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Russia: Analysis from Washington -- Short-Term Measures Jeopardize Long-Term Goals

Washington, 27 May 1998 (RFE/RL) - Post-communist governments increasingly find themselves caught between the short-term demands of the international marketplace and the long-term imperatives of systemic economic and political change.

When they bow to the former, they risk losing the political authority to pursue the latter. But if they refuse to respond to the short-term demands of the marketplace, they may lose the capacity to cope with popular expectations.

Consequently, the political leaders of these countries are constantly looking for some combination of measures that will reassure the foreign investment community without destroying their own political base, a search that appears ever more difficult across this region.

The situation in the Russian Federation this week is but the latest example of this problem. On Monday, President Boris Yeltsin assembled his country's financial leaders to the Kremlin to consider how to respond to such short-term challenges without destroying his own political base.

In order to attract foreign investors increasingly skittish about the so-called emerging markets, the Russian government has taken a number of steps to reassure them that the Russian economy is on the right track and that they should continue to invest there.

The Russian Central Bank has raised the interest rate it pays on treasury bills from 30 to 50 percent in order to attract the funds necessary to reduce the government's deficit and thus attract International Monetary Fund loans.

The Russian authorities have doled out money to one of the country's many troubled financial institutions and have been purchasing rubles in the international marketplace lest a bank collapse or the devaluation of the ruble spark a financial panic.

And Moscow has launched a major public relations effort to tell key investors and their advisors that Russia remains an attractive place for their money despite these problems and their consequences in Asia.

But none of these steps is without difficulties: Raising the interest rate on government paper may buy time but it places a new burden on Russian budgets in the future.

Moreover, supporting one troubled bank inevitably gives rise to speculations that Moscow may prop up others, with all the dangers that implies. And the Russian government has only a limited amount of foreign exchange to defend the ruble.

As a result, these measures, driven by short-term concerns, may have negative consequences over the longer haul.

At the same time, other short-term concerns at home may push the Russian authorities in another direction. Even as it faced down the miners' strike earlier this month, the Russian government had to promise to pay back wages.

And Moscow can do little about its image problem with investors when the country's parliament passes measures that would sharply curtail the ability to own more than a relatively small percent of key Russian industries.

In this situation, the Russian government has had to watch stock prices on the Moscow markets fall by almost 50 percent since the start of the year, an indication that portfolio investment from the West has declined dramatically.

Not surprisingly, the bind that Moscow finds itself in has led some Russian politicians to question the value of reform altogether, to suggest that the whole idea of the political and economic transformation of the country in the direction of democracy and the free market is a mistake.

And the existence of this bind has led some in the West to suggest that Russia and the other post-communist states should be allowed more time to meet the ambitious goals of the transformations these countries are attempting to make. However superficially attractive such suggestions may appear to those concerned about the future, their adoption almost certainly would doom these countries to an even more difficult future than the present they now have.

But an appreciation of just how difficult this bind is could help everyone involved to take the longer view and thus overcome the very real problems that a focus on the short-term inevitably produces.