US Rethinks How to Aid Russia

Senate hearings to probe standards for loans to a right-leaning government

UNITED States policymakers this week are reassessing their support for fiscal and monetary conditions imposed on Russia by the International Monetary Fund and the World Bank.

The IMF and the World Bank, Washington-based global institutions, lead Western efforts to help finance and steer Russian economic reforms. They remain steadfast in their demand that Moscow demonstrate fiscal and monetary restraint before they dole out additional funds. The US is the largest contributor to these development organizations.

Today, in testimony before the Senate Banking Committee, top Clinton administration officials as well as leading experts on the Russian economy will examine whether that approach exacts too high a price.

Their analysis comes in the wake of Russia's recent parliamentary elections, which put antireformers in a stronger position. US Vice President Al Gore Jr. has lead the charge that the IMF's rigidity triggered a backlash and now threatens social upheaval.

After several years of examining assistance packages for a Russian reform process that has proceeded in fits and starts, Congressional leaders are now more sober about rapid reform prospects. ``We can't expect that progress for reform will be on the same schedule that we like,'' House Majority Leader Richard Gephardt commented at a Monitor breakfast on Friday.

``Generally, what the IMF said was right,'' Mr. Gephardt says. ``I don't think we should give money [through the IMF or bilaterally] to a government that is not fighting inflation.'' The recent political shift in Moscow ``must not derail us from our goals,'' he says. ``A lot of our assistance has been aimed at trying to get our businesses over there to help establish a legal system, to help them with privatization of their industries.... We should continue that.''

Rep. Lee Hamilton (D) of Indiana, who as chairman of the House Foreign Affairs Committee will debate a $1 billion Russian aid package this spring, notes more skepticism on Capitol Hill. ``Who among us wants to hand out $2.5 billion [the amount the IMF has already delivered to the Russians] without conditions?'' he asked at a recent Monitor breakfast.

THE Russian government continues to issue gloomy data on the country's unemployed and warns of a severe drop in the standard of living - over a third of the population lives below the poverty line, according to Moscow's Center for Economic Analysis.

But it continues down a fiscal and monetary path that IMF and World Bank officials say will lead to disaster. Russian Prime Minister Victor Chernomyrdin and Central Bank head Victor Gerashchenko insist that the best way to avert such a drop is to continue printing and spending government money.

An IMF team is currently in Moscow meeting with the new government officials ``to try to put together a program that will unlock $1.5 billion in support,'' says a spokesman for the Fund.

A World Bank official who travels frequently to Moscow believes progress is possible: ``There are officials in the new Russian government who were in power under [Mikhail] Gorbachev, and they are not novices to the general range of issues we say have to be addressed, no matter who's in power.''

Top among these issues, he says, ``are the subsides to the dinosaurs,'' the money-losing state-owned enterprises that drain government coffers. World Bank and IMF advisers continue to implore Russia to stop the flow of funds and put the money to better use, such as toward the creation of a viable social safety net to catch the tens of millions unemployed, underemployed, and pensioners who are struggling to make ends meet.

Russia has received $58 billion over the past two years from international financial institutions, foreign governments, and volunteer organizations - in direct aid, trade credits, debt rescheduling, and technical assistance. Donors insist that this help should have enabled Russian budget planners to put together a sorely needed social welfare system. Instead, ``a lot of the budget funds have gone to agricultural subsidies or to inefficient industries,'' says the IMF official.

``Their answer to us has been, `...keeping these industries alive - that is the safety net,' '' adds the World Bank official.

The government has some semblance of an unemployment insurance system, but it is grossly deficient in meeting demand, says Guy Standing, director of the International Labor Organization's (ILO) Central and Eastern European Team.

Despite official figures, the real unemployment rate is at least 10 percent, says Mr. Standing, who spends a lot of time in the field. Many people don't know what unemployment is, he says, and for those who do, the stigma is too great or the compensation - $7 monthly - is too little to warrant their registering for benefits.

``The IMF has just sent a team to do what the ILO was asked to do last year - to draw up a program to reform the social security system,'' Standing says, adding that it is part of aid organizations' ``pattern of duplication.'' He predicts ``an unheralded bombshell this year'' when joblessness jumps and the funds are depleted. He says ``relatively little foreign and technical assistance has been given to this problem.''