Aid to Russia: From Wishful Thinking to Reality

AFTER months of hesitation, the White House moved forward with political and economic support for Russia and other former Soviet republics. The political significance of this step can hardly be overstated: It has come just in time to save Boris Yeltsin's government in its struggle with former communists waging their "last and decisive battle" against free-market reforms in the Congress of People's Deputies.

Though the political value of President Bush's program is clear, its concrete economic benefits are still unclear. Three fundamental questions remain unanswered:

* What are the program's specific strategic and tactical goals, and what political and economic forces in the former Soviet Union should be harnessed to meet them.

* Just how will this program exert positive influences on the economic and political situation?

* For what particular projects should Western money be spent, who should supervise and evaluate them, and how?

A more important question has no answer: What benefits will Americans get for their subsidies to Russia?

The program's main strategy makes the International Monetary Fund (IMF) and the World Bank the key decisionmakers in the distribution of economic assistance and supervision of reforms. It allocates $12 billion for the IMF alone, for example - as opposed to only $620 million for technical assistance and humanitarian aid.

The IMF and World Bank clearly have considerable experience, but that experience is sometimes questionable. Without outside control, for example, they tend to spend too much in comparison with results achieved. Also, since their methods help governments directly and private sectors only indirectly, in a country like Russia they can easily end up prolonging the lives of useless, parasitical bureaucracies.

The recent history of providing economic aid to the former USSR on a group basis shows that the effectiveness of this aid is rather low. For example, more than $70 billion provided to Mikhail Gorbachev's union government as loans and credits during perestroika - including $44 billion in 1991 alone - ended up acting as a brake on change.

Thus, only a limited amount of assistance should go through the IMF. Most aid provided by US taxpayers should be controlled and spent by US institutions - especially private American companies, which could receive taxpayer support for their investments in the former Soviet Union through tax credits or loan guarantees.

An even weaker point in the announced program is the idea of creating a $5 billion fund to stabilize the ruble. This obsolete proposal dates from the period when the international community was trying to help Mr. Gorbachev survive by stabilizing the Soviet ruble. But the situation in the former Soviet Union is so different now that the very idea of "ruble stabilization" is almost meaningless. The old Soviet ruble no longer exists, but there is still no true Russian ruble. Under these circumstances, any h ard currency put into a stabilization fund will simply disappear down the black hole of the defunct Soviet economy.

About 300 billion rubles in cash are in circulation in the 15 independent countries that used to constitute the USSR - but only 160 billion of this sum is in Russia. All these states now have separate economic policies different from Russia's, and less market-oriented.

THIS lack of a common financial strategy means that a stabilization fund will do positive harm. Western governments participating in this fund will find themselves supporting the most reactionary republican governments and most bankrupt state enterprises of the former Soviet Union. Another problem stems from Russia's peculiar financial system, in which about two-thirds of all the rubles in circulation are so-called non-cash rubles, which cannot be cashed without special permission and are used only for t ransactions between industrial enterprises.

The recent session of the Congress of People's Deputies revealed the political and bureaucratic obstacles to reform more clearly. The Yeltsin government could not tame this legislative mob, inherited from the Gorbachev era, which operates as a kind of socialist primitivism.

Timely though the White House proposal is, it has many obsolete ideas. It needs major revisions. A sound program of assistance would follow market-oriented members of the Russian parliament, who know that a free-market economy cannot be created by bureaucrats from the top down. Such a program would:

* Emphasize private rather than government institutions, using tax incentives and loan guarantees to cushion the risks for investors.

* Use federal subsidies to encourage state and local governments to provide incentives for investment in the former Soviet republics.

* Emphasize entrepreneurship and small business.

A program that moves beyond mere wishful thinking could be a catalyst for genuine economic reforms - and thus for genuine democratization as well.