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DATE=3/23/2000
TYPE=BACKGROUND REPORT
TITLE=RUSSIA: WHAT KIND OF ECONOMY?
NUMBER=5-45993
BYLINE=BARRY WOOD
DATELINE=WASHINGTON
INTERNET=YES
CONTENT=
VOICED AT:
INTRO: Nearly 10 years after Russia set out to build a 
market economy the job is far from complete. And 
judging from growth, unemployment, inflation, and 
poverty data, Russia's economy is in worse shape today 
than it was before the reforms began. V-O-A's 
economics correspondent Barry Wood asks what kind of 
economy does Russia have? 
TEXT:  For Joseph Stiglitz, until last month the chief 
economist at the World Bank, the shift from central 
planning to the market is one of the most important 
developments in the history of economics. And in 
Russia, he says, the process went wildly wrong.
            /// STIGLITZ ACT ONE ///
      The economy today is much worse off today than 
      it was a decade ago. Poverty is up, gross 
      domestic product is down. One can say that the 
      1998 (I-M-F lending) program did not do what it 
      was supposed to do.
            /// END ACT ///
To stabilize Russia's finances and boost reforms, the 
International Monetary Fund and Western donors 
provided billions of dollars of new loans to Russia in 
July 1998. Just three weeks later, in a spectacular 
failure, Russia devalued its currency and defaulted on 
much of its official debt.
Mr. Stiglitz, now a researcher at Washington's 
Brookings Institution, says as early as 1993 the I-M-F 
and Western aid consultants had it wrong when they 
urged Russia to quickly privatize state enterprises. 
Instead, says Mr. Stiglitz, the reform priorities 
should have been job creation, the rule of law, and 
competition among enterprises. 
Mr. Stiglitz believes one of Russia's biggest mistakes 
was way the way it privatized.  He says the process 
was unfair, with the government transferring assets to 
the former communist nomenklatura, while most citizens 
received nothing.
            /// STIGLITZ ACT TWO ///
      Certainly it is the people in the country who 
      are suffering. The 50 percent of the people who 
      are now in poverty, those costs are enormous at 
      the individual level. The full potential 
      consequences (of the failure) in terms of global 
      instability fortunately we have not yet 
      experienced.
            /// END ACT /// 
Flawed privatization combined with free mobility of 
capital in Russia, says Mr. Stiglitz, became an open 
invitation for corrupt business owners (oligarchs) to 
take billions of dollars out of the country - a 
process known as capital flight. While 55 billion 
dollars of aid went into Russia since 1992, 140 
billion dollars flowed out.
/// OPT /// Prominent Russians are speaking out 
against what they believe has been a disastrous 
period. For novelist Alexander Solzhenitzyn the 
reforms are a catastrophe that have set Russia back 15 
years. Presidential candidate and economist Grigory 
Yavlinski says instead of a market economy Russia now 
has a criminal-laced crony capitalism. /// END OPT ///
The World Bank, like the I-M-F, has lent billions to 
Russia and said kind things about the reforms in the 
past. But the bank's lead economist for Russia, Harry 
Broadman, says now Russia has a long way to go before 
it becomes a functioning market economy.
            /// BROADMAN ACT ///
      What kind of structural reforms are needed? 
      Clearly, restrictions must be lifted for new 
      business entry through reduced and streamlined 
      business license and registration requirements. 
      [Including] the elimination of discretion in the 
      application of such procedures-that is to say a 
      rules-based system for business licensing, 
      reform of land ownership, opened up access to 
      infrastructure facilities, and combating 
      corruption surrounding the creation of wholly 
      new enterprises and protecting incumbent firms. 
      And parallel, laws regarding corporate 
      governance, bankruptcy, and competition policy 
      among others must be scrupulously enforced and 
      implemented.
            /// END ACT /// 
Acting-President Vladimir Putin promises to address 
these concerns, if, as expected, he is elected 
president on Sunday. Finance Minister Mikhail Kasyanov 
says Mr. Putin will protect investors and establish 
clear, enforceable rules.
            /// KASYANOV ACT ///
      Mr. Putin's view on a transparent, liberal 
      economy is liberal to the extent that the state 
      is very strong, but does not interfere with 
      business relations. But it does establish clear 
      rules. That is what consolidates the society. 
      That is what the Russian population, I think, 
      would like to see: a strong state, establishing 
      clear rules and protecting investors and 
      property.
            /// END ACT ///
Cliff Gaddy, an American academic, says what Russia 
has is a virtual economy.  He uses that term in part 
because so much of the economy is based on barter, but 
also because concepts such as prices, sales, wages, 
taxes, and budgets often have no meaning in Russia.  
Mr. Gaddy believes by establishing firm rules, seeking 
foreign investment, and reviving old industries, Mr. 
Putin will achieve short-term economic success.
            /// GADDY ACT ///
      I think, in short, we can expect a couple years 
      - perhaps several years - of Putin's miracle. It 
      will bring social stability and growth. The debt 
      deals and the breathing space will help a lot. 
      Is this reform? Yes, and no. It's not market 
      reform. But it is reform of the virtual economy. 
      Will it produce results? Yes, it will have real 
      positive results in the short-term.
            /// END ACT ///
Last year, for the first time since the collapse of 
communism, Russia registered significant economic 
growth.  A senior Putin adviser, German Gref, says he 
expects the Russian economy to grow at a four to six 
percent rate over the next few years. He says Mr. 
Putin is developing a four-year economic plan and that 
it will be made public by May. (signed)
NEB/BDW/JO
23-Mar-2000 18:54 PM EDT (23-Mar-2000 2354 UTC)
NNNN
Source: Voice of America
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