Accessibility links

Russia: Analysis From Washington -- Balancing Jobs And Exchange Rates

  • Paul Goble

Washington, 20 November 1998 (RFE/RL) -- There are no easy and painless answers to the economic questions that the leaders of many post-communist countries must answer.

Indeed, whatever choices they make and however much praise and blame they receive from outsiders seem certain to have political and economic drawbacks either immediately or over the longer term.

That troublesome aspect of the post-communist transition was very much in evidence Thursday in the very different answers Russian Premier Yevgeny Primakov and Ukrainian President Leonid Kuchma gave to one of the most pressing of those economic issues.

Speaking in Khabarovsk, Primakov said the ruble would become almost worthless if his government tried to print money to cover its budget deficit and overcome Russia's economic problems. This, he said, his government would not do.

Meanwhile, in Kyiv, Kuchma told the Ukrainian parliament that his government should print more money and strip the central bank of independence as part of a broad policy to reverse the country's worsening economic and financial situation.

Primakov's commitment to a stable ruble exchange rate is certain to elicit praise from the international financial community. The IMF has made this a precondition for future aid, and many in the West have indicated that it is a prerequisite for foreign investment.

But in the same speech Primakov did not say how he would make good on his promise to pay off $5 billion in wage arrears or how he would jump start an economy with enormous unused industrial capacity and high real unemployment.

The Russian prime minister is clearly hoping that outsiders will help finance the Russian budget deficit either by direct aid or by purchasing Russian government bonds. But the chances that either of these will happen seem remote at least in the short term.

Moreover, Western advice that Moscow should pursue a hard money policy and strict budgetary discipline is something that many Russians know Western governments themselves have not practiced.

Indeed, when faced with an economic slump at home, most Western governments have run inflation-generating budget deficits in order to get their economies going again and to put people back to work.

But if Moscow were to follow Western practice rather than Western advice -- something that might be politically popular in a country where many people have not been paid for a long time -- it would likely sacrifice its chance of getting more aid and investment.

Meanwhile, Kuchma's suggestion -- certain to be popular in Ukraine -- that Kyiv should consider printing more money to help reinflate a Ukrainian economy now only 40 percent the size of what it was seven years ago is almost certain to attract Western criticism.

As in the case of Russia, Western institutions have insisted on a hard money policy in Ukraine even at the cost of high and rising unemployment there, an approach that most Western governments would not be willing or even able to adopt in their own countries.

In short, both Primakov and Kuchma are caught between a rock and a hard place in at least three respects: They are caught between what is politically palatable at home and what is politically necessary abroad.

They are caught between what will work in the short term and what will work over the longer haul. And they are caught between what Western governments advise and what Western governments in fact have done.

None of this is to say that there are not better and worse answers to the economic difficulties these countries face. From the standpoint of economic theory and past practice, there certainly are preferable ones.

Rather it is to point out that precisely because virtually all the available answers are difficult, none of the regimes involved is likely to be able to hold fast to any one of them for any extended period.

And that pattern in turn suggests that virtually all of these countries are likely to go through a kaleidoscopic series of changes in how they approach the transition, now bending toward Western advice and now toward domestic political realities.