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To Really Bail Out Russia, West Must Deny the Loans

July 19, 1998|Peter Reddaway and Dmitri Glinski | Peter Reddaway is a professor of political science at George Washington University; Dmitri Glinski is a research scholar there. They are co-authors of "Yeltsinism: The Tragedy of Russia's Reforms," due out early next year

WASHINGTON — For the sixth time in six years, the West has agreed to prop up the Kremlin with billions of dollars. Each time, it would have been wiser to refuse. That would have helped Russia by strengthening the government's incentive to combat corruption and focus on real, not phony economic reform. But each time the West has harmed Russia by ponying up. The Kremlin thus has been able to go on feeding the country's crony capitalism and neglecting the rule of law.

Each year, the amount of money lent by the International Monetary Fund has been larger than the year before. Each year, bad things have followed the loans, in politics as well as economics. For example, three months after the IMF gave its second loan (of $1.5 billion) in 1993, President Boris N. Yeltsin used tanks to disperse the democratically elected Parliament that had brought him to power. Hundreds of people were killed. Then, in 1994, after getting another $1.5 billion, Yeltsin sent his tanks into Chechnya, launching a long war.

Much of 1995's loan of $6.8 billion went to finance the continuing blood bath there. In 1996, a new loan of $10 billion helped fund Yeltsin's reelection campaign.

Last year, the Kremlin promised repeatedly it would not ask for any more IMF loans. Nonetheless, it has just begged for and been promised not a small sum to fend off ripples from the Asian financial crisis, but an extra $17.1 billion, including $11.6 billion from the IMF.

Given this pattern, Russians are wondering what new surprise Yeltsin is preparing for them, apart from more financial austerity. Could it be some new confrontation designed to keep him in power? Certainly, there are signs that a crackdown may be coming, including the murders of two oppositionists that the authorities may have been involved in.

In any case, the stakes are now far higher than before, for Russia and the West. If, as many analysts expect, much of the new cash is used for political purposes or embezzled, and the Russian economy continues to, at best, stagnate, then the current worldwide criticism of the IMF will turn into a flood. It will also affect the Clinton administration, which, though the Kremlin's new reform program will probably work no better than previous ones, effectively ordered the IMF to open its purse.

In Russia, meanwhile, devaluation of the ruble will probably soon be unavoidable, ordinary Russians will incur still more pain, and Yeltsin and his government may well fall from power. The only silver lining would be that Yeltsin's demise would at last give Russians hope that there might be some light at the end of the tunnel. New leaders would make a fresh start. This could hardly be worse for Russia, and would probably be better.

Why do we believe the new loan package will postpone a far bigger crisis only for a matter of months? Because the crisis is ultimately more political than economic. The Kremlin is locked into patterns of behavior it cannot change. It has lost its legitimacy in every sense except the most formal. Yeltsin has none, nor do the governments he appoints. The latter get no respect from the bureaucracy or the alienated Russian people. The current government might have the most perfect economic policies, as the IMF actually believes, but they will not help. The government lacks any authority to implement policies, perfect or imperfect, that involve painful change for the establishment.

A recent episode illustrates the regime's weakness and isolation. Last fall, it decided to answer critics who contended, convincingly, that Russia was a privatized state guided not by the national interest, but by private interests. It started a campaign to do away with crony capitalism--the very capitalism that Yeltsin and his U.S. advisors had been creating since 1991. But who did the Kremlin turn to in the new fiscal crisis? The very crony capitalists on whom it had declared war! One of these, Boris A. Berezovsky, explained why: "The government has no other real base of support."

So the two "have" groups in Russia, the government and the "financial oligarchs," have forgotten their differences and called in the IMF. They hope to pacify the millions of increasingly restive have-nots for a few more months. But the latter will hardly be impressed. Most of the pro-Western groups that brought Yeltsin to power in 1990 now criticize the West sharply, precisely because Western aid has played such a big role in advancing the narrow interests of the ruling "oligarchs" at the expense of the rest of society. Ordinary Russians know the new loans will do little except bail out the oligarchs and Western speculators.

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