Things Are Looking Up So Russia Looks For Handouts

After ultranationalists and Communists scored stunning victories in Russia's parliamentary elections last December, Western governments feared the worst--the death of economic reform, hyperinflation, political chaos.

So much for the apocalyptic forecasts. Six months later, Russia is surprising everyone. Its economy is making steady progress toward free-market reforms under a functioning government. Through a combination of high interest rates and tight budgets, Prime Minister Viktor Chernomyrdin has cooled the monthly inflation rate from 22% to 9%. Privatization of state enterprises continues apace.

Now, Russian authorities are counting on reaping Western financial rewards for their efforts so that the economy stays its course. One big payoff will be in the form of foreign investment, which is poised to grow from a trickle to a flood. Eugene K. Lawson, president of the U.S.-Russia Business Council, predicts that "$69 billion in U.S. investment in oil and gas alone could start to flow" over the next eight years. A long-pending $10 billion project led by USX's Marathon Oil and McDermott International Inc. to tap oil and gas reserves off Sakhalin Island could be cinched during Chernomyrdin's late June visit to the U.S.

Russia's high marks are gratifying to Washington. After a series of foreign policy blunders, the Clinton Administration is eager to boast that its policy of unswerving support for Yeltsin--which drew sharp criticism last winter--has succeeded. "The President deserves credit for having faith in Russian reform," says an Administration official.

To show their support, top Clintonites are looking for ways to increase global financial assistance to Russia. At U.S. urging, leaders at the Group of Seven economic summit in Naples on July 8-10 will endorse an expansion of aid.

But that doesn't mean the allies will just dole out more cash. One reason is that much of the $43 billion offered last year has yet to be released. The International Monetary Fund estimates that Russia has received just $23 billion so far. Fears that Russian reform may yet backslide, coupled with their own sluggish economies, have made Western and Japanese leaders unwilling to fork over new money. Clinton has asked for $900 million for Russia in his fiscal 1995 budget, a far cry from the $4 billion he ponied up last year. And lawmakers on Capital Hill want to trim even that.

DAUNTING TASK. One way the Clintonites plan to make dollars stretch is to lean on multilaterals. They are urging the IMF to speed negotiations on $4 billion in new loans and a $6 billion fund to help stabilize the ruble.

The Russians still face the daunting task of dismantling massive state enterprises, which will trigger large-scale unemployment. Yeltsin's failure to rein in corruption also could erode support for market reforms. Clintonites concede that Russia has a long way to go. But given how bleak prospects for reform looked six months ago, they say, it's better to reward Russia's latest strides than to fret about troubles to come.