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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