Caution Tempers Expectations On Aid to Russia

RUSSIA and 12 other ex-Soviet republics earned some capitalist credentials here April 27, as their applications were approved to the world's premier market-oriented institutions - the International Monetary Fund (IMF) and the World Bank.

United States Treasury Secretary Nicholas Brady called the new memberships, which provide the former republics access to billions of dollars in aid, "a far-reaching turning point in the history" of global financial organizations.

But Mr. Brady, other international finance officials, and private analysts offer a guarded view of just how quickly a pledged $24 billion in IMF, World Bank, and bilateral assistance will be parceled out to help transform the shattered communist systems into market economies.

Some analysts caution that while an influx of capital will spur reform, the conditions attached to the aid give those who oppose change a clear target.

"One of the sentiments on the rise is the IMF as Satan," says one US Soviet-policy analyst who is active in a number of technical-assistance projects in Russia and who also maintains close contacts with the Bush administration. "Politicians believe that the IMF is forcing Russia into more unemployment and a lower and lower standard of living."

Russian Deputy Prime Minister and economic reform architect Yegor Gaidar, whose tough policies were endorsed on April 27 by the world's leading industrialized countries, has promised to move ahead with his efforts.

The IMF could approve a $4 billion standby loan for Russia as early as July, when Mr. Gaidar says he wants to start the process of pegging the ruble to a leading currency, possibly the dollar. But there are signs, duly noted by IMF managing director Michel Camdessus, that the reforms are softening. One example is the Russian government's recent plan to meet the demands of the Congress of People's Deputies for higher civil-service salaries. More government spending only balloons the deficit and devalues t he ruble further.

World Bank Senior Vice President Wilfried Thalwitz says he is confident about Russia's moves to a market economy. He estimates that the bank will lend $2.5 billion during the next year to the former Soviet republics for sorely needed imports. Foreign-exchange reserves are perilously low at $60 million, says Gaidar.

"Now we are in a very difficult period in our economic history," Gaidar told reporters here this week. Last week the Russian State Statistic Committee published a report stating that roughly a third of all Russians are impoverished. Moreover, industrial production has fallen 13 percent, joblessness is on the rise, and food shortages are more commonplace.

Still, Russia's benefactors insist that only strict reforms will lift the former Communist economies from the wreckage of 70-plus years of failed policies.

"Without strong programs and implementation, transformation is prolonged, damaged, even jeopardized, and the public's will to see the process through is depleted," Brady said. The US treasury secretary is impressed with Gaidar's fortitude and praised him as "an enormously convincing person."

But while Gaidar is scoring points abroad, his pronouncement that "we have no other sensible choices" other than economic shock therapy, is not playing so well at home. In the wake of strong threats to his economic stewardship - politicians opposed to the fast pace of reforms have shaken up the fragile Russian government in recent weeks - Mr. Gaidar returns to Moscow where the Russian Parliament must sign off on membership to the IMF and World Bank. The legislative session is set to begin on May 11.

"There are virtually no members of the Supreme Soviet who are defending the government's action on the economy," the Soviet-policy analyst says. "What Gaidar is telling them is 'we figured this economic restructuring plan out ourselves, and the IMF endorsed it.' But there are strong lobbies in parliament and in the country at large that fight the lifting of subsidies and the removal of credits that keep money-losing enterprises in business."

For his part, Russian President Boris Yeltsin has said that his government does not share all the IMF's views and will not allow the institution to dictate conditions.

Donors' high expectations of the former Soviets are matched by realism, given the difficulty of accomplishing such painful measures at a fast pace.

"Building market economies will not be a smooth process," Brady told the IMF this week. "Setbacks are to be expected and should generate neither surprise nor despair."

The new French minister of economy and finance, Michel Sapin, adds caution: "We must guard against creating false hopes both in the minds of those we're helping ... and hopes in our own minds."

The world's richest countries should not "shower [the Russians] with aid" without requiring progress on reforms, he says. After Germany, France is the second largest supplier of assistance to the former Soviets, according to Mr. Sapin. "France is very committed," but has "no illusions," he says. The Russian reform process has "a long and difficult period ahead of it - we must face it with determination."