International groups rethink approach to Russia, take tougher
stance: Reduce commitments
Andrew Jack
01/06/2001
MOSCOW - Just as international organizations are seeing Russia achieve the economic
performance they long hoped for, their prospects of influencing the country's future
policy are declining fast.
With growth of 7% last year, a strong trade balance, a projected budget surplus for
this year, the ruble stable and foreign currency reserves building up, Russia's economy
looks stronger than it has for years.
A compliant parliament, an energetic president and a team of liberal economic reformers
in key government positions ought to be well placed to implement structural reform notably
in banking and of natural monopolies that has long been demanded by such bodies as the
International Monetary Fund.
Yet an IMF mission hoping to agree on a new program left Moscow empty-handed in late
November after unexpected and fundamental disagreements over issues including the levels
of government expenditure.
Since then, there has been little sign of reconciliation. Indeed, the private meeting
in Moscow this weekend between Gerhard Schroder, Germany's Chancellor, and Vladimir Putin,
Russia's President, has taken on a new public importance following hints yesterday that
Russia would not honour repayments this month to the Paris Club of sovereign creditors.
One reason for Russia's apparent lack of concern over making repayments is it does not
now need money from foreign donors and is more confident in dictating its own terms as a
result. "We have far less leverage than in the past because of the strong financial
situation," said a senior official at one international organization.
Another factor is Mr. Putin, concerned about Russia's dependence on the outside world,
has sent signals to his administration in recent months that foreign aid should be reduced
in an effort to establish greater autonomy.
Just as important, however, is main foreign lenders are rethinking their strategies
toward Russia and taking a tougher stance. Organizations as diverse as the World Bank and
the Soros Foundation have reduced their commitments.
"There was a tremendous urge in the early 1990s to pump a lot of money into
Russia, but the actual results were less than the expectations," said Tom Graham, a
political analyst at the Carnegie Foundation and former U.S. diplomat. "Everybody is
reassessing what happened."
Christopher Cox, a U.S. Republican congressman who in September produced a scathing
report on President Bill Clinton's policy toward the country during the 1990s, concluded:
"Russia today is more corrupt, more lawless, less democratic, poorer and more
unstable than it was in 1992."
An analysis by the U.S. General Accounting Office examined the US$38-billion provided
to Russia in the 1990s by five leading international institutions: the IMF, the World
Bank, the European Bank for Reconstruction and Development, the European Union's Tacis and
the U.S. Aid program.
Albeit couched in more diplomatic language, the report is also critical. It says
approaches were unco-ordinated, expectations too high, and both corruption and a lack of
Russian political consensus in favour of reform substantially limited progress.
Mr. Graham said much aid was directed at supporting companies in the donor countries
and "trying to persuade Russians to do things they didn't want" with little
thought to local social and economic conditions. The result only helped boost corruption.
Meanwhile the IMF, the largest individual lender, came under political pressure to
offer repeatedly credits in exchange for promises that never materialized, while
apparently turning a blind eye to less attractive aspects of policy.
If international groups are reconsidering their approach to Russia in the wake of past
difficulties, the political environment in which they are operating is also changing.
The fading memory of the collapse of communism, disillusionment over the slow pace of
progress, and recent scandals including allegations of money laundering through the Bank
of New York and Russia's campaign in the breakaway republic of Chechnya and cultivation of
"pariah states" have done much to reduce the appetite for increased support.
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