Originally created 08/29/98

Russia hits stone wall in pleas for Western help



WASHINGTON -- Russia, facing the greatest crisis in its struggle to transform to a free-market economy, has hit a stone wall in efforts to get more money from the Western powers that had been its biggest backers.

Instead, President Clinton and other leaders are on the sidelines, watching anxiously as their own financial markets shake and wondering what options are left.

The word from Washington and other Western capitals has been a stern warning that Russia's problems can be resolved only by jump-starting its faltering program of economic reforms.

But foes of Russian President Boris Yeltsin are pushing the country back toward Soviet-era government controls and away from the free-market reforms that they blame for producing nothing but misery.

That, say Western analysts, is exactly the wrong approach. It has been too little economic reform -- not too much -- that has characterized Russia's stumbling efforts throughout the 1990s to switch from communist central planning to free markets, they say.

"The Russian government has a long background of not addressing its most fundamental problems, including an inability to collect taxes," said Jeffrey Shafer, a former Treasury undersecretary for international affairs in the Clinton administration. "This lack of political authority has raised a lot of other questions about crony capitalism and gangster capitalism."

In Russia's chaotic political and economic situation, analysts said, it would be foolhardy for the Clinton administration to push for additional financial support after lobbying so strongly for a $22.6 billion International Monetary Fund-led package in July.

And with Russia's economy in a free-fall, even that $22.6 billion has been called into question. IMF Managing Director Michel Camdesus briefed the agency's executive board Friday on his meetings this week with Russian officials.

Russia had been scheduled to receive a $4.3 billion second installment of loans on Sept. 15. The official U.S. line is that Russia deserves continued support as long as it does not deviate from the IMF reform program.

President Clinton, speaking Friday in Oak Bluffs, Mass., said he would go to Russia to tell officials that "if they'll be strong and do the disciplined, hard things they have to do to reform their country, their economy and get through this dark night, that we'll stick with them."

However, Russian parliamentary leaders are insisting on a package of Soviet-style measures as a condition for confirming Yeltsin's decision to return Viktor Chernomydrin to the job of prime minister. That has provided new ammunition to critics of Clinton's policies toward Russia.

Publisher Steve Forbes, a 1996 Republican presidential candidate, contended Clinton had "cynically turned a blind eye to the wholesale thievery by well-connected figures" of much of the Western aid.

Russia's turmoil triggered a 357-point drop in the Dow Jones industrial average Thursday, the biggest decline since a 554-point fall last October prompted by the Asian crisis. The average dropped an additional 114 points Friday.

But the biggest threat to the U.S. economy is that the financial troubles that have dumped many Asian countries into severe recessions and now leveled Russia will spread to Latin America, which accounts for 20 percent of U.S. exports.

The IMF has invited finance ministers from nine Latin American countries to Washington next week for two days of meetings on what they can do to make sure their countries are not the next victims.

Clinton, noting that Latin America has become an important market for U.S. companies, said Russia's troubles also caused Latin American markets to shudder even though most of those countries are "doing everything right. Why? Because we're in a tighter and tighter and tighter web of mutuality."

America has been running record trade deficits because of the loss of Asian markets, but analysts said the spread of troubles to Russia should not have much immediate effect by themselves, given the small size of the Russian economy and the small amount of trade between the two nations.

However, Russia's thousands of nuclear warheads raise concerns that economic chaos could trigger political chaos that would return communists to power and restart the Cold War.

"Russia is having a complete meltdown, politically and economically," said John Cleland, chief investment strategist for Security Benefit Group of Topeka, Kan. "What we are finding out is that the world is still a dangerous place."