To Russia With Trepidation: The West Takes A Gamble

After months of hand-wringing, the West has finally come up with a $24 billion loan-and-aid package to buttress the former Soviet Union as it gropes its way toward a market economy. Although not quite a Marshall Plan, the package is far-reaching and a big gamble on Russian President Boris Yeltsin. Included are $18 billion this year from the seven leading industrial nations for balance-of-payment loans, debt deferrals, and short-term credits. An additional $6 billion will go to a ruble-stabilization fund. George Bush announced U.S. support for the plan on Apr. 1. This grand rescue includes granting membership in the International Monetary Fund, which will administer the aid, to Russia and other republics.

The new largess is a boon for Yeltsin. The ruble fund, for example, is intended to boost the currency's value to 50 units to the dollar, twice what it now fetches on domestic exchanges. That support should give Russians and other former Soviets a shot of confidence in their currency. The fund could set the stage for convertibility with foreign currencies--opening the way for more foreign investment.

SHOCK THERAPY. The republics also will get balance-of-payments help. Russia, for example, will be given unrestricted access to $4 billion in loans to import virtually anything deemed necessary to enhance reform. About $3 billion is expected to be paid out after July. The huge cash infusion will ease input bottlenecks, which are hampering the Russian economy. Many factories and farms are close to shutting down because they don't have the cash to import spare parts and other supplies. A big beneficiary could be the oil industry, which has vast petroleum reserves but antiquated technology. Western technical advisers are expected to urge Russians to modernize their oil gear quickly to boost hard-currency earnings. Another hot idea is to set up loan funds to nurture a network of entrepreneurial plants and farms to produce more consumer goods and food. "Compared with other countries, small and midsize business is absent here. And the economy cannot survive without it," says Georgi Matyukhin, chairman of the Russian central bank.

The IMF help comes as the former Soviet Union enters a transition period that could be disastrous without outside aid. Yeltsin is already facing increasingly bitter opposition to the shock therapy he started three months ago--by hiking prices and cutting state subsidies. He soon plans to move into a more risky phase of his reforms: restructuring or selling off big industries that now serve as giant social-welfare agencies, providing everything from day care to vacation dachas. Meanwhile, industrial production could plummet 25% or more by yearend, and unemployment could soar to 10 million.

The question is whether the Western aid will be enough to cushion Yeltsin from popular pressures to abandon his program. The temptation will be for him to print money to ease consumer discontent and preserve jobs. While the IMF will lecture Yeltsin on sticking to tight-money policies, it won't insist on a degree of austerity that would jeopardize him. Says a close IMF observer: "The fund is facing such enormous political pressure to do something for the Russians that it's not going to look too closely at performance."

The West is betting that Yeltsin and his reforms will survive. It's a roll of the dice, but there are few other options. And so far, the Russian President has shown that he has the stomach for tough economic measures.

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