DIAGNOSING RUSSIA'S AILMENTS
Debate about the appropriate economic policy for Russia will continue in 1994 ("The reforms have lost," International Business, Dec. 27). As an economist and businessman, I spent much of 1992 and 1993 in Russia and would like to make several points.
First, high and variable inflation is certainly a problem, but it has not been as instrumental in keeping foreign investors away as political instability and lack of progress in commercial legislation and administration.
Second, there is a need for great caution in tightening macroeconomic policy in rapid pursuit of very low inflation. For one thing, tight policies deny producers the financial resources, the market demand, and the time needed to undertake structural change.
Third, the experience of other countries offers little support to those who seek to "shock" Russia into low inflation. Despite its high level of "marketization," the New Zealand economy stagnated in the second half of the 1980s because a tight macroeconomic policy and the aftereffects of excessive debt leverage offset the positive effects of a generally excellent structural reform program.
Poland began its reform program with a much less market-oriented economy than New Zealand and consequently found it much more difficult. Russia, however, is even further behind, so any eventual successes in Poland will not be easily repeated.