were they thinking? When executives at the Bank of New York saw billions of
dollars floating in from the home computer of a Russian businessman with ties to
organized crime there, did they really believe that these were just ordinary
biggest money-laundering scandal in history has prompted calls for a fresh look
at the role of American and IMF funds in Russia. To say this is long overdue
would be an understatement.
corruption is certainly mind- numbing in scale and scope, with some of the
West’s favorite "reformers"– including Konstantin Kagalovsky, the
former Russian representative at the IMF– at the center of the investigation.
But the tribute that the Russian mafia skims off the top is just one part of the
looting of Russia.
other part has been scripted by Washington and its most powerful financial
institution: the International Monetary Fund. It is a different form of pillage,
to be sure. The robber barons who have taken over the Russian economy since the
fall of the Soviet Union have adopted the practice of the Medici family of
fifteenth century Florence: money to get power, power to protect the money.
money mandarins, on the other hand, descended upon Russia with enormous wealth
and power already in their possession. They have used both to colonize Russia,
turning a once developed economy into a Third World country.
results have been devastating. Over the last eight years, the economy has shrunk
by more than half. Russian men can now expect to die in their fifties. The chief
economist of the World Bank, Joseph Stiglitz, has noted that the number of
Russians living in poverty climbed from two million to sixty million in just a
who is one of America’s most accomplished and respected economists, has recently
argued that these results "are not just due to sound policies being poorly
implemented." Rather, they are based on "a misunderstanding of the
very foundations of a market economy, as well as an excessive reliance on
textbook models of economics."
experience of the last year shows just how 180-degree wrong the foreign experts
can be. August 17th marked the first anniversary of the collapse of the ruble,
which fell from its fixed rate of about 6 to the dollar one year ago to 25
today. The IMF poured in billions of dollars to prop up the overvalued currency,
and Washington predicted disaster for the Russians if they did not maintain the
fixed exchange rate. There would be hyperinflation, they said, and sources of
foreign capital would dry up. The economy would fall apart.
year later, it is clear that the sky did not fall with the ruble. The threatened
hyperinflation did not occur– inflation is running at about 45% for the year.
The currency’s collapse made imports much more expensive, and gave Russian
industry a chance to get back on its feet. Industrial production in July was up
12.8% over last year, and Russia’s trade surplus has risen more than tenfold.
Russia’s default on $40 billion of foreign debt, almost unthinkable until it
happened, has not really hurt the economy. True, foreign capital inflows have
fallen off sharply over the last year. But since these funds did little more
than inflate a speculative bubble in the financial sector– encouraged by the
IMF’s high interest rate, fixed exchange rate policy– the productive sectors
were not greatly affected when the bubble burst.
has been one debacle after another since the IMF introduced its "shock
therapy" program in 1992. Like a battered spouse who sees no alternative
but to return to her abuser, Russia comes back to the IMF for more credits. But
the hundreds of billions that have fled the country in the 1990′s have cancelled
out this "aid," as well as the meager foreign direct investment, many
times over. At the same time Russia has accumulated more than $150 billion in
foreign debt, with the burden of debt service now reaching a crushing 29% of
some point any rational, non-corrupt political leader in Russia has to question
whether the country’s friendly relations with Washington are worth the price of
continued impoverishment. That time may be approaching, as Russia elects first a
Parliament and then a President over the next 10 months. There will be calls
from across the political spectrum to break, or at least loosen, the chains that
bind Russia to its Western tormentors.
American press will mostly dismiss these demands as nationalist finger-
pointing, and attribute Russia’s demise to its failure to hew more closely to
the IMF’s prescriptions. And Washington will pour in money, as it did in the
1996 elections, to support its friends.
the Russians might well be better off cutting this toxic umbilical cord, which
could give them at least a fighting chance against the powerful domestic
criminal class that our own government– and private sector– has helped to
Weisbrot is Research Director at the Preamble Center, in Washington, D.C.