Billions Loaned To Russia Are Wasted

by Grigory Yavlinsky

The challenge was to achieve each as quickly as possible, after which the economic transformation would be largely secured.

Yet it was only a trap. Financial stabilization was achieved, but not economic growth. And with the re-election of the president -- in a notoriously unfair process -- a kind of political stabilization was achieved, but not political reform. Aid was given by the West, but not in a determined manner that would encourage change.

The result is debt -- heavier and only more costly by the day -- another $11.7 billion worth over 1998-99 from the IMF, World Bank and Japan, proffered last week on top of the 5.5 billion already borrowed.

This debt becomes ever more burdensome given the lack of economic growth: Russian GDP is 50 percent its level ten years ago under Communism. Another problem is that shock reforms -- particularly the ill-fated voucher privatization -- only drove the economy to barter.

The government covered its deficits by foreign and domestic loans at exceedingly high interest rates.

Now the government cannot meet its bills. It cannot pay its staggering debts or even its severe interest payments. It is being forced back to devaluation, inflation, and the same financial instability as before.

This time there is likely to be more political instability. For six years people have been patient. They have lived without jobs and without money, waiting for the results of the reforms because they understood that they were necessary.

By now, they are broke, and if prices begin to skyrocket, thousands, hundreds of thousands, a million could come onto the streets. It is already starting.

More and more people are calling for Yeltsin's resignation, not only coal miners and communists but politicians, businessmen and other elites, students, people throughout the regions. It is like a wave, and left unchecked has revolutionary potential.

This is Russia, and thus the question of what should be done is almost a philosophical one. With no reliable mechanism available to remove the president, it is likely and probably best (in constitutional terms at least) that he serves out his term, through the 2000 presidential elections.

It would still be possible to assemble a new, truly reformist administration that could address the depth of the economic and political crises, sustain the confidence of the people and of investors, and carry support from the Duma.

The prospect would require a fundamental shift in the way of doing politics in Moscow, and may seem utopian. But at least now even the robber barons understand that we have made serious mistakes and are debating the need for change.

Even they can see that the ruble crisis is merely a symptom of the broader crisis of confidence throughout the country.

Matching this approach, Western policy must move beyond its reliance on the single personality of the president to build relationships with a far broader range of politicians, parties and institutions.

Russia has to transform almost everything, and the necessary reforms cover the whole gamut: stopping corruption, developing civil society at the grassroots, increasing decentralization, reducing bureaucracy, building real political parties, securing a truly independent press, reforming the judiciary, and instigating a raft of measures in the economic sphere. Shock therapy cannot be applied.

Reforms must occur at a speed which supports, rather than damages, democratic development: like the pedals of a bicycle, institutional and political reform must turn together.

But unless a definitive course is set to achieve these changes, an open economy will never be effective, and stabilization will never be achieved. Merely giving cash now while Russia burns is a waste.