Buoyed by expectations of a Western bailout, Russia's economy is showing some signs of stabilization, at least on the surface. But analysts are far from optimistic, with some predicting that further loans could make matters worse by perpetuating a shaky and corrupt system.
"Russia is right on the edge," says Edwin Dolan, president of Moscow's American Institute of Business and Economics. "It could go either way."
Russia's fragile economy suffered a near meltdown last week, and the government raised interest rates to astronomical levels to stave off devaluation of the ruble and the threat of hyperinflation. The stock market has rebounded somewhat since Monday, although it is still down nearly 50 percent from the beginning of the year, making it one of the world's worst-performing markets.
A government bond auction Wednesday raised nearly $1 billion, but will not be enough to keep the economy afloat. With interest rates hovering between 40 and 54 percent on short-term bills, some of which will mature in just seven days, another crisis could well be brewing.
The only hope for even a temporary respite comes from the West. Next week in Paris, the Group of Eight - the seven richest industrialized countries plus Russia, will meet to discuss a rescue effort for Moscow. But pumping more dollars into Russia's jittery economy will not help in the long term, many analysts say.
"The economy has not improved, and it will not improve," says Tatyana Matsuk of the Academy of Science's Institute for Employment Studies in Moscow. "We have no normal investors, just speculators looking for a fast return. Another loan will stabilize the situation for a while, but unless there is long-term investment in production, the situation cannot change."
The root of the problem is not economic, but political, says Ms. Matsuk. Given the vagaries of Russia's political system, the struggle for power has taken, and will continue to take, precedence over hard-nosed economic choices. The reluctance of the government to consider devaluing the ruble is further evidence of this attitude. Mr. Yeltsin has staked his reputation on a stable currency and low inflation. Amid signs he is considering a third run for office in 2000, Yeltsin cannot afford to back down. Nevertheless, "the government may be better off to bite the bullet and devalue rather than taking on another loan," says Mr. Dolan.
Dolan does not see serious danger of a financial free-fall if Moscow is forced to cut the value of the ruble. But the West is unlikely to want to gamble on Russia's avoiding serious political and economic consequences if aid is not forthcoming. Miners' strikes, reports of rising nationalism, and the warm reception that Yeltsin and his young reformers receive in Western political and economic circles will probably carry the day, say analysts.
"The West gives aid, and will continue to do so, because Russia has managed to inflate their fears," says Matsuk. "It is all part of the political game." Government spokesmen have insisted that Russia has not requested further emergency loans from the West, and say the Kremlin will announce a new borrowing program early next week. Last September, Yeltsin announced with great fanfare that the current $10 billion loan from the International Monetary Fund, a $670 million installment of which is due to be released later this month, would be the last.
Russia had long pushed for expanding the former Group of Seven into the "G-8," and won full inclusion in the May summit in Birmingham, England. But the financial crisis will not help Russia's international image.
"There is no G-8," says one Western observer, who declined to be identified. "Just look at the current situation."