IMF as Scapegoat

February 05, 1994

When Michael Camdessus, director of the International Monetary Fund, goes public with angry complaints that his agency is being "scapegoated" for insisting on sound Russian reforms as a condition for more economic assistance, the world should understand what this is all about.

It is about Russian incomprehension on both government and private levels of how a market economy really works. It is about the hypocrisy of outside governments, including our own, that control the IMF and yet find it convenient to complain when it carries out approved policies. Most of all, it is about the high

stakes in dragging the dangerous Russian bear back from the abyss of hyper-inflation, societal breakdown and regression to totalitarian, ultra-nationalistic ways.

As primary care physician to the world's sick economies, the IMF is used to being scapegoated for dispensing bitter medicine. With success stories to brag about, Mr. Camdessus rarely lashes back. Usually he can count on the backing of his patrons, the big powers, but Russia is different. As an undoubted big power itself, it bristles at the conditions the IMF imposes before approving credits.

Yet lash back is what Mr. Camdessus has done, and his admonitions have substance. Unless Russia speeds the transition to a market economy, puts the brakes on inflation, curtails subsidies to failing state enterprises and gets going on a multitude of sound economic standards it has officially accepted, he says the IMF may not release another $1.5 billion installment in its assistance program.

A background paper circulated within the agency tells why. It warns that outside aid dispensed without imposing conditions would be the proverbial money down a rat hole. Such largess would finance retention of the status quo, increase capital flight and prolong rather than alleviate public suffering. If certain governments want to dish out unconditional aid to a Russian government plagued with corruption, mismanagement, internal division and near paralysis, they will do so for political -- not economic -- reasons, knowing such policies can have effects opposite to those intended.

This tough prescription is needed as Russia's reformers go into eclipse and the new government gets ready to dispense near-worthless rubles to maintain bankrupt factories in the name of preserving jobs. Swedish Prime Minister Carl Bildt has said that while the world no longer has to fear nuclear attack from Russia (we hope he is right), "it has every reason to fear the fingers on the button of the Russian money printing machines."

When Congress votes on new bilateral aid for Russia, it should impose conditions comparable to those Washington quietly approves for the IMF.

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