Russia's economy defies quick fix amid lack of reform, split factions Restructuring effort fails, usurping Yeltsin's power

The Outlook

September 06, 1998|By J. Leffall

LAST WEEK President Clinton visited Moscow and offered support to Russian President Boris N. Yelstin, who critics have blamed for that country's economic and political strife. The beleaguered Russian economy continues to sink as political factions jockey for power and the ruble is diving in one of the worst economic crises in the region since the fall of the Soviet Union. Given the depth of Russia's problems, can the country really thrive as a market-driven economy? If the free market can work there, how long will it take to stabilize the country's financial position?

Mark Blyth

Professor of political science, the Johns Hopkins University

No, they can't survive. It's over. There is no functioning market or government in that country outside of Moscow. Many would even argue that there isn't a functioning market in Moscow either.

If you don't have structure and laws and you don't enforce the laws that you do have, then you don't have a market economy. It's that simple. It appears that the government will have to step in and take control in a sort of Russian "New Deal" situation. But if you look at the distribution of wealth and power now, it's a gangsterized culture.

There is no public support for this type of reform. The West is between a rock and a hard place. Here we are insisting that Russia pursue a market economy, and this experiment in capitalism for Russia has been an unmitigated disaster. Now, the markets in the West don't want to hear that Russia has given up on reform, but if they don't step in and stabilize things quick, drastic measures have to and will be taken.

At this juncture, it's pointless to try and pursue more reform. With them, the very word -- reform -- has become meaningless.

It think the Russian "New Deal" idea could have merit, but then again there's no structure over there. It's not entirely clear if they can do in the '90s what we did in the '30s.

What you have is three groups: The Communists, the ultranationalists and the reformers, most of whom want Yeltsin gone. What the West is doing by demanding the impossible, is playing right into the hands of Yeltsin's critics.

Lacy H. Hunt

Chief economist, Hoisington Investment Management Co., Austin, Texas

The outlook for Russia is very guarded -- very difficult to see. The alternatives are grim though. Free market economies work well because they adhere to certain principles.

One of those principles is establishing a rule of law and standing by it. A second thing is a strong, or at least stable, currency. Lastly, a system that rewards both hard work and risk taking. Those are some of the main components.

Given the status of the ruble and the fact that Russia has an abundance of precious metals, they might want to back their currency with gold or platinum to anchor the ruble.

Aside from that, it's difficult to create a stable economy without having a stable government. This is going to require a lot of time and effort domestically for Russia.

One way to move in the direction of reform is to implement a tax structure with relatively low rates. They don't have that now.

Bottom line: this is a multiyear, perhaps multidecade process at a market economy. Given the state of things is not going to be easy to achieve.

Nariman Behravesh

Chief international economist, Standard & Poor's DRI, Lexington, Mass.

That's the $64,000 question. Nobody knows. But the whole market reform movement has suffered major setbacks.

There have been political setbacks for Yeltsin. The views of market reform have been tarnished in the eyes of the average Russian. This is largely because tycoons have benefited and gangsters have benefited, while most of the population has been hurt by closing banks and things of that nature.

It's crony capitalism at its best, or worst, depending on whether your side is benefiting from the current situation. Either way, you have a small minority of the Russian contingent calling the shots.

What's required in Russia is meaningful reforms and not rhetoric. It's turned into more a political question than monetary now. This situation is going to require an iron hand to come in and set things right.

Other Eastern European countries have made a transition to market reforms successfully, but Russia goes one step forward and two steps back every single time. In a word, Yeltsin blew it and without support, he won't be able to get anything done.

Our president can make all the trips he wants but there is not much America can do. Russia has had and will continue to have its own agenda.

Ann Battle

Economist, Crestar, Richmond, Va.

They've had seven years of reform, but the question of whether they have important characteristics that make up a good market economy remains unanswered.

They are in need of structural reforms in their economy, and now an even bigger concern is the structural reforms needed in government.

The fear of a backlash against market economies is real and troubling. The crony capitalist model they've adopted definitely applies to them. One of the problems is that all the benefits have gone to Russia's power elite.

The average Russian does not have or see the benefits of broad-based control of the Russian economic and political process. There is a real belief that political turmoil will in fact lead back to a state-controlled system.

If they do return to that, the people in power aren't going to do the right thing, and in the long run, things will get worse for that country and for the global community.

Pub Date: 9/06/98

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