[Congressional Record Volume 146, Number 88 (Tuesday, July 11, 2000)]
[Extensions of Remarks]
[Pages E1210-E1211]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




         IMF LOANS TO RUSSIA: WHAT HAVE THEY REALLY SUPPORTED?

                                 ______
                                 

                        HON. BENJAMIN A. GILMAN

                              of new york

                    in the house of representatives

                         Tuesday, July 11, 2000

  Mr. GILMAN. Mr. Speaker, I would like to bring to the attention of my 
colleagues an op-ed article published in the ``Wall Street Journal 
Europe'' on June 8th by Mr. Boris Fedorov, a former Finance Minister in 
the government of the Russian Federation.
  This article, entitled ``No More `Help' for Russia, Please,'' paints 
a dismal picture of what has really been accomplished in Russia after 
the extension of more than $20 billion in low-cost loans to the Russian 
government by the International Monetary Fund. Average Russians have 
been disappointed and angered by what they see as the IMF's complicity 
in the vast corruption that has afflicted their country over the past 
decade. The Russian economy, propped up temporarily by a devaluation of 
the currency and the recent rise in oil prices, is marred by extensive 
poverty. Heathcare, education systems, highways deterioration.
  What has happened to the $20 billion that the IMF has lent the 
Russian government over the past few years? Why has the Russian 
government failed, time and again, to meet its fiscal obligations to 
its own people, despite those IMF loans and the outright assistance 
provided to that government by the United States and other aid donors?
  For one thing, the Russian government still insists on financing a 
``superpower-sized army and bureaucracy'' that it cannot afford, as Mr. 
Fedorov states, and the rampant corruption in Russian government and 
industry is another important cause of the fiscal nightmare in that 
country. But Mr. Fedorov also points out the most important reason in 
the following words: ``Indeed, the pattern since Mikhail Gorbachev's 
time is unmistakable: reform talk followed by loans to underwrite 
reforms, followed by a collapse of the reform plans, followed by debt 
restructuring, more talk of reforms, more loans and so on. When lack of 
reforms is remunerated with new loans and debt write-offs, when the 
worst abusers of the current system live nicely off the spoils of what 
is effectively thievery .  .  . one starts having doubts about the 
message we get from the democracies of the West.''
  Mr. Speaker, I strongly recommend this important article to those of 
our colleagues who are seeking to better understand just what has gone 
wrong in our policy toward Russia over the past decade. I submit the 
full text of Fedorov article be inserted at this point in the Record:

          [From the Wall Street Journal Europe, June 8, 2000]

                  No More ``Help'' for Russia, Please

         (By Boris Fedorov, former Finance Minister of Russia)

       For the last 10 years, the debate about Western assistance 
     to Russia has revolved, superficially, around the question 
     ``to give or not to give.'' Despite all evidence to the 
     contrary, the answer is always ``to give'' because this is 
     seen as helping Russia. Thus for a decade, Russia is 
     regularly dispensed a drug which never cures but keeps the 
     patient in a vegetative state. And the drug habit is growing.
       Who are the quacks? The list of names is familiar. The 
     Clinton Treasury, the G-7, Michel Camdessus' IMF. Just days 
     ago in Moscow, President Clinton reiterated his support for 
     new loans to Russia. And U.S. Vice President Al Gore claims 
     that Russia is a foreign policy victory. Why? Apparently 
     because the current Russian government has released the 
     country's umpteenth economic plan, which is considered to be 
     ``good.'' Other people are naturally well-intended. Still 
     others think that it is worth a billion per year to keep 
     Russia quiet in military terms.
       But the results are dismal. More Russians are anti-Western 
     today than a decade ago. Russia is economically weaker than 
     10 years ago after all the IMF-sponsored reforms. We have 
     more corruption and poverty than under communism, and too 
     many citizens want to return to a time they see as having 
     offered them a better life. The questions are, what have 
     loans done for Russia and does the country really need new 
     loans now?
       The roughly $20 billion pumped into the Russian budget over 
     the last decade have, in fact, had no positive effect 
     whatsoever. This is not surprising, given the black-hole 
     nature of the Russian budget. Money, being fungible, was 
     misspent and ended up in the hands of a few well-connected 
     people and in Western banks. Russian citizens definitely did 
     not benefit from this ``assistance,'' judging by the pitiful 
     state of healthcare, education, public security, roads and 
     nearly every other public sector sphere.


                             trade Surplus

       A country rich in natural resources with a trade surplus of 
     $4 to $5 billion a month (not counting capital flight of 
     similar proportions) does not really need IMF money. I've 
     heard some argue that the loans to Russia were to small to 
     have made much of a difference in any case. The IMF, they 
     claim, may have acted cravenly in seeking to cover its own 
     exposed positions by throwing
       This view misses the corrosive impact that an IMF 
     imprimatur had on government officials, the formulation of 
     their economic plan and on international credit markets, 
     which figured the IMF would assume a lender-of-last-resort 
     function--in other words, the moral hazard that was created. 
     An economic system in which corporate assets are routinely 
     stolen, investors ripped off and the creditors deceived has 
     been built with the help of Mr. Clinton and the IMF. This is 
     a system that no Western politician would dare to advocate 
     for his own country. Why do you impose it on us by 
     underwriting it with your taxpayers' money?
       We hear often these days about the booming Russian economy, 
     cited as evidence of the success of Western policies toward 
     Russia. The Clinton administration and IMF speak glowingly 
     about how a new, democratically elected president has adopted 
     an economic program that is much more liberal than its 
     predecessors, and thus deserves more support. The new Russian 
     government, however, is operating under a false sense of 
     security, which is very much encouraged by the favorable 
     remarks of Mr. Clinton and other Western leaders.
       On closer examination, however, the new optimism about the 
     economy is no more firmly grounded than it has been in the 
     past. Economic growth is still behind pre-reform levels, and 
     in large measure is due to higher commodity prices rather 
     than an increase of investment and value added in the 
     economy. Higher tax revenues are also cited as a sign that 
     wealth is expanding. But revenues are actually lower in 
     dollar terms. The government also cites better budget 
     discipline, but this too is illusory, since much of the 
     drastically depreciated expenditure was not indexed. There 
     are more U.S. dollars under the mattresses of our citizens 
     than the overall ruble money supply of Russia.
       Is the Russian economy really reformed? Is productivity 
     higher and corruption lower? Are structural reforms in 
     progress? Does anybody believe that a country with an annual 
     federal budget of $25 billion (less than America spends on 
     its prisons) can really maintain a superpower-size army and 
     bureaucracy?
       The false sense of achievement and the new prosperity comes 
     largely from the effects of the 1998 ruble devaluation 
     combined with a high oil price. It has very little to do with 
     economic reform. And still Mr. Clinton is in a hurry to say 
     that America will support IMF loans to Russia because the 
     economic

[[Page E1211]]

     plan of the current government merits that support.
       I am not saying that the Putin government's pronouncements 
     on economic policy are bad. In fact, I am encouraged by much 
     of what I hear. But I remember too well how past economic 
     programs also featured liberal and enlightened reform plans 
     that were later shelved in favor of the status quo.


                         Swept Under the Carpet

       Indeed, the pattern since Mikhail Gorbachev's time is 
     unmistakable; reform talk followed by loans to underwrite 
     reforms, followed by a collapse of the reform plans, followed 
     by debt restructuring, more talk of reforms, more loans and 
     so on. When lack of reforms is remunerated with new loans and 
     debt write-offs, when the worst abusers of the current system 
     live nicely off the spoils of what is effectively thievery--
     if not in legal terms since Russian law is inadequate--one 
     starts having doubts about the message we get from the 
     democracies of the West. Why reform anything in Russia if 
     another IMF loan shipment is on the way and past scandals can 
     be swept under the carpet?
       I personally think that Mr. Putin should be given the 
     benefit of the doubt. He cannot be blamed for past failures. 
     Many of the ideas he has voiced have much in them. But only 
     he can really change the course of events, and so far 
     meaningful actions have been few. We do not know the full 
     economic plan of the government. The jury is still out.
       Rather than repeat the mistakes of the past, my 
     recommendations for the West are simple. First, do not grant 
     Russia concessions, but rather apply the rules as you would 
     to any country. Western capital should flow to the private 
     sector, not to the government. Only this will help to change 
     the country, create jobs and increase efficiency. Second, 
     money should be spent where it brings genuine return and 
     where it will generate the kind of good-will that makes 
     reform and democracy self-sustaining.
       I imagine what might have been if that $20 billion in IMF 
     money been spent on providing full time education for 200,000 
     Russian students in the West. My guess is that we would be 
     living in a different country today.

     

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