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Russia: IMF Solution Is Conventional -- But No Solution

Moscow, 14 July 1998 (RFE/RL) -- Martin Gilman, Moscow's resident representative of the International Monetary Fund (IMF), has produced a conventional solution in this week's IMF Russian rescue package. It's just not a solution.

The revolutionary option for the IMF, the administration of U.S. President Bill Clinton, Germany, and the other leading governments would have been to conclude that President Boris Yeltsin and his allies are sitting on an unsustainable pyramid of debt.

To prevent a crash and fall, it's obvious the Kremlin would promise anything for more money, as it has. Whatever is said about the conditions of the new loan agreement, nobody in the marketplace or in Washington believes the Russian government is any better equipped to implement them now, with the money, than was the case last week, without it. Or than was the case in the dozen emergencies the Russian leadership scraped through before.

The revolutionary option would have been to say that the distribution of property for which Anatoly Chubais, Russia's chief loan negotiator, claims the credit for arranging, has produced a dozen Russian oligarchs who cannot make money productively; cannot manage the resources and corporations the government has given them; and cannot pay their debts. They are rich; their property has been mismanaged; and their assets are mortgaged beyond their capacity to pay.

The revolutionary thing to do right now would be to acknowledge failure, and encourage a new redistribution of property. That would happen if the market which Yeltsin, Chubais and the IMF claim to be trying to create in Russia actually did the reforming.

If that happened right now, it's clear you would need at least 12 rubles to buy a dollar, double today's rate. Since that price is more than Russia's leading bankers can afford, the market would force them to liquidate, and allow a property takeover by those who have husbanded their resources all these years, and qualify on that score as more efficient at capital management. Such a process of capital transfer would be unlikely to hurt the majority of the Russian people worse than they already are hurt, because they live on subsistence, barter, credit, and dollars under their pillows. The oligarchs who would lose property in Russia wouldn't be bereft either, not if they've been prudent saving and investing abroad -- as most almost certainly have.

The market crash, as Prime Minister Sergei Kiriyenko has tried to depict it, would be better described as a transfer of property from the phony to the real forces of demand in the Russian economy.

But this isn't the market reform the IMF bailout is meant to achieve. What has happened isn't even a vote of confidence in the Yeltsin presidency.

Rather, the United States and the other powers have told their IMF emissary to give the Kremlin and the oligarchs another three to six months to figure out what to do; and to do whatever that is slowly. The price seems a big one, until you count that it's less than the value of the capital Russia has been exporting abroad -- illegally -- every two months for the past seven years.

It's also a price that Russia will have to be repay. Maybe, after the oligarchs have gone to the French Riviera, that will be easier to manage.

For now, the real bailout has been arranged for Washington. That's where they really need to buy time. The Kremlin's pledge to tax the thief and the pauper alike isn't serious. What is serious is the need in Washington to gain three to six months' time to face the reality that what's to be done in Russia will cost $22.6 billion.