[Congressional Record Volume 140, Number 21 (Wednesday, March 2, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: March 2, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                     POST-COMMUNIST ECONOMIC REFORM

                                 ______


                        HON. GERALD B.H. SOLOMON

                              of new york

                    in the house of representatives

                        Wednesday, March 2, 1994

  Mr. SOLOMON. Mr. Speaker, I would like to insert into the Record the 
following article by the Prime Minister of Estonia, Mart Laar.
  Prime Minister Laar's article outlines the tremendous progress that 
has been made in this tiny Baltic country since implementing shock 
therapy, despite a minimum of foreign aid. In so doing, he puts to rest 
two shallow myths that permeate the air regarding Russia.
  The first, evinced by the new Deputy Secretary of State, Strobe 
Talbott, is that Russia needs less shock and more therapy. The second 
is that, unless the West pumps tens of billions of dollars into the 
Russian treasury, the Russian reformers don't stand a chance.
  The lesson is that, even if the Clinton administration continues to 
fantasize that the Russian reformers are still in control, foreign aid 
won't save them. Only the proper economic policies can do that.

         [From the International Herald Tribune, Jan. 27, 1994]

             The Russians Need More Shock Therapy, Not Less

                             (By Mart Laar)

       Tallinn, Estonia.--In recent weeks, a debate has been 
     conducted on the pages of the world's leading newspapers and 
     in the corridors of power over the utility of ``shock 
     therapy'' as a means for states to wrest themselves from the 
     shackles of central planning to become free market economies. 
     I believe it is essential to re-examine the assumptions upon 
     which this debate is based.
       As even the casual observer knows, the states of Central 
     and Eastern Europe have had mixed results with shock therapy. 
     Slowly, economies have begun to improve. In some respects, 
     development in Central and Eastern Europe has been speedier 
     than in the former East Germany.
       But at the same time, serious dissatisfaction with shock 
     therapy has arisen among the peoples of the region. Economic 
     revival has been neither as swift nor as painless as 
     anticipated; many people feel they have been left to the hand 
     of fate.
       Some Western experts have begun to doubt the wisdom of 
     shock therapy. There is increasing talk of the need to spend 
     more on social welfare, to ``soften'' reforms, and to 
     increase subsidies and transfer payments. In short, East and 
     Central European countries are being sold on a model that has 
     got many a Western state into serious trouble.
       Let us not forget that had the Adenauer government launched 
     a program of social well-being rather than of economic 
     stabilization, Germany's ``economic miracle'' would never 
     have occurred.
       Such posturing has become nearly epidemic since the Russian 
     parliamentary elections in December, in which both the former 
     Communists and political forces described as fascist did 
     well. Many observers, including Strobe Talbott, U.S. deputy 
     secretary of state-designate, blame overly speedy reforms in 
     Russia for the setback suffered by democratic forces. After 
     hearing the election results, Mr. Talbott remarked that what 
     Russia needed was ``less shock and more therapy.''
       I could not disagree more.
       A splintered approach helped defeat the democrats, as did 
     poor coordination and the weakness of the multiparty system 
     in Russia. The democrats underestimated the strength of the 
     Communist-fascist forces and made tactical errors. Boris 
     Yeltsin failed to support the democrats publicly.
       Many Russians in fact share Vladimir Zhirinovsky's views. 
     Russia is the land not only of Pushkin and Dostoyevsky but 
     also of Ivan the Terrible and Stalin. It is a wonder that the 
     democrats received as many votes as they did.
       The experience of other states demonstrates that shock 
     therapy is not at issue here.
       After reinstating independence in 1991 and taking a few 
     cautious steps, Estonia launched a program of radical reform. 
     In June 2992 it became the first of the so-called former 
     soviet republics to introduce its own convertible currency, 
     which was firmly fixed to the Deutsche mark. Since then the 
     Estonian kroon has been remarkably stable.
       Strict monetary policy and a balanced budget are 
     responsible for this success. Inflation plummeted from 1,000 
     percent in 1992 to an annual rate of 3.5 percent in 1993. 
     Hard currency reserves have increased 3.5 times in the 18 
     months since the kroon replaced the ruble. In a scant year, 
     Estonia's economy turned from East to West; exports to the 
     West have increased by 15 times in the last few years.
       After an initial drop in production, the economy had 
     bottomed out by the second half of 1993 and begun an upturn. 
     The third quarter of 1993 brought a clear increase in gross 
     domestic product. We take great pride in the prediction by 
     the International Monetary Fund that Estonia will have the 
     highest growth rate in Europe this year.
       Foreign investment has risen swiftly, while the number of 
     businesses in Estonia jumped from 2,000 in 1991 to 60,000 
     last year. After radical reforms, Estonia's tax rates are 
     perhaps the lowest in Europe. All the while, Estonia has 
     maintained a liberal trade regime, doing away with import and 
     export taxes.
       Estonia has changed beyond recognition. New shops and cafes 
     offer visible proof of the victory of market forces. 
     Productivity is up, and our industries have enjoyed success 
     in finding new markets. The standard of living reached its 
     low point early last year, and real wages are rising again.
       All of this is in sharp contrast with Russia's situation. 
     Estonia's experience clearly demonstrates that only radical 
     and systematic reforms can ensure a better future for a 
     country emerging from years of central planning.
       The tragedy of Russia lies in the fact that there has been 
     too little shock in its shock therapy, and too much 
     inconsistency in its application. Russian economic reform has 
     followed a pattern of ``one step forward, two steps back.''
       And now the West, instead of lending clear support to the 
     reformists and radial democrats, speaks of ``softening'' 
     reforms. It has suggested channeling more money into social 
     spending (regardless of the effect on budget deficits and the 
     tax burden) and has begun cajoling international monetary 
     organizations to relax their strict terms of lending.
       In protest, reformist politicians in the Russian government 
     have been defecting to the opposition. The West, quite 
     wrongly, behaves as if nothing awful were happening. This 
     further weakens the democrats and consolidates support behind 
     Mr. Zhirinovsky and his fellow travelers.
       Russia and the Russians must not be treated as if they were 
     spoiled children, above reprimand or reproach. Such children 
     grow up to be disobedient, arrogant and tyrannical adults. We 
     must expect of Russia what we expect of other countries, and 
     treat Russia as an equal partner. Only this sort of pedagogy 
     can create for Russia a better tomorrow.

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