Soviet Union Chose `A Costly Detour'

EDWARD BERNSTEIN was present at the beginning.

The Brookings Institution economist was part of the United States delegation to the 1944 conference in Bretton Woods, N.H., which set up the postwar international economic and financial system, including the International Monetary Fund (IMF) and the World Bank. He heard the objections of the Soviet delegation to their prospective limited influence in these multilateral institutions. Displeased, the Soviet Union decided not to join this new system.

And this week Dr. Bernstein - the last living member of the US delegation - observed as Yegor Gaidar, first deputy prime minister of Russia, was symbolically welcomed into the IMF's policymaking Interim Committee, escorted by British Chancellor of the Exchequer Norman Lamont.

"What a costly detour the Soviet Union has traveled since Bretton Woods," Bernstein notes.

He criticizes the economic advice the West has been giving Russia and the other republics as well as Poland as they leap toward a free-market society. The advice is correct for the long run, he said in an interview here, but wrong as to timing and order of importance.

These countries must move toward the essentials of a free market. They must have prices based on costs, he says. They can't, for instance, sell oil cheaply to their own people just because they produce it. They can't have huge subsidies, even if these are considered socially good. Further, personal spending must be based on income. And the pattern of prices must approximate those in the "great trading nations." Otherwise, these countries won't be able to export. And they will be swamped with imports subs tituting for their own high-cost or poor-quality goods.

However, Bernstein says Russia and the other republics don't need convertibility of the ruble until the economy is operating efficiently. In the meantime, the exchange rate for the ruble into Western currencies should be set at a level enabling them to export and earn the currency to pay for imports. The big industrial countries of the West, he says, have forgotten the lessons of the post-World War II period in Western Europe. With a pent-up demand for goods and reconstruction, the West European nations did not make all their currencies convertible until 1959.

Russia has a similar problem in the massive stock of rubles saved by its citizens in the years when there were few attractive goods to buy in the Soviet Union.

Bernstein holds that those rubles should be frozen, only to be used by their owners for capital purposes such as buying their own apartments or buying stock in newly privatized industries. Russia's exports and imports should be priced and paid for in foreign exchange - such as US dollars and German marks. The effort to move prices toward the level of free convertibility for the ruble is causing inflation and proving damaging to the Russian economy, Bernstein says.

"It has hampered the ability of their producers to convert production from a planned economy to a market economy," he says.

At Bretton Woods, the Soviet Union objected to the relatively small size proposed for its IMF quota (a matter of prestige and voting and borrowing power) and the requirement that 25 percent of that quota be paid in gold. A quota is the funds member nations provide the IMF. After talks, the proposal for the Soviet quota was raised from the original $800 million to $1.2 billion. That was about $100 million less than the quota for Britain and its then-dependent territories in 1945. A change in the gold requ irement was rejected.

When Russia and the other 14 republics are fully signed up with the IMF, probably in May, they will have about 5 percent of the votes altogether, of which 2.99 percent will belong to Russia alone. That compares with 3.09 percent today for Italy and 3.12 percent for Canada.

When quotas are adjusted with admission of the new members, the US will remain No. 1 as the world's only superpower. Japan and Germany will be equal as Nos. 2 and 3, and Britain and France tied as Nos. 3 and 4. IMF voting rights and quotas are meant generally to reflect economic might. IMF Managing Direc-tor Michel Camdessus says Russia will be either No. 8 or No. 9.

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