Why Russia Needs a Kind Hand
BOSTON — President Clinton should pick up the phone and tell Michel Camdessus, managing director of the International Monetary Fund, to lend Russia another $4.3 billion.
That's the view of Stephen Cohen, an expert on Russia at New York University.
It's not a popular opinion. Many would consider it money down the drain.
But Mr. Cohen is concerned about Russia's needy. The International Federation of Red Cross and Red Crescent Societies, he notes, has warned that with winter on its way, millions of Russians are endangered by shortages of food, medicine, and fuel for heating. It has called for a humanitarian campaign to save them.
Many investment bankers on Wall Street would oppose a new IMF loan. They are annoyed with Russia because last month it devalued the ruble and imposed a 90-day moratorium on debt repayments. That has cost them money.
Last Wednesday, Lehman Bros. Holding Inc. in New York reported a $60 million trading loss in Russia. The day before, Goldman Sachs posted a 19 percent drop in profits, partly because of Russian losses.
Some Western creditors are considering seizing Russian banking assets held abroad to recoup some of their losses.
The Institute of International Finance, representing the world's largest financial institutions, criticizes Russia's decision to act without consulting its creditors.
"Unilateral approaches to debt-servicing difficulties are highly counterproductive and will seriously impair restoration of access to global capital markets," the IIF stated Sept. 16.
The IMF money would help the new government in Moscow put money into the people's hands, helping them survive with less inflation, Cohen argues. Russian institutions owe about $12 billion in wage arrears.
So far, the West has said no reforms, no money.
Mr. Camdessus told Le Figaro newspaper in Paris last week that on the day Russian Prime Minister Yevgeny Primakov offers a credible reform plan, "we will support it."
Mr. Clinton has said the United States is ready to offer assistance if Russia sticks with reform.
But Cohen charges that US policy has been misguided for seven years in seeking to make Russia in the economic image and likeness of the US. Its "shock-therapy, monetarist policies" have led to virtual "demodernization" of the Russian economy.
Output in Russia has fallen 50 percent in that time, he figures. Capital investment is down 90 percent. Meat and dairy livestock herds have shrunk 75 percent. Most consumer goods, especially in large cities, are imported.
Last week the State Statistics Committee reported output in August was 11.5 percent lower than a year earlier. Inflation reached 43.3 percent in the first two weeks of September. Some 8.35 million people, or 11.5 percent of the work force, are jobless.
To rehabilitate its "moral reputation" in Russia, the US should not only urge the IMF to release the second part of a $17 billion bailout put together in early summer, Cohen says. It should also back the Red Cross program and encourage foreign banks to reschedule their loans to Russia to reduce the repayment burden.
"We need profound and urgent action," he says. "Yet we have no president," he adds, referring to Clinton's scandal problems. He calls the nation "leaderless."
Cohen expects the new Russian government to print more money to improve the solvency of its banks and pay back wages. He foresees an enlargement of state activities. He hopes that Mr. Primakov will be able to involve a larger spectrum of politicians by creating a coalition government less inclined to act by presidential edict.
That government may be shaky, he concedes, and may be a mere transition to a new government when a new president is elected. But it should give Russians a chance to choose their own economic system, he says.
Cohen is aware of the counter arguments - of Russian corruption, flight of capital, inadequate taxation, robber barons, and so on.
But the situation in Russia is so dire it needs action, he says, much like that of a "wartime emergency."