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No Aid Without Reforms, U.S. Warns Russia, Belarus : Diplomacy: White House scrambles to assess damage after democracy proponents are ousted.

January 28, 1994|DOYLE McMANUS | TIMES STAFF WRITER

WASHINGTON — The Clinton Administration, thrown for two successive losses after economic reformers were ousted in Russia and neighboring Belarus, warned the two governments Thursday that most of their Western economic aid will dry up if they stop moving toward capitalism.

Treasury Secretary Lloyd Bentsen, in a speech to the U.S. Chamber of Commerce, said he was "disturbed" by the resignation of Boris G. Fyodorov, Russia's reformist finance minister.

Bentsen warned that Western countries will insist that Moscow bring inflation under control and move forward with economic reforms before they deliver billions of dollars in promised aid. "Unless they see that, they're not going to implement the kind of funding that Russia needs to make this transition, and the support is going to be measured with the pace of reform," he said.

Other officials said the Clinton Administration already is directing its $2.5 billion in direct American aid this year toward local reformers and away from the central government to make the aid effective even if Moscow moves away from reforms.

At the same time, the State Department issued an unusual statement decrying the Belarus Parliament's action in voting that country's reformist leader, Stanislav Shushkevich, out of office. "The United States believes that vote deprives Belarus of leadership that has made a remarkable contribution to peace and stability in Europe," State Department spokesman Mike McCurry said.

On both fronts, the Administration was visibly scrambling to assess the damage to its policy of all-out support for reformers and to see what can be salvaged amid the setbacks.

Said one senior official: "The questions we are struggling with are: How bad is it going to be? How long will it take for the Russians to recognize their mistakes? And what can we do to help?"

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For most of his first year in office, U.S. support for Russia was the one foreign policy triumph that President Clinton could point to with unalloyed pride. It was a success story, he argued, that outweighed any setbacks on the smaller battlefields of Somalia, Bosnia-Herzegovina and Haiti.

Only two weeks ago, Clinton traveled to Russia and Belarus and delivered public endorsements of Shushkevich, Fyodorov and Russian Deputy Prime Minister Yegor T. Gaidar. All three promptly lost their jobs.

The Administration's response to their ouster has been what one senior official described as "a wince," followed by pointed warnings to the new governments--plus assurances that the United States will not walk away from its commitment to help reform, even if that reform slows.

"The most important thing is that the United States not get rattled by events, that we don't panic and shift course," a White House official said. "If we have to modify that course, we will. But as long as the trajectory is upward, we will support reforms."

The Administration has issued public and private warnings to Russia focusing on the problem of inflation. The last, reformist government waged an epic battle to hold inflation below 20% a month, largely by limiting the easy credit it had previously supplied to inefficient, state-owned industries.

But the new government has proclaimed a policy of supporting those industries and seeking to control inflation through price controls--an approach most Western economists consider unworkable. "A successful program to raise living standards in Russia . . . has to address inflation," Bentsen said Thursday. "There's no way to address inflation without controlling credit growth. That's an absolute imperative."

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In addition to such public statements, Vice President Al Gore pressed that point privately in two telephone calls with Russian Prime Minister Viktor S. Chernomyrdin, with whom he has worked closely on space and energy projects, a senior official said.

As the Russians grapple with their economic policy problems, the Administration is offering them continued aid on two distinct tracks, officials said.

One kind of aid--the "big bucks" from the International Monetary Fund and similar institutions--will depend directly on the Moscow government's economic policies.

The other, the smaller fund of American direct aid, will go to individual projects that further the cause of reform. That kind of aid should not be directly affected by Moscow's policy shifts, officials said.

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