Russia: Progress At Last
Stanley Fischer and Lawrence Summers were both supposed to speak at a Harvard University symposium on United States-Russian investment several days ago. But the two got called away to rescue the world - or, to be more specific, to help Indonesia in a financial crisis that if it spread could threaten global prosperity.
The duo often are engaged in such rescue missions these days.
Mr. Fischer is No. 2 at the International Monetary Fund and Mr. Summers No. 2 at the US Treasury. Fischer, a former economics professor at Massachusetts Institute of Technology, and Summers, a former economist at Harvard, are old acquaintances.
They are said to be working well together in dealing with the series of economic and financial crises now filling financial pages.
One of their older clients is Russia. Both have been much involved in helping that nation make the transition from communism to capitalism, from a state-dominated economy to one where individual entrepreneurs and private businesses are key.
So perhaps it is no surprise that their talks prepared for the Harvard gathering of Russian and American investors, and read by deputies, had a certain tweedledum and tweedledee aspect to them.
Both cheered Russia's advances. Fischer termed 1997 "a year of achievement." Summers noted "dramatic progress - toward stabilizing its economy and integrating it more closely with the global economy."
What they referred to was a stable exchange rate for the ruble and lower inflation - 11 percent last year, down from 35 percent in 1996.
Further, the Russian financial markets survived the East Asian contagion, though not without some troubling days. Money that was flowing out of Russia has apparently been flowing back in the last few weeks.
"The Central Bank of Russia once again proved its professionalism," commented Fischer, who helps supervise the IMF's program in Russia.
Fischer spoke of a turnaround in the Russian economy. After six years of decline, output was up a bare 0.3 percent last year. A Kremlin statement forecast a real 2 to 4 percent in 1998. But Finance Minister Mikhail Zadornov doubts growth will be that strong. He talks of the same marginal growth as last year.
One estimate finds 70 percent of Russian economic activity accounted for by private enterprise. For all its imperfections, the private sector has "become the major agent of economic growth and change," Fischer said.
Both economists also ranked getting its tax collection system in order as Russia's No. 1 economic problem. Russia collects taxes equal to about 10.8 percent of gross domestic product, its total output of goods and services. That is far less than the 19 percent of GDP collected by Washington. But Russia's government spending amounts to 18.5 percent of GDP.
The gap between revenues and expenditures is covered by IMF money, other foreign loans, domestic public borrowing, and inflation.
But Russia's inability to collect taxes efficiently carries heavy costs. "Indeed," noted Summers' deputy, "[the level of tax revenues] cannot credibly sustain the operations of the most minimal state."
It's an odd situation: Russia has moved fast from an all-powerful state to one that needs dramatic bolstering.
Practically all analysts, Russian or American, cite the tax problem. The IMF should continue pressing for dramatic progress in Russian tax reform.