Clinton's Russia trip a bad idea

September 01, 1998|By Tony Snow

WASHINGTON -- President Clinton's trip to Moscow is the geopolitical equivalent of a jet ride into the eye of a hurricane. Russia is falling like the House of Usher, and there's nothing outsiders can do about it.

The president got stuck with this visit because he suffered a bit of bum luck. He agreed long ago to join in summitry with Boris Yeltsin. Since shaking hands on the deal, however, things have fallen apart.

Mr. Yeltsin looks more frail and rummy than ever, and pretenders have lined up to take his place. He has fired two governments in the past four months, creating a climate for political intrigue. He has no reliable pals -- only former employees.

Worse, the country's economy has slid into the dumper. Although Russia has flirted publicly with the idea of capitalism, the notion never has caught on. Communism did too good a job of destroying the central virtues required for a functioning market economy.

Russian kleptocracy

So Russians merely swapped one kleptocracy for another. Gone are the communist bosses with their comfy dachas and Swiss bank accounts. They have given way to the oligarchs, barons who control gigantic state enterprises and devote most of their time to looting the treasury.

The United States, the World Bank and the International Monetary Fund have sent upwards of $100 billion to Moscow since the collapse of communism. Experts estimate that oligarchs and their minions have expatriated anywhere from $100 billion to $300 billion and spent the sums on gold, jewelry, yachts, estates on the Riviera -- and other lucre.

Despite such open corruption, Western governments have looked the other way. Earlier this year, House Speaker Newt Gingrich joined the administration in pushing for a hefty IMF loan to Russia, ostensibly to bolster the economy. But the grant just bailed out the bad guys by propping up the banks where they store their loot.

In exchange for the loan, Russia had to raise taxes and cut government spending -- the standard IMF tourniquet. Mr. Yeltsin defended a tax scheme that features punitive rates and a bewildering array of schedules. Nobody pays, though, because it's cheaper to bribe the local tax man.

Still, the revenue code has become a nuisance to foreign investors -- especially since Russia still hasn't developed such commercial basics as property rights, the rule of law and a stable currency.

Assemble the pieces of the puzzle: When you combine creeping mob rule with a sadomasochistic tax regime, you get chaos. Cagy citizens barter as often as possible to hide their wealth and avoid being ripped off. Boris Berezovsky, an oligarch said to be worth billions, reported earnings last year of $43,000. In short, the former Soviet Union operates on an economic par with a Stone Age village.

The main difference between Muscovites and Balinese tribesmen is that Pacific Islanders don't have the world's largest nuclear force. As a result of government cuts, the Russian military doesn't get paid, fed or cared for. Soldiers stay alive by selling their hardware, beginning with rifles and ending up with nuclear weapons. And these days, the buyers include such clients as Osama bin Laden and the government of Iran.

If all this weren't bad enough, Mr. Yeltsin committed the final bit of madness two weeks ago. After promising to maintain the integrity of the ruble, he summarily devalued the currency. The devaluation instantly subjected citizens to high inflation rates and made their non-dollar savings worthless. This transformed the country into a tinderbox.

It also jeopardized anybody who has bet heavily in Russia. German investors have taken an especially big hit -- but American money men fear that the looming disintegration of Russia could set off a chain of failures elsewhere. That could put an abrupt end to our present prosperity.

A quick retreat

At the present moment, with Mr. Yeltsin tottering toward the horizon and old-fashioned kleptocrats preparing to replace him, there is precious little Mr. Clinton can do. In theory, he could propose linking the ruble to the dollar, establish property rights and do other sensible things (I steal these ideas from economist Richard Rahn), but that won't happen. So his best option is to nod politely when viewing the historic sites -- and get out of town as soon as possible.

A senior Treasury Department official confided several weeks ago that he and his colleagues were far more worried about Russia than any other place on earth. He proved prophetic.

Russia remains in spirit the last socialist state a place governed more by distrust and envy than enterprise and love of freedom. Predictably, it has begun to collapse. One can only hope that it eventually sheds its old ways with a whimper and not a bang.

To find out more about Tony Snow, visit the Creators Syndicate Web page at www.creators.com.

Pub Date: 9/01/98

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