How Best to Aid the Republics

IT is almost inevitable that the Soviet republics - whatever political arrangements they work out - will gain access to substantial Western aid. Something akin to the Marshall Plan will eventually be devised because the world's industrialized countries have an enormous stake in the erstwhile Soviet Union's rapid progress toward viable market economies and stable democratic politics.Leadership in providing aid, however, need not and should not come from the United States. Washington instead should be urging the world's two major financial institutions - the International Monetary Fund (IMF) and the World Bank - to take the driver's seat. These institutions have some fundamental advantages. First, they have the resources required. While Washington debates whether it can afford $1 billion to $2 billion of food aid to Soviet republics, the World Bank now has more money than it can comfortably spend - and the IMF is just receiving an infusion of some $60 billion. The two institutions can deliver large-scale aid to the Soviet republics and still readily meet their third-world obligations. Their own resources are sufficient to provide the republics with $6 billion to $8 billion per year over the next four years. They could mobilize an additional $12 billion to $14 billion from other agencies and governments. The US share of such a roughly $20 billion annual program would be about $2 billion. Second, the IMF and World Bank have expertise and experience on precisely the kinds of transition problems facing the Soviet republics. No US agency can match the quality of advice these two institutions can provide on such key questions as how to stabilize currencies and prices, what it takes to restructure inefficient firms and bureaucracies, and how to design and target social welfare programs. Critics of the World Bank and IMF charge that official loans subsidize wasteful government policies and contend that financing should be left to the private sector. The fact is, however, that for some time to come only official institutions are likely to risk significant resources in the chaotic Soviet republics. Experience in Eastern Europe has amply reconfirmed that foreign private investors mostly stay away from situations of great political and economic uncertainty. And the IMF and World Bank are not soft touches; they impose and enforce tough conditions on their loans. It is not only that the World Bank and IMF are better suited than the United States to manage a Soviet aid program. It also makes political sense for Washington to yield leadership to these institutions. The US is the world's overwhelming military power, but on economic issues it shares center stage with others. Neither the European countries nor Japan will automatically follow the US lead on Soviet aid as they did, for example, in the Persian Gulf war. Putting the World Bank and the IMF in charge - even though the US is by far the largest shareholder in both institutions - gives all the main players a significant say in forming a unified policy. ANOTHER advantage of turning to these established international institutions is that it helps keep the US out of Soviet and republic politics. The World Bank or IMF can impose conditions and technical requirements that might well be viewed as political intervention if demanded by the US. It is the breakdown of centralized power in the Soviet Union that is now most troublesome. Who controls political and economic authority within and among the republics? This has to be resolved before decisions can be reached about membership in the IMF and World Bank and before economic reform and assistance programs can be negotiated. But even as Moscow and the republics decide how to run their affairs, the IMF and World Bank can set the stage for future programs by producing data and analysis on each republic's economy, opening communication with officials and institutions, and beginning to line up other donors. IMF and World Bank experts can also begin advising in such areas as privatization, central banking, and agricultural pricing. Such initiatives would strengthen the hand of reformist elements and enable the IMF and World Bank to move forward rapidly once conditions permit. The historic task of orchestrating the integration of the Soviet republics into the global economy is an appropriate assignment for the world's two preeminent economic institutions. They not only have the money and the skills to do it right; they also have decided diplomatic and political advantages.

You've read  of  free articles. Subscribe to continue.
QR Code to How Best to Aid the Republics
Read this article in
QR Code to Subscription page
Start your subscription today