Date: Tue, 16 Feb 1999
Subj: THE IMF AND RUSSIA -- WHO PAYS THE PIPER CALLS THE TUNE
By John Helmer
--------------
John Helmer received a PhD in Sociology at Harvard University,
and
served as a bureau chief in the US Office of Management and
Budget
during the Carter Administration. He has lived in Moscow since
1989,
where he is the Russia Correspondent for The Journal of Commerce
of
New York.
--------------
The decisions that were made by the Russian government and the
International
Monetary Fund (IMF) during 1993 were decisive in transforming the
rouble
from a central to a marginal role in the country's economic policy. In
that
year, the rouble went from being an instrument that integrated
production and
credit facilities of the former Soviet Union, to being an appendage of
the
dollar and inducement to massive capital flight.
This is the story of what happened.
President Boris Yeltsin's success in demolishing the Congress of
People's
Deputies and holding elections to a new parliament were rewarded with
a
$1.5 billion loan -- money which Fund officials said, just before
Yeltsin
dismissed parliament on September 21, they didn't want to hand over
(see Author's Note).
The loan decision by the IMF was complicated by a policy division over
Russia
inside the world organization. That was a split between those who made
a
highly political alliance with a faction of monetarists in the Russian
government; and those who thought this alliance, and the economic
policy
that came out of it, were grave mistakes for both Russia and the IMF.
When the
tanks opened fire on the Russian parliament building on October 4,
they
blew away, not only the Russian opposition to Yeltsin, but the
opposition
within the IMF to radical monetarism. The Russian opposition revived
quite
quickly, but at the IMF the argument over Russia's policy course was
over.
The most persuasive evidence to explain that is not the ideological
record of the argument, but the political and financial interests --
the personal financial interests -- that drove a group of US advisors,
economists and government officials to promote an alliance of Russian
and
IMF officials. Under the auspices of the IMF, and in the name of
monetary and
fiscal orthodoxy, their goal -- they explained in confidential
memoranda at
the time -- was to put Russia's internationally competitive industries
into
bankruptcy, and sever Russia's economic links with the former Soviet
republics.
That group was headed by Jeffrey Sachs. It included his business
partner,
David Lipton, who moved into a senior post in the US Treasury early in
1993.
George Soros participated in the group's lobbying of the IMF. He also
benefitted from the asset transfers that were set in motion by the IMF
policy that year. Janine Wedel and Anne Williamson have written at
length
about the activities of this group (Wedel: June 1998; Wedel 1998;
Williamson
1998).
Individually and corporately, the proceeds of their Russian policy
made them
all very rich.
But in 1993 they were opposed by Jakues de Groote, the most senior
director
on the IMF board. He drew fire for privately circulating a memorandum
in
which he questioned whether the Fund was being used by "certain
intelligence
circles and by some Western media", to promote the objective that "any
weakness of Russia is advantageous for the West" (De Groote 1993).
IMF staff admitted that de Groote fell under investigation for
embarrassing
leaks from an IMF board meeting at which he blocked a move by the
Russian director, Konstantin Kagalovskiy. The Russian, egged on by the
Sachs-Lipton group, tried to block an IMF loan for Kazakhstan until
the republic left the rouble zone.
In Washington, as Russian finance officials attended the annual
general
meeting of the IMF and World Bank, IMF officials predicted that
support
for the rouble through the current political crisis is likely to
exhaust
the Russian Central Bank's current reserves, estimated at about $2
billion.
[...]
Exactly what the West wants, or should want, from the Russian
government
was the subject of an extraordinary memorandum circulated privately
within
the IMF, and to Western European governments, in the summer of 1993,
before
the Russian political crisis came to a head (De Groote 1993).
This was written by de Groote, the executive director representing the
fourth most powerful bloc of IMF member states, including several
Western
and Eastern European countries, Turkey, Kazakhstan, and Belarus. A
professor
of economics in his native Belgium, de Groote had been on the IMF
board for
longer than anyone else at the time.
In his memorandum, he recommended against policies "copied from the
stereotyped image of the US economy held by some economists", and
criticized
the Russian government for following American advisors "marked by the
ideological bias of the Reaganite school".
Sachs and Lipton are not mentioned by name, but they were de Groote's
intended American targets. During negotiations between the IMF and the
Russian government, the Sachs group had been paid to serve as advisors
to
the Russian side. They played both sides, writing secret memoranda
advising
the IMF negotiators as well (Author's Note).
Exactly who paid for Sachs and a team of half a dozen assistants was
not
clear. A senior Russian official involved in the IMF negotiations said
the
Russian government was not paying, but he didn't know who was. IMF
officials
said they weren't sure either. There was speculation that at one time
Soros
paid the bill. Others rumoured to be paying for Sachs's advice to
Russia
include foundations from Scandinavia and Japan. Queries to Sachs on
this
point went unanswered.
The IMF official argued that post-war Japan, South Korea and other
Asian
economic development provided a better example for Russia, suggesting
that
the government in Moscow should "develop its own approach, based on
its own
national characteristics and taking account of the ways in which the
European and Far Eastern models seem to fit the Russian situation
better
than the US model."
He described Anatoly Chubais's voucher privatization scheme as a
"botched
attempt", and Gaidar's liberalization of prices as "premature and
misguided."
[...]
To make this acceptable to the IMF, de Groote recommended "a reform of
tax
collection methods and by restoring the satisfactory level of
enterprise
activity needed to generate the required amount of fiscal revenue."
He also advised Russian negotiators that putting a new priority on
restoring
production and recovering administrative control over the economy
would
achieve IMF targets for the economy more effectively than the
government's
current policies.
"It is one of the most crucial but paradoxical aspects of Russia's
relations
with the Fund, that certain policies, which are traditionally viewed
as
contradicting Fund objectives... are in reality necessary for the
achievement of those very objectives."
[...]
But by the time that was obvious to everyone, the government in Moscow
was
engaged in its decisive battle with the Russian parliament. Yeltsin's
decree
dismissing the Congress of People's Deputies, and the first deployment
of
troops around the parliament building diverted attention from what had
been
done to save the rouble zone from those Russian ministers who wanted
to
destroy it.
The approach recommended from Washington by de Groote had prevailed in
Moscow. But not for long.
Ten days later, the White House was destroyed, the principal
opposition
leaders arrested, and a presidential decree proscribed 18
organizations and
13 newspapers -- the most vocal of the so-called nationalist-communist
alliance.
This alliance had had virtually no impact on all that had transpired
between
the IMF and the Russian government. The most rabid of the newspapers
liked
to lump the IMF, Soros, Sachs, and the Clinton Administration into a
single
conspiracy of international capital with a Zionist mastermind. Those
in the
Russian parliament who took a non-Semitic version of the conspiracy
idea
seriously chose not to press the government on the details of the IMF
negotiations.
Instead, they left them for Gerashchenko -- their ally, the deputies
thought
-- to handle at the Central Bank.
Not once did the Supreme Soviet or the Congress of People's Deputies
hold a
debate, or cast a vote on the terms which government ministers were
signing
with the IMF. The Speaker, Ruslan Khasbulatov, an economist himself
advised
by Professor Anatoliy Milyukov, an international banking specialist,
never
complained at the government's reluctance to disclose the texts of the
IMF
agreements.
The real battle was waged inside the Russian government, and inside
the IMF
itself. It has taken five years before this revived on the Russian
side. But
the events of 1993 eliminated all traces of opposition within the IMF.
[end of John Helmer text]
end
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