Russia's `Shock Therapist' Looks Back

Russia's liberal economic reformers are watching from the sidelines as the three-month-old leftist government of Prime Minister Yevgeny Primakov struggles to find solutions to the country's financial crisis. Prompted by the Aug. 17 devaluation of the ruble and the default on short-term debt, that crisis marked the end of an era of reform that had begun in 1992 with "shock-therapy" designed by economist Yegor T. Gaidar.

Moscow Bureau Chief Patricia Kranz recently asked Gaidar to look back and analyze problems of the reform era as well as dilemmas facing the current government. Gaidar, 42, oversaw Russia's reforms as a Cabinet member in 1992 and 1993 and later as a government adviser. He is now director of the Institute for the Economy in Transition in Moscow. With other pro-market liberals, he is also working to create a center-right coalition to compete in parliamentary elections scheduled for December, 1999. Gaidar met with Kranz in his office near the Kremlin.

Q: How do you assess the Primakov government's economic policies?

A: This is a left-wing government. And yet from the beginning, they said: "We won't attack the market, we won't attack private property, and foreign investments are a good thing." After seven difficult years, there is a consensus in society: The market economy is not something that can now be undone. When [current ministers] were in opposition, they always declared there was an easy solution: Print money, spend money, and regulate the economy. Now they're afraid of doing this.

Q: The government seems slow in taking steps to solve the crisis.

A: They do not know what to do. Recently, when people in Russia were asked if they supported printing money to pay pensions and salaries, 44% said no and only 20% said yes.... In the present situation, there are only two ways out. One is the continuation of liberal market-oriented reforms. If you are unable to move in this direction--and the current government cannot because of its [views]--then you should reintroduce socialism. If you are unable to do that, then you are at a dead loss.

Q: Why did economic reforms fail?

A: Compare Russia to other former socialist states and you can see that the Russian transition was very slow--low growth of gross domestic product, huge budget deficits, and an inability to restructure state obligations. Because of this, there were serious gaps in government finances, and low tax revenues. In Poland, Estonia, the Czech Republic, and Hungary, there was a consensus. Their elites wanted to become integrated with Europe and understood that in order to do so they must have stable finances, property rights, and so on. In Russia, there was no sense of regained independence. Russia's elite has been divided for centuries about whether Russia should be like a European country, or different. So the lack of consensus was much more serious.

Q: Were reformist governments corrupted by powerful business interests?

A: We had different governments with different attitudes. The government of [Prime Minister Viktor] Chernomyrdin in 1997 and early 1998 was strongly connected with business interests. The [later government of Sergei] Kiriyenko was free from this influence. It was pushed out because it was not loyal to the so-called oligarchs. The essence of their influence was not money but control of the media and the decision-making process.

Q: Is there a type of free market that would be more suited to Russia?

A: Any market reforms in Russia are going to encounter problems. There is no way the American or German market system can be simply transferred to Russia. Seventy-five years of Communism and a weak respect for private property ensure that. But exactly because we have a corrupt bureaucracy, which uses its powers to extend favors, we need liberal-market reforms.

Q: Do you think there will be early Presidential elections?

A:If nothing drastic happens to the President, then the elections will go ahead as planned [in 2000].

Q: How are reformers preparing for parliamentary elections in 1999?

A: Our crucial goal is to avoid the situation of the 1995 [parliamentary] elections, when our vote was fragmented. As a result of splits in the democratic camp, the Communists won little more than 20% [of the vote but] became the dominant force in the Duma. This time, the left side of the political spectrum is crowded. That offers, in my view, a serious opportunity for [us.] And that is what we are working on.

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