The Looting of Russia

Mark Weisbrot


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

few years.


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

export earnings.


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.


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