Accessibility links

Economy: Two Supporters Warn Russia

  • Robert Lyle



Washington, 2 April 1998 (RFE/RL) -- Russia got similar sharp warnings from two of the most respected and influential figures in global finance -- the head of the International Monetary Fund (IMF) and the top global finance official at the U.S. Treasury.

IMF Managing Director Michel Camdessus and U.S. Deputy Treasury Secretary Lawrence Summers Wednesday chose the annual conference of the U.S.-Russia Business Council in Washington to voice their concerns -- not about Russia's inflation rate or budget deficit, but about its basic direction.

Summers, formerly the World Bank's chief economist, says Russia has actually had success with macroeconomic policies -- keeping inflation low, beginning to resume growth, and preventing the shock-waves from the Asian financial crisis from seriously damaging the Russian economy.

But, he said, Moscow must begin to speak to the crucial questions of what type of capitalism it wants to build. It is not enough just to say adopt market systems because the world is so changed from the days when America, for example, developed its system.

Markets are important, but they are not enough, said Summers. The central challenge is to make government a constructive force in the economy and society, he said, a force that can deliver what markets alone cannot -- law enforcement and what is broadly refered to as the intangible infrastructure of a market economy.

It is a particular irony, said Summers, that the challenge for Russia, is no longer to make government weaker but to make government stronger so that it can perform the crucial functions of an effective state.

On the other hand, he said, Russia cannot look to the famous Asian approach of government's closely intertwined on a personal basis with the leaders of business and commercial finance.

In fact, said Summers, one of the real dangers Russia now faces is the same kind of "crony capitalism" that helped cause the Asian financial crisis. "The dangers of an emphasis on insider interests, on relationship-driven finance, rather than law-driven finance, can only increase when a country lacks, as in the case of Russia, most of the other universal fundamentals that the Asian economies enjoyed for so long," he said.

In short, said Summers, there can be "no worse news to come out of Russia than that, after years of throwing off one defunct economic model, it was on the verge of entrenching another questionable one."

Russia may have passed a point of no return, he said, but the crucial question is whether it will adopt a healthier, more transparent, better functioning market system than it has been building.

The IMF's Camdessus says that when he met with Russian President Boris Yeltsin and then-Prime Minister Viktor Chernomyrdin last month, he warned them of the "similarities" between the "crony capitalism" that got the East Asian countries into difficulties and what is happening in Russia.

Camdessus said he told them that "persistent macroeconomic problems, underlying weaknesses in the banking sector, a lack of transparency in the relationship between corporate banks and government -- all of that has left the Asian countries in a very vulnerable situation, very similar to the one in which you (Russia) are now."

The IMF head said the Russian leaders "didn't reject" his assertion of the dangerous similarities between the "incestuous relationships between the chaebols (Korean closely held family conglomerates) and the prevailing relations among oligarchy members" in Russia.

Russia is better on one very significant point, however, said Camdessus -- it has a central bank which has done a good job in stabilizing the economy and stabilizing the exchange markets.

But "be careful," Camdessus said he warned Yeltsin, "it is neither feasible nor desirable to rely on monetary policy alone for any extended period of time."

Camdessus's warning on deficiencies on fiscal policy, weakness in the banking sector and the pervasiveness of crony capitalism in Russia may not have fallen on completely deaf ears.

Russia's ambassador to the U.S., Yuli Vorontsov, told the conference that Yeltsin moved to change the government because of the need for a renewed commitment to reforms and a streamlined, invigorated government to implement them. "It is not a change of a flight plan, it is a change of the crew in the cockpit," he said. "The huge plane called Russia is staying the course, but gaining altitude," he said.
XS
SM
MD
LG