In the financial area, there seems little sense in urging Russia to stick to orthodox IMF policies of tight money and rigid exchange rates. Those policies do not work in countries that lack budget discipline, a modern tax system, and developed financial institutions. At best they produce brief episodes of illusory stability alternating with episodes of high inflation.
No matter what is done or who is in charge, Russia is unavoidably entering a new episode of inflation. With Viktor Gerashchenko back in charge of the central bank as of September, inflation is certain. Before another attempt is made at macroeconomic stabilization, the microstructure of the financial system needs to be fixed. This will mean downsizing the bureaucracy, radically lowering rates and tightening compliance, and rebuilding the banking system.
As for social justice, it would be presumptuous to dictate a specific formula. But it is clear that Russia is never going to make it as a market-oriented democracy unless its government breaks its centuries-old habit of enriching the ruling class at the expense of ordinary people. A sufficient rule of law to allow people to enjoy their own earnings in reasonable security would be a huge step forward. Where wages and pensions have been promised in return for services to the state, the state should fully honor its commitments just like anyone else. If any money is available and any urge is felt to do something more proactive, the Asian model of public investment in education, health care, and rural infrastructure might do a lot to create a social climate in which market institutions could enjoy public support.
Unfortunately, it is easier to say how to step back and start over with market reform than it is to say who will carry out such a program. It won't be the Gaidars, Chubaises, and Fyodorovs so widely lionized in the West. They had their chance and blew it. It is hardly to be hoped that the job will be done by the new Primakov government, with its economic team of perestroika retreads, or by the kind of nationalist-leftist government that the next round of elections will likely bring to power.
What we are much more likely to see is some kind of "mobilization economy." Elements will include inflationary monetary policy to stimulate demand; subsidies to maintain employment in heavy industry; protectionism; capital controls; and, to gain public support, a payout of wages and pensions, possibly with indexation, along with price controls on basic consumer goods. An optimist might hope the package would include expropriation of the bandits who have dominated Russia's pseudo-market economy to date. A realist might laugh at that hope.
Such a policy package just might halt the current downward spiral, although it is hardly a recipe for long-term prosperity. But people in Russia today, exhausted and cheated in their hopes, are hardly looking for prosperity. Indeed, most of them are thinking only of survival.
Given the cynicism and apathy of the public and the back-to-basics statism of a political elite still headed by alumni of the Soviet Politburo, what does the future hold? Most likely a long period of drift and stagnation, such as Argentina experienced during decades of populist and military governments. This is not what the IMF wants, not what the Clinton administration wants, not what the boys at Harvard want, and certainly not what the readers of this magazine would want. But for the moment, it seems to be what the Russians want, and what they are likely to get.
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