$24 billion aid for Russians wins approval But finance chiefs of Western nations insist on reforms

April 27, 1992|By Gilbert A. Lewthwaite | Gilbert A. Lewthwaite,Washington Bureau

WASHINGTON -- Finance ministers of the seven richest industrial nations yesterday threw their weight behind a $24 billion package of emergency financial aid for Russia but put strong economic reform conditions on it.

The aid is part of a $150 billion assistance package the West is expected to provide the independent states of the former Soviet Union over the next five years to ease their transition from communism to capitalism.

The action was taken after a meeting between the finance ministers of the Group of Seven -- Britain, Canada, Japan, Germany, France, Italy and the United States -- and Russian Deputy Prime Minister Yegor Gaidar, chief architect of his country's economic reforms.

The ministers queried Mr. Gaidar on reports from Moscow of a retreat from monetary reforms. Mr. Gaidar defended Russia's actions, saying they had turned out "reasonably well."

In a joint communique issued late last night, the finance ministers said their countries were ready to provide up to $18 billion in individual aid to Russia and support an additional $6 billion fund to enable the Russian currency, the ruble, to find a "realistic" level on currency markets.

Much of the package includes aid already committed by the West, but many details remain to be resolved.

The $6 billion ruble fund will be created through the International Monetary Fund. It will serve as a guarantee to bolster confidence inthe currency in world markets. The last time a currency stabilization fund was authorized was during the 1970s, when the IMF allocated $3 billion to stabilize the dollar.

According to the final communique, Mr. Gaidar outlined a reform program and timetable "meriting IMF support."

The finance officials "underscored that there is no productive alternative to establishing a market economy in Russia through the adoption of strong and comprehensive macroeconomic and structural reforms," the communique said.

U.S. Treasury Secretary Nicholas F. Brady said after the meeting he felt Mr. Gaidar could "deliver" the reforms, adding that "deliverance" was "extremely important" for the Western aid package, which will be coordinated through the IMF.

The G-7 ministers said the Russian reform program should include:

* Deficit reduction to stabilize the economy and reduce the role of government;

* Monetary curbs to rein back inflation and block credit to non-viable concerns;

* Legal and contractual reforms to permit development of a market economy;

* Increased agricultural and energy production to earn foreign exchange;

* A foreign exchange drive to enable the newly independent states to pay their foreign debts;

* A unified and market-determined exchange rate for the ruble.

The multilateral aid package for Russia was first announced by President Bush April 1. Another $20 billion is to be earmarked for the other former Soviet republics.

The meeting of finance officials from the seven rich countries was held in advance of the annual spring meetings of the IMF and the World Bank. Russia and the other republics are expected to be voted members of the IMF and its sister aid organization, the World Bank, today.

The G-7 ministers also reviewed the global economic situation and decided that economic growth was expected to be below potential and inadequate to reduce unemployment.

A statement from the ministers, prompted by the Bush administration, clearly called for stimulative measures from both Germany and Japan, where slowdowns are seen as threatening international recovery.

For months, U.S. officials have linked faster global growth to smooth transitions to market economies in Eastern Europe and the former Soviet Union.

Treasury officials believe that the Germans should reduce their fiscal deficit through taxation. The deficit, largely caused by borrowing to finance unification with eastern Germany, is seen as producing high interest rates and low production, curbing growth throughout Europe. In a clear reference to Germany, the G-7 communique said: "Those countries with large fiscal deficits, relatively high inflation, excessive wage developments and tight monetarypolicy should follow a balanced policy approach to facilitate improved growth."

Quoting that paragraph to reporters after the meeting, Mr. Brady said: "It obviously relates to the German situation in a very particular way." He described his exchanges with German Finance Minister Theo Waigel as "direct," but denied that they were responsible for a four-hour delay in issuing the final communique.

In another paragraph, the communique said: "In those countries with large surpluses and declining growth, policy makers should be mindful of the possibilities of strengthening domestic demand through appropriate measures."

Japan was the target of this side-winder. Treasury officials have called on Japan to lower interest rates and introduce a supplementary budget to stimulate growth.

Mr. Brady would say only: "The communique speaks for itself."

Reviewing the international situation, the ministers agreed that "strengthening consumer and investor confidence and restoring sustained non-inflationary growth are essential to increase employment, to promote growth in the developing world, as well as to support the successful transformation to market economies of the emerging democracies in Eastern Europe and the newly independent states of the former Soviet Union, and to preserve an open world trading system."

To enable the IMF to help finance that "transformation," the ministers called on all of the organization's members to take "urgent" steps to increase their contributions to the fund.

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