Give Russia Trade Advice, Not Handouts

The upcoming Yeltsin-Clinton summit provides an opportunity to demolish one of the great policy myths bandied about in Washington circles. That is, the routing of reformers in the last Russian election would result in hyperinflation, economic chaos, and political instability. It simply didn't happen.

Thanks to Prime Minister Viktor Chernomyrdin, inflation is down to 5% a month from 30% a year ago, the ruble is steady, and industrial production appears to be bottoming out. In fact, official statistics are probably missing an upturn in the economy where much activity remains off the books.

So stable is the economy that American and European securities houses are investing up to $500 million a month in the stocks of newly privatized companies, from aluminum to telecommunications. Joining the investment flow is a portion of the $40 billion in flight capital that left the country because of inflation and taxes. In a world of international capital markets, portfolio investment can finance true economic growth for the first time in years.

This is where the U.S. can help. Russia lacks a single stock quote system and clearing house. Most trading goes on directly between individuals and brokers all over the country. As a recent stock scandal indicates, it is prone to corruption.

The U.S. is already supporting the creation of a NASDAQ-style stock market in Moscow. It should expand the project to tie in every major Russian city. It can help further by helping to write basic legal and regulatory protections needed for a legitimate capital market.

Investment and trade, not foreign aid, are the way for Russia to make the transition to a growing, market economy. The U.S. can help further by increasing Overseas Private Investment Corp. resources for American companies doing business there and by increasing Russia's access to U.S. markets. Moscow could even use some help from Madison Avenue. The Sharper Image catalog is already offering Russian binoculars. How about: From our spies to your eyes.

Before it's here, it's on the Bloomberg Terminal.