From: bross@splatter.nas.nasa.gov (Bill Ross)
Subject: Sachs article in _New Republic_
Organization: NAS Program, NASA Ames Research Center, Moffett Field, CA
Date: Tue, 15 Dec 92 02:40:48 GMT

Now that Gaidar & associates are out, this may be a moot point, but:


                How to save Yeltsin's reforms

        Jeffrey Sachs, New Republic, Dec 21 (arrived Dec 11).

Excerpted/summarized by Bill Ross


  "The greatest foreign policy blunder of the Bush administration has been
its neglect of Russia's needs in the year since the collapse of the Soviet
Union. American stinginess (not to mention that of the Europeans and
Japanese) has made President Boris Yeltsin's task vastly more arduous
and has strengthened the hand of the hard-liners, who are once again trying
to reverse the economic reforms at the current meeting of the Russian
Congress."

  "...The reformers have been derided for trusting in the West. ..."

  "The mismanagement of the aid effort is a startling tale. On October 28,
1991, just a month after the attempted coup, Yeltsin announced that Russia
would embark on the most dramatic democratic and market reforms in history.
This remarkable speech was followed by silence from Western leaders. A few
weeks later Yeltsin appointed a government..."

  "The leading finance officials of the Western governments arrived soon
after in Moscow. One would assume that these officials met with the new
Russian government to see how the West could help with the mind-boggling
task of stabilizing the Russian economy. But the purpose was rather different.
The officials spent the entire week pressing Russia and the other republics
to continue paying the interest on the old Soviet debt, an impossible
demand, given the lack of financial reserves. ..."

  "In January Secretary of State James Baker convened a White House meeting
of more than forty countries to discuss Western assistance--a good
opportunity to display Bush's global leadership. But the administration
was more interested in a smooth meeting than in substance. Afraid that
the Russian government might use the occasion to appeal for meaningful
financial assistance, Baker did not invite a single Russian official to
participate. ..."

Here I digestify in earnest for a little:

January: IMF tells Russians that Russia really doesn't need much assistance
in 1992. March: Russian govt demands from IMF a professional assessment of
its financial needs; IMF reverses position. April: G-7 govts announce a
$24 bil aid pkg, helping reformers in the Spring People's Congress. Russia
asks for a description of program. IMF can't do it, comes up w/ 4
contradictory explanations in 4 months. "In the end, there was no organized
aid effort at all. ... All in all, the Western effort has amounted to
around $10 billion of unstructured lending: no program, no timetable,
no attempt to link the vast majority of the funds to actual reform
measures." The inflation. But the public is "actually supporting the
move to a market system. There has been no explosion, no important unrest
at the grass roots. ... there is much more competition and honest trade
than when the society was run by ... the Communist Party.  ..."


  "The key for Russia is to persevere in the basic four lines of reform:
macroeconomic stabilization, liberalization of economic activity,
privatization of state-owned resources, and construction of a social
safety net to support the vulnerable groups in the population left
behind by the market changes. Stabilization is more important, since
a real hyperinflation could derail all of the rest of the reforms. ..."

  "... the West should work with the Russians to establish a series
of projects, each directed at a key aspect of reform. The following
kind of package makes sense:

  "_An emergency social fund_, to help pay for unemployment compensation,
emergency medical support, and supplements to pensioners. The fund would
be supported by direct grants of the Western countries, on the order of
$8 billion in total (of which the U.S. share would be about one-fourth).
...
  "_An industrial restructuring fund_, to help pay for military conversion
and other industrial restructuring operations. This money would be in the
form of long-term loans... About $8 billion per year could be divided
among military conversion, agroindustry, and energy development.

  "_A small business loan program_, modeled on U.S. efforts in Poland
and Czechoslovakia, to make hundreds of thousands of loans throughout
Russia to small private-sector enterprises. Such a fund, lending about
$1 billion per year, could be managed by the EBRD.

  "_Balance of payments support from the IMF_, to help cover foreign
exchange needs, both for imports and currency stabilization. The money
would be divided between a normal IMF loan, of about $4 billion, and
a special ruble stabilization fund, of about $6 billion. In addition,
Russia's payment on the old Soviet debt would be deferred, though not
canceled.

  "The direct U.S. budgetary costs would be about $3 billion per year
(about 1 percent of defense spending) ... the financial package would
not be enough to rebuild Russia (a task properly left to the Russians),
but it would be pivotal in helping the economic reforms take root. ...

  "Only the G-7 can put this kind of package on the table and monitor
its implementation. And only the president of the United States can
lead the G-7 to take these steps. ..."