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Russia: U.S. Legislators Skeptical About Loans

Washington, 17 July 1998 (RFE/RL) -- Some influential U.S. legislators, skeptical about Russia's efforts to end its latest economic crisis, are urging the government in Washington to toughen policies towards Russia.

The chairman of the U.S. House of Representatives International Relations Committee, Ben Gilman, said Thursday there is growing concern in the Congress that current U.S. policy is not effective.

Gilman, a Republican congressman from New York, said that instead of economic stability and democratic progress, in his words "we see an economy in Russia close to collapse, and a government and society mired in corruption."

He made the statement at the International Relations Committee's inquiry Thursday into relations with Russia. Western efforts yet again to rescue the floundering Russian economy dominated the hearing.

Congressman Lee Hamilton (D-Indiana) said the key policy question for the U.S. is the international bail-out loan package for Russia of more than $22 billion, announced this week by the International Monetary Fund.

The U.S. would contribute a hefty chunk of this amount. But just how much is a contentious issue in Washington. President Bill Clinton has asked the Congress to approve a contribution of $18 billion for the IMF in the next fiscal year beginning in October.

But a draft bill on foreign spending moving through the House of Representatives is expected to include only about $3.5 billion for the IMF and even that would be conditional on IMF reform of its lending policies.

Against this background, congressmen on the House International Relations Committee persistently questioned the U.S. State Department's top adviser on the newly independent states, Ambassador Steve Sestanovich, about the usefulness of such a loan, and the extent of the Russian government's commitment to reform.

Sestanovich expressed confidence that the Russian government will adopt the austerity measures international lenders say are essential to stabilize the economy.

He said he believes the Russian government is committed to changing the tax code, enforcing tax collection and other steps to increase revenue for the national budget, and will take the action although opponents would probably continue delaying tactics.

Russia's Communist-dominated State Duma, in a marathon session Thursday, voted for a national sales tax and several other provisions of a package of tax and spending bills proposed by President Boris Yeltsin's government, in line with the reforms demanded by IMF lenders.

But the Duma has not yet voted on some tough austerity measures required to overcome the financial crisis and are returning today (Friday) to continue the debate for the third day in a row.

At the congressional hearing yesterday, legislators heard gloomy predictions from expert witnesses that the IMF package will not help Russia make essential structural economic changes and Russia will be back for more.

Retired General William Odom, a former senior military intelligence official, said the IMF loans are in his words "a very bad, perverse idea."

He said the Duma may pass a few reforms in order to get the money, but the larger impact of the loan will be to slow more fundamental reforms that are needed.

Odom, currently director of the Hudson Institute, a private policy research group, said Russian reforms have been essentially stalemated since 1994 and that "the IMF money will facilitate the stalemate into the indefinite future."

He said the Russian government, even if it wants to, is too weak to implement the reforms and with new money can only prop up the old system for a bit longer.

"IMF loans and other government-backed capital transfers do not contribute to new investment as much as they contribute to sustaining the old institutions," Odom said.

He predicted that the money will go mostly to the oligarchy of new multi-millionaires in Russia, who he said "masquerade as capitalists but are in fact monopolists with strong vested interests in seeing that an equilibrium remain of uncompleted reforms."

Paul Goble, communications director of Radio Free Europe/Radio Liberty, said in his testimony before the committee that the IMF demands on the Russian government may further isolate Yeltsin and increase political instability,

He said: "the IMF package does little to address current day-to-day difficulties of the Russian people. It is likely to exacerbate rather than ameliorate the increasing social tensions in Russian society," as well as promote anti-Americanism. The Russian people will see once again U.S. and western aid bailing out a government they mistrust, Goble said.

Clifford Gaddy from the private policy Brookings Institute said it is time to stop praising Russia for the progress it has made.

As he put it: "global financial markets ask only 'What return can you give on my money today?' They don't care what kind of bad guys ruled your country before or what happened in your past...and by these harsh standards Russia's economy was in a dismal state even before the current crisis."

Gaddy said the IMF loans are not in Russia's own long-term interest and that the Russian economy is headed for another crisis in the near future which will be worse than the current one.