The Looting of Russia (fwd)

[Robert Weissman <rob@essential.org>]

The Looting of Russia
Mark Weisbrot

         What were they thinking? When
executives at the Bank of New York saw
billions of dollars floating in from the
home computer of a Russian businessman with
ties to organized crime there, did they
really believe that these were just ordinary
profits?

         The biggest money-laundering scandal in
history has prompted calls for a fresh look
at the role of American and IMF funds in
Russia. To say this is long overdue would be
an understatement.

         The corruption is certainly mind-
numbing in scale and scope, with some of the
West's favorite "reformers"-- including
Konstantin Kagalovsky, the former Russian
representative at the IMF-- at the center of
the investigation. But the tribute that the
Russian mafia skims off the top is just one
part of the looting of Russia.

         The other part has been scripted by
Washington and its most powerful financial
institution: the International Monetary
Fund. It is a different form of pillage, to
be sure. The robber barons who have taken
over the Russian economy since the fall of
the Soviet Union have adopted the practice
of the Medici family of fifteenth century
Florence: money to get power, power to
protect the money.

         Washington's money mandarins, on the
other hand, descended upon Russia with
enormous wealth and power already in their
possession. They have used both to colonize
Russia, turning a once developed economy
into a Third World country.

         The results have been devastating. Over
the last eight years, the economy has shrunk
by more than half. Russian men can now
expect to die in their fifties. The chief
economist of the World Bank, Joseph
Stiglitz, has noted that the number of
Russians living in poverty climbed from two
million to sixty million in just a few
years.

         Stiglitz, who is one of America's most
accomplished and respected economists, has
recently argued that these results "are not
just due to sound policies being poorly
implemented." Rather, they are based on "a
misunderstanding of the very foundations of
a market economy, as well as an excessive
reliance on textbook models of economics."

         The experience of the last year shows
just how 180-degree wrong the foreign
experts can be. August 17th marked the first
anniversary of the collapse of the ruble,
which fell from its fixed rate of about 6 to
the dollar one year ago to 25 today. The IMF
poured in billions of dollars to prop up the
overvalued currency, and Washington
predicted disaster for the Russians if they
did not maintain the fixed exchange rate.
There would be hyperinflation, they said,
and sources of foreign capital would dry up.
The economy would fall apart.

         A year later, it is clear that the sky
did not fall with the ruble. The threatened
hyperinflation did not occur-- inflation is
running at about 45% for the year. The
currency's collapse made imports much more
expensive, and gave Russian industry a
chance to get back on its feet. Industrial
production in July was up 12.8% over last
year, and Russia's trade surplus has risen
more than tenfold.

Even Russia's default on $40 billion of
foreign debt, almost unthinkable until it
happened, has not really hurt the economy.
True, foreign capital inflows have fallen
off sharply over the last year. But since
these funds did little more than inflate a
speculative bubble in the financial sector--
encouraged by the IMF's high interest rate,
fixed exchange rate policy-- the productive
sectors were not greatly affected when the
bubble burst.

         It has been one debacle after another
since the IMF introduced its "shock therapy"
program in 1992. Like a battered spouse who
sees no alternative but to return to her
abuser, Russia comes back to the IMF for
more credits. But the hundreds of billions
that have fled the country in the 1990's
have cancelled out this "aid," as well as
the meager foreign direct investment, many
times over. At the same time Russia has
accumulated more than $150 billion in
foreign debt, with the burden of debt
service now reaching a crushing 29% of
export earnings.

         At some point any rational, non-corrupt
political leader in Russia has to question
whether the country's friendly relations
with Washington are worth the price of
continued impoverishment. That time may be
approaching, as Russia elects first a
Parliament and then a President over the
next 10 months. There will be calls from
across the political spectrum to break, or
at least loosen, the chains that bind Russia
to its Western tormentors.

The American press will mostly dismiss
these demands as nationalist finger-
pointing, and attribute Russia's demise to
its failure to hew more closely to the IMF's
prescriptions. And Washington will pour in
money, as it did in the 1996 elections, to
support its friends.

But the Russians might well be better
off cutting this toxic umbilical cord, which
could give them at least a fighting chance
against the powerful domestic criminal class
that our own government-- and private
sector-- has helped to create.

Mark Weisbrot is Research Director at the
Preamble Center, in Washington, D.C.