The IMF's Unreal Goals For Russia

Russia's long, warm summer has gone, taking with it an almost idyllic calm in the economy, during which the stock market boomed, the ruble held relatively stable and monthly inflation reached a new low of 4 percent. For a few months, anything seemed possible: treasury bonds with terms of a year or more, a convertible ruble, even Western-style inflation rates.


But now winter threatens. Communists, right-wing extremists and disgruntled investors are marching in the streets. September inflation has clocked in at 7.7 percent and officials are facing reality in budget talks here in negotiations with the International Monetary Fund in Madrid.


Western officials, taking their cue from the progress made this year, have offered Russia billions of dollars in new funds, provided the government puts the shock back into its reform program. According to Sergei Dubinin, who has now been Russia's "acting" finance minister for about seven months, Russia and the IMF have considered a radical plan to bring monthly inflation down to 1 percent a month by the second quarter of next year. IMF Russia expert Ernesto Hernandez-Cata went further, saying that the "best thing for Russia" would be to bring inflation down "to the levels prevailing in Western industrial countries," or well under 10 percent per year.


But those who believe Russia can realistically meet such goals are just not familiar with the weather here. Political winds blow strong and unpredictably, and a little overzealous economic shock therapy might be all the opposition needs to make 8-percent monthly inflation look like a utopia.


As deputy economics minister Sergei Vasilyev put it to a World Bank seminar on Sunday: "There is not a technical problem in cutting expenditure, but there is a political problem."


Because it is a vast country with the power either to boost the world economy or obliterate it, Russia deserves and inevitably will get special treatment from the IMF -- something that has had representatives from developing nations up in arms in Madrid.


But the IMF is not the main issue here. A responsible government spending policy, according to Vasilyev, could bring inflation down to 20 or 30 percent annually in two or three years. If the government can manage to achieve that without major fluctuations, while keeping currency devaluation under control, it should see more private money coming in through foreign equity investments and the return of flown capital than the IMF could ever hope to offer.


That money would soon be going directly to where it would be most useful, funding modernization, creating new jobs and generally helping Russia's ravaged economy to stand on its own feet.