Present shock: Russia under economic strain

IN the three years since Russian President Boris Yeltsin selected ``shock therapy'' as his preferred way to transform a moribund Communist economy into a vibrant market, debate over his choice has only escalated, both inside or outside Russia.

Other nations have chosen this suffer-quickly economic treatment - such as Slovenia, Poland, and the Czech Republic - while some, such as Hungary, have proceeded more slowly. Those who went the fast route are now enjoying the fruits of their short but painful transitions.

Russia, however, because of its dangerous potential for instability, remains the focus of a global debate on this controversial economic model.

Many analysts from Tokyo to Washington question whether the Russian people will continue to tolerate the supposedly necessary effects of a quick removal of price controls on daily goods, abrupt reduction in government spending, and a rapid tightening of the nation's money supply and available credit - all trademarks of the shock-therapy model.

The architect of this method, Harvard University economist Jeffrey Sachs, says the greatest danger in Russia these days is that reform is being administered too gradually. Unless Mr. Yeltsin quickens the pace, Russians may not be able to endure protracted social pain, such as high unemployment, subsidy cuts, and reduced welfare, Mr. Sachs warns.

But the Harvard professor, who served as a government consultant in Moscow, also blames the West for not offering more financial aid. He condemns United States and European leaders for raising the risk that reformers in Moscow may lose faith or support by not having enough money.

Russia has yet to walk the highest wire under the tent of shock-therapy economics: letting all ailing state-run enterprises go bankrupt and allowing the nation's currency (ruble) to float freely on the world's exchange markets.

In 1992, the International Monetary Fund and the World Bank, as well as donor governments, promised a large safety net to Russia - a $6 billion fund to help stabilize the ruble.

But that money has not been collected and released - along with much aid promised by individual nations - because leaders in Moscow have not taken those final and difficult steps of shock therapy to meet IMF conditions.

In other words, the IMF has waited for Russia to act with more resolve in taking stronger steps, a stance that Richard Portes, director of the London-based Center for Economic Policy Research, calls arrogant.

Anders Aslund, a longtime adviser to Russian reformers and their top consultant on privatizing state firms, holds self-interested outsiders just as responsible as Russia's own policymakers for the country's limited reforms.

Partly because its leaders never felt confident that the fund was forthcoming, Mr. Aslund intimates, shock therapy never took hold. ``Russia never imposed strict monetary policies,'' he says.

International donors still dangle the prospect of that aid.

In recent weeks, Moscow has received encouragement from its most important post-cold-war ally. The Clinton administration has hailed Russia's economic managers for reining in the central bank, pushing down interest rates, and reducing inflation to single digits. Yet the big money is not available yet.

``If Russia adopts a tough budget-cutting program [which would mean cutting off credits to failing state enterprises], we could help them stem their money printing by delivering the $8 billion to $10 billion in enhanced support from the international financial institutions...,'' says US Treasury Secretary Lloyd Bentsen.

Shock therapy is directed against immoral behavior, stealing, corruption, embezzlement, budget subsidies, inflation, and obstacles to Russia's economic success, Aslund says. ``If they don't do anything, state enterprise managers will waste upward of 40 percent of Russia's output,'' he says.

Wrestling with the powerful industrial lobbies that suck the state coffers dry and forcing drastic changes on Russia requires ``intellectual and policy innovation,'' Mr. Portes says.

But summoning the courage to put that ``innovation'' into practice is another challenge altogether, as demonstrated by the revolving door of Russian reformers (a number of ministers have been fired by Yeltsin who feared that keeping them on would further aggravate his opposition). In Russia's uncertain and volatile political environment, leaders of all persuasions - from ultranationalists to ardent capitalists - have lacked political will to enact policies with high social costs.

Privatization is Russia's greatest economic success, Aslund says, noting that more than half of working Russians are employed in the private sector and account for more than half of the nation's output.