editor of PlanEcon Report in Washington, estimates that Russian output has plunged 35 percent in the past three years, 15 to 20 percent this year alone. Living standards have gone down almost as fast. Trade has contracted sharply. Mr. Vanous expects a further decline in gross domestic product next year, although not as severe as this year.

These Russian experts agree on some aspects of the problem. One is that the Russian central bank has been creating far too much money by granting massive credits to financially troubled state enterprises. That has resulted in Brazilian-style inflation. The bank reports to the legislature. It is not controlled by Gaidar.

Another concern is the Russian Congress of People's Deputies itself. It wasn't democratically elected. About 75 percent are ex-communists and 40 percent "real hacks," Vanous says.

Yeltsin, the Washington consultant continues, "is up against a relatively strong parliament that doesn't represent the views of the Russian electorate." He suggests that Yeltsin should dissolve parliament and call for an election - "if that can be done." If not, he adds rather reluctantly, maybe Yeltsin "will have the guts and opt for a more dictatorial Russia." That view is not popular.

Yeltsin is expected to keep Gaidar as acting premier until the Congress meets again April 1. MIT's Mr. Fischer hopes Gaidar will push ahead even faster with privatization of industry, getting the budget in shape, and other reforms. But the Russian government, he says, doesn't have "a coherent policy" for dealing with the large enterprises within the "military-industrial complex."

The Japanese, with a huge trade surplus, should become heroes by providing the Russians several billion dollars, Fischer says. But they are hung up over the Sakhalin Islands. They have it "exactly backwards," he adds. Japan should help Russia first.

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