What they want is hard cash, what they get are hard words

The West is struggling to dig firebreaks around the Russian economy, but it can do little to douse the flames
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BY THE standards of the international financial community, Michel Camdessus is a jocular, light-hearted man. Yet there was no disguising the gravity of the comments which the managing director of the International Monetary Fund delivered to Viktor Chernomyrdin, the Prime Minister of Russia, on his lightning visit to Ukraine earlier this week.

There was a scenario, he suggested, under which Russia extended state controls on trade, prices and foreign exchange, harking back to the days before reform took hold. "This, to my judgement, would inevitably lead to the old command economy disciplines, and hyper-inflation, with dire social consequences. I told him unambiguously that this would lead to disaster. I had to leave him without any illusion that such policies would benefit from any help from the outside world," he said bluntly.

If Russia took another path, however, then it could still recover. "It would require urgent steps to restore financial stability and lay the basis for the restoration of economic growth," he said. It would mean strict budgetary measures, hacking back public spending, and no printing of money to ease the pain. "You need to stop monetary creation - even for the dubious purpose of saving banks."

Nasty medicine is the best that Europe, too, can offer. In a letter at the end of last week, the four European members of the Group of Seven warned Russia that sticking to its guns on economic reform was the correct way out of its problems. "This is the only way to restore the confidence of international financial markets," the German finance ministry said in a statement on the letter, which was signed by Gordon Brown, Germany's Theo Waigel, France's Dominique Strauss-Kahn, and Italy's Carlo Ciampi.

The words of the IMF and the G7 may sound sonorous in the panelled rooms of Washington, but doubtless they sound less convincing in Moscow. It is far from clear whether Mr Chernomyrdin or his boss, Boris Yeltsin, are in a position to enforce them. And there is little in the way of practical support to sugar the pill. Russia will have to make the decisions itself.

The kindest that anybody could manage was Bill Clinton's feel-your-pain formula. "We should tell them that if they'll be strong and do the disciplined, hard things they have to do to reform their country, their economy, and get through this dark night, that we'll stick with them," he said on Friday.

What the West has to offer Russia at the moment is words, some kind, some harsh, but only words. The patience of the Europeans, in particular, with Russia's unceasing appetite for cash is running out. It swallowed the first tranche of cash from the IMF under its July agreement in a few days, tossing it into the fire that burned up the value of the rouble. More is due in September; but unless Russia shows that it will stick to its agreements with the IMF - keeping its budget deficit under control, not turning on the printing presses to allow inflation to run rampant, and all the other IMF panaceas - the cash will not be there.

Mr Camdessus's thin-lipped colleague Stanley Fischer, at the best of times a grim-looking man, was particularly severe as he spoke of the failure of the West to come up with anything substantive to offer. When Russia's internal debt market collapsed, "the international community faced the question of support. The international community decided that this would take more resources than were available. It was a tough decision".

The truth is that Russia is on a knife edge. Both the IMF and the US, its major shareholder, fear that it will go, and that others will follow, plunging the world into a financial abyss. They do not speak about it like that, of course. But they know that the money already handed to Russia has gone nowhere - or rather, straight to those who speculated against the rouble - and there will not be any more until it is clear that it will not go the same way.

Both the IMF and the US Department of the Treasury are trying to dig firebreaks between Russia and other nations. They warned financial markets against judging every developing economy by the same yardstick, a clear move to avoid the chaos spreading from Russia to Latin America, whose markets have also plunged in the last week. "It is very important to distinguish between situations in different countries and not generalise inappropriately," said Larry Summers, Deputy Treasury Secretary.

The odds are that the markets and Russia will ignore them. Fear is a hard taskmaster, and investors and Russian politicians alike are scared. The fine words of the financial overlords are intended to console them, but they have little to add to the usual boilerplate phrases. Asked about the IMF's influence on the Russian government, Mr Camdessus shrugged, smiled and said: "Truly, I don't know where to put our influence on a scale."