Russia's economy is contracting because its banks have become money laundering centers for a thieving elite, instead of a place where savings can be protected and reinvested in society. The West must do more than wring its hands at this phenomenon. Clearly the World Bank and others should give priority to helping developing countries such as Russia develop indigenous financial institutions. The failure has been so demoralizing to date that it would appear that the only jump start that has any chance of succeeding is for Russia to open its markets completely to foreign institutions, which can implicitly be expected to follow Western law and norms of operation which are honest and designed to protect savers and serve borrowers. That is why WTO standards which embody enhanced competitive access of Western financial institutions to developing country markets is so critical for countries like Russia.
Protectionism is always counter-productive, but in no area more so than in finance.
There is simply nothing more likely to reduce corruption in Russia than if a branch of a Western bank was established in every village and town, and nothing which would give free markets a better chance to succeed. The Administration, in failing to negotiate terms for Chinese accession to WTO this spring, may well have erred. An extraordinary opportunity to open Chinese markets in areas as diverse as agriculture and finance was missed. But re-attention to the Chinese issue shouldn't cause policy makers to continue to ignore Russia.