Hope for Russia in new team

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The Independent Online
IT IS fashionable these days to criticise Jeffrey Sachs as the failed architect of Russia's 'big bang' economic reforms. Repeatedly, the Harvard professor is accused of getting it wrong. True, the timing and sequencing of Mr Sachs's programmes for both Russia and Poland are open to question. But on one critical issue, the lack of Western support for Russia's historic exercise, Mr Sachs gets it right.

With the change of administration in the United States, some of Mr Sachs's proposals are promised a more sympathetic hearing. Indeed, given the likely line-up at the Treasury and the State Department, a new Group of Seven initiative on Russia seems likely.

During the last, turbulent year, Western nations have virtually ignored Russia, caught up as they were with domestic struggles. The result is that startling progress towards a market economy has gone almost unnoticed. In addition, promises of financial support and technical assistance have not materialised.

Russia is again on the brink, faced with destabilising hyper-inflation; the monthly rate is close to 30 per cent and rising. And its leaders are in trouble.

Mr Sachs is not the first to suggest that the West had better wake up to the need for co-ordinated support before Russia's attempts drown in a sea of chaos, social unrest and even renewed tyranny. At a time of intense debate over the dismantling of Cold War military machinery, one hardly needs to be reminded of what is at stake if Russia fails.

Earlier, Stanley Fisher, former chief economist at the World Bank, and Norbert Walter, chief economist of Deutsche Bank, also criticised the slow pace of Western support and offered their own plans for co-ordinated financial and technical assistance.

A consensus is building that the West must do more, but the G7 has not been listening. This may change with the appointment of key new US players.

The influence of Lawrence Summers, chief economist of the World Bank, who is expected to be named international undersecretary at the Treasury, has already been felt: Lloyd Bentsen, in his confirmation hearing as Treasury Secretary- designate, called for a revitalised G7, reflecting the thinking of both Mr Summers and Roger Altman, the new Treasury deputy.

Mr Summers does not agree with all Mr Sachs's economic remedies. He believes, for example, that the Russian government must play a more hands-on role in helping state- controlled industries and systems to make the transition. But he believes strongly in technical assistance, as do others on the new team. Strobe Talbott, the former Time magazine diplomatic correspondent who roomed with the President- elect at Oxford, seems likely to support a broader G7 effort. He is about to become a special ambassador in the State Department, co-ordinating US assistance to the former Soviet Union and Eastern Europe. Ellen Frost, one of the front-runners for undersecretary of state for economics, is also in this camp.

Mr Sachs has come forward with a new plan of action that corrects past mistakes and is more ambitious than any programme the G7 is currently contemplating. Mr Sachs says it is now apparent that there is an urgent need for a small army of Western technical experts on the ground in Russia to assist with reforms in management, banking, trade and finance. Mr Walter made much the same point in calling for a Peace Corps- like group of technical experts.

The fatal flaw in the West's programme for Russia has been its reliance on the International Monetary Fund as the primary source of assistance, in Mr Sachs's opinion. He says the IMF simply does not have the staff to handle it. During the first 10 months of 1992, it did not have a single specialist on the ground.

In addition, the Fund was unable to mobilise the support promised by Western nations last April. Of the dollars 24bn pledged, Russia has received only dollars 9bn in trade credits. And none of this has been linked to reforms in the proposed carrot- not-stick approach. The conditional money that has been pledged is small: dollars 1.6bn from the IMF and World Bank.

Debt relief efforts have been bogged down because of Western insistence that Russia accept responsibility for the entire debt of the former Soviet Union. Meanwhile, the G7 has stood by doing almost nothing, and Japan, in Mr Sachs's view, has played a negative role by opposing aid until its dispute over the Kurile Islands is resolved. Even German efforts have stalled.

Mr Sachs suggests a new, big-picture programme with the following components:

An emergency social fund to cover unemployment benefits, pensioners and health support.

A fund to restructure military and other industries.

A loan programme for small business modelled on the Polish-American Enterprise Fund.

Balance of payments support to include an IMF standby loan to cover foreign exchange requirements for basic imports.

Key to the effort, however, is an institutional means of delivering the support.

Mr Sachs suggests the G7 appoint an administrator for Western assistance who would have a substantial presence in Russia. No doubt he and Mr Summers, old Harvard colleagues, will be talking.