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Russia: U.S. Concerned About Future Economy And Mutual Relations

Washington, 18 September 1998 (RFE/RL) -- Senior American officials say they are concerned that Russia's new government may move in directions that would damage Russian-U.S. relations and end the country's chance for economic recovery.

The officials, Deputy Secretary of State Strobe Talbott and Deputy Treasury Secretary Larry Summers, voiced the worries to the House of Representatives' Committee on International Relations in Washington Thursday.

Talbott said clouds have gathered on the Russia horizon, both in the economic and political areas. He said economically, the new government seems to be indicating a return to less market orientation, not because of the personalities of many of the new officials, but because their background and training is anchored in central planning in the old days.

Politically, Talbott said he is concerned that the Duma, led by the communists, will be able to pressure the government of President Boris Yeltsin and Prime Minister Yevgeny Primakov to shift its emphasis from Russia's cooperation with the U.S. as allies and partners to a policy of opposition and defiance for its own sake.

Failure to follow reform economic policies could carry with it the danger of political turmoil and drift within Russia, said Talbott, and the adoption of an antagonist political policy would put Moscow out of reach of the economic solutions it so desperately needs. It would turn the situation from merely very difficult to absolutely impossible, he said.

Summers said the final decisions are up to Russia, but he said leaders there must understand that the laws of economics, like the laws of physics, do not respect political constraints.

Price controls create shortages and hoarding, he said, too much money creates inflation, lack of secure property rights inhibits investment.

Both officials reiterated support for continued International Monetary Fund (IMF) involvement with Russia, but emphasized that resumed lending is contingent on Moscow's adhering to strong reforms.

There has been a great deal of criticism in the U.S. Congress of the IMF's role in helping Russia, especially the most recent $22.6 billion international rescue package the IMF assembled in July just before the full-blown crisis hit.

Summers said the IMF program of supporting the ruble was a calculated risk, but a necessary one that might have succeeded if there had been more effective reforms in Russia and if the international economic environment had not been in crisis.

But that doesn't change the need to have the IMF helping Russia develop reforms and providing technical assistance, said Summers, once Russia decides that's what it wants.

Developing a market economy is also good to help fight corruption, he said. Congressional criticism of Russian assistance has often centered on reports of widespread official corruption. Summers said the IMF considers corruption a crucial issue.

He said price controls, quotas, directed lending and other economic controls only tend to create black markets, encourage corruption and distort economic processes, while building a market economy reduces the incentive, the means, and the capacity for corruption.

Summers said that despite concerns over Russia's future direction, this is yet another reason the U.S. will continue to support reform programs in there.