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The G-7 Summit: The Russian Economy and Aid to The Poor

Prague, June 24 (RFE/RL) -- The economy, as usual will be on center stage when the leaders of the G-7 group of seven major industrial democracies gather Thursday in Lyon for their annual summit. This time that means especially the Russian economy. Russia will join the seven -- the United States, Japan, Germany, France, Great Britain, Italy and Canada -- on Friday after the formal economic discussions have concluded. And Russia's economy will be very much a part of the talks both before and after Russia's representative, Prime Minister Viktor Chernomyrdin, joins the meeting. Chernomyrdin is sitting in for President Boris Yeltsin, who cancelled his scheduled trip in order to focus on next week's second round presidential election. U.S. President Bill Clinton's chief aid for the summit, Daniel Tarullo, says the impact of economic reforms in Russia is beginning to be felt. He says that the shifts in structures necessary to remove state controls are beginning to be seen. However, he says, it is important for Russia to stick to the reform path because, whether in the next month or in two years, as he put it: "There will be the opportunity and the reality of substantial growth." Chernomyrdin surely will remind the Western seven how difficult the transition toward a market economy has been, and continues to be, for Russian citizens. But he also will be able to point to the fact that Russia continues to meet the basic targets established with the International Monetary Fund (IMF). The rate of inflation has slowed in Russia. World Bank sources say that because of the impact of a hidden private sector, the economy is functioning better than it appears.

Official statistics say that economic output shrank by half after free market reforms were begun in 1992. But World Bank calculations show that it fell by only a third when the hidden economy is taken into account. In fact, bank sources say, the hidden economy now constitutes 20 percent of the general economy, pumping money into people's pockets and bringing more stability and prosperity than any of the statistics show.

Hiding economic activity allows people to avoid paying taxes. That means, of course, that the government collects lower revenues. For the long-term, that will damage its stability, the sources say. Russia, as do many nations in the world, depends heavily on the World Bank and the International Monetary Fund for technical help and guidance in dealing with problems like these, as well as for loans.

The G-7 will address also a wider and growing issue: For some of the poorest nations in the world, their debt burdens -- especially to the fund and the bank -- will prevent them from ever recovering. There has been a move in both institutions to create facilities to provide debt relief, and French President Jacques Chirac put the problem at the head of the G-7 summit's agenda. France last week eased its opposition to an IMF plan to sell a small part of its gold reserves and put the money into active investments to earn money to finance the debt relief. The bank is working on a similar plan. Only Germany now remains against the idea. Japan's Deputy Foreign Minister Kazuo Ogura says Prime Minister Ryutaro Hashimoto will ask the summit to endorse a plan to take the savings from reforms in United Nations agencies and recycle them into broader assistance for developing nations. Ogura says it could be as much as 20 percent of the budgets of these agencies. As a group, the rich nations, facing budget crunches of their own, have been cutting back on foreign aid. U.S. Treasury Secretary Robert Rubin says America is now, in his words, "dead last" among OECD nations in foreign aid, spending less per capita, sometimes two-thirds less, than are many other developed nations.