No Time for Dominoes
In an ironic reverse of cold-war imagery, Russia itself has recently come to be viewed as a domino - possibly the next to tumble in the wake of Asia's economic turbulence. But just as in the old "red scare" days, the metaphor obscures more than it reveals.
Russia's financial troubles have intensified in apparent tandem with deepening economic stress in Indonesia, the worst off of the former Asia "tigers." The connection, though, is less intrinsic similarities between the two countries and their economies than the similar responses of skittish foreign investors. Indonesia's rapid decline has spooked many who had formerly been willing to take a risk on the developing economies of large, resource-rich countries. Russia, of course, is the archetype.
The fundamental problem in Russia is a government pinched for resources. The Central Bank is spending heavily to prop up the ruble, thus depleting cash reserves. The government has hiked the interest on bonds to be auctioned this week to 150 percent in hopes of winning back investors. Graft and corruption plague government financial dealings. Topping it all, the Kremlin still hasn't figured out how to collect taxes from the country's increasingly wealthy private sector. Tax cheating is an art form.
So when dire economic winds blow from Indonesia or other parts of Asia - South Korea and Japan, for example, had been major investors in Russia - President Yeltsin and team have sparse means of fending them off.
By contrast, Indonesia's turmoil springs from a heavily indebted private sector devastated by a currency collapse. Jobs are drying up; food shortages may spread; some specialists expect the economy to shrink 10 percent or more this year. Most important, the country is in the throes of transition from 30 years of virtual one-man rule. Political stability remains a question mark, complicating economic recovery.
Russia's politics, too, pose many questions. But the country has made a transition from an even longer undemocratic past. Elections, a crucial need in Indonesia, are institutionalized in Russia.
For all their differences, however, these countries share a continuing need for outside help to keep on track toward recovery and stability.
The International Monetary Fund's role is crucial. Russia, which has shown a commitment to privatization and other financial reforms, deserves continuing IMF help as it strives to restructure debts. Indonesia's needs are more extreme, and IMF officials are right to put off deadlines for such reforms as ending government subsidies for basic goods. Help should be forthcoming, too, from the US, Germany, and other prosperous nations. Strong US support for IMF lending is indispensable.
Both Indonesia and Russia are much too big to be allowed to "fail." They may yet be pillars of a new, more democratic world order - not dominoes, or victims of financial "contagion." Efforts to strengthen economic and political institutions in these countries will have their own multiplying effect.