Russian Crisis Demands State-of-the-Art Stabilization Strategy

[Deb Palmieri on Russia Table of Contents]

The following article was published in the Russian Commerce News, May-June 1998. The Russian Commerce News is the official publication of The Russian-American Chamber of Commerce®.

Russian Crisis Demands State-of-the-Art Stabilization Strategy

Faster than the speed of lightening, the Russian financial crisis, sparked by the Asian contagion effect and playing on the stage of a jittery global economy, is gathering momentum to cause concern. The Russian government, economy and social order may stand perched on a precarious precipice. As each day passes without the right kind of interventions, the recovery options become more difficult and the problems become more embedded and harder to dislodge. A number of astonishingly unlucky international and domestic circumstances have spun together to create yet another critical moment in Russia's tumultuous history this century. On the domestic front, Yeltsin's government shake-up in late March was an eye-opening event suggesting things were going awry with government policies, even in their own eyes. But nonetheless it seemed to produce young, more-reform minded officials like Kiriyenko, bereft of political and bureaucratic baggage and inspired by fresh ideas to stimulate economic growth.

But lurking around the next corner reverberated the shock waves from Asia's financial doldrums, the contraction of its markets and its contagion effect. So by late May, Russia found itself with a full-blown financial crisis of its own, complete with a downwardly plunging stock market and right-through-the-ceiling interest rates. The heavy burden of servicing foreign debt became more ominous. Hard currency and gold reserves of the Russian Central Bank dropped to perilously low levels. Stir into that mixture the failure of debt auctions to generate much needed cash, like the Rosneft debacle, depressed global oil prices diminishing much needed foreign currency revenue, growing labor unrest as a result of wage arrears (e.g. the Siberian miners strike that disrupted railways), the nagging inability of the government to collect taxes, and short-sighted policies of international bodies like the IMF paralyzed in their ability to act quickly enough. And sprinkle in downgraded credit status alerts and high risk warnings issued by Moody's, Standard & Poors and other prominent rating agencies, and a host of other unlucky circumstances. And voila! What you have is a critical situation whereby the very solvency of democracy and the reform movement is at stake.

There's no doubt in my mind that preserving Russian democracy, no matter how imperfect in its fledging state, is a number one priority for the global community. It has to be, given the possible alternatives that might spawn in the wake of an unanticipated collapse of Yeltsin's government or his democratic successors. Such alternatives could include an arsenal of potent nuclear weapons falling into the hands of adversaries; a rise to power of nationalists bent on pursuing policies of authoritarianism, renationalization and militarization of the economy, expansion of Russian borders and reincorporation of lost territory of the U.S.S.R.; confrontational foreign policies with the West and a reign of disorder and other disintegrating political, economic and social forces.

So, what to do? Are interventions possible to stem this tide and get things going on the right track? Yes. This process can be thwarted by taking the right steps and implementing the right strategies with determination and willpower. It requires tapping into the best creative and intellectual energies from three key sets of players.

First, from the Russian side. Ultimately, Russia and only Russia is responsible for its destiny. Russia must come up with its own version of economic recovery, its own "New Deal." This was President Roosevelt's package of programs sponsored by our federal government to restore the economic health of the U.S. following the Great Depression. The Russian version of the "New Deal" must focus on stimulating the growth of Russian industry, job creation to put people back to work, social stabilization, devising a fair and equitable tax system, repair of the shattered educational and healthcare system and a restoration of national confidence in its destiny. It must root out corruption and cronyism and restore faith not only in the government, but in the moral fiber of society and its institutions. It must insist on values and ethics of honesty, integrity, accountability and the rule of law at every level of government and industry.

Second, from the dimension of assistance from international multilateral institutions such as the International Monetary Fund, World Bank, Paris Club, G-8 and so on, all those institutions into which Russia joined and began participating in during the last seven years. These entities must act in concert and with a heightened sense of responsibility regarding their role in a Russian stabilization plan. They cannot make demands that are impossible to meet or create plans doomed for failure which they are simply impossible to implement. The international institutions, especially in the context of mounting Asian and global economic instability must view themselves as forums for cooperation on global problems that are resolved not only on the basis of national interests, but global interests. They must break through existing thought and policy barriers and limitations in pursuit of controlling and solving the Russian problem, realizing that it is in our collective interest to do so. Russia's crisis is occurring not in isolation, but in the context of the global economy, and with traits and characteristic similar to those of other emerging markets.

Finally, from the American side. The United States must first and foremost understand that the single most important nation to us in the 21st century is Russia. The outcome of the present crisis and the success or failure of market and democracy has consequences of the highest order of magnitude to our national security and to the future of global stability. We must fully assimilate and act on the following simple strategic concept. We cannot afford to lose Russia. We should learn at least one lesson from the loss of China in 1949 to Mao Tse Tung and the Chinese Communists. We wrung our hands and finger-pointed for years over that nagging question: Who was responsible for the loss of China and why?

Many are presently locked in a narrow mindset of negativism and pessimism towards Russia encouraged by entrenched Beltway lobbying groups and think-tanks that have a strong funding base and loud voices speaking to influential lawmakers. They are convinced that they and only they possess the unchallenged, unquestioned, self-righteous gospel truth that Russia remains as our enemy number one, a consummate global troublemaker and chronic adversary. This lobby and its "Russia-watch" army of analysts, routinely send out documents of condemnation on any given Russian domestic or foreign policy. These faxes, booklets, policy papers and the like land on the desks of lawmakers, the press, government officials, academics and the general public on a regular basis.

But we need to question these premises, their cynical origins in Cold War thinking and the logical extension and outcomes of their often mean-spirited and confrontational way of thinking. We need to ask the very fundamental question: are we searching for a continuation of the Cold War, or peace? If they are looking for a post-Cold War enemy in the Russian Federation, then others should just as fervently be searching for ways to build a genuine, workable partnership, based on mutual interests and an awareness that it is both countries together who need each other's mutual support in dealing with global problems of nuclear proliferation, the rise of Islamic militancy, international terrorism, mounting ethnic and territorial conflicts, environmental deterioration and so on.

Presently our foreign and economic policy towards Russia lacks a coherent definition and framework addressed to these key questions: how important is Russian democracy to U.S. national security and the stability of the Eurasian continent? How might the potential collapse of Yeltsin's government or reform-minded successors, impact us, especially with a nationalist or communist rise to power? What types of support make sense given our strategic priorities or lack thereof?

Since we haven't taken the time or had the inclination to seriously deal with these issues, we are operating on the basis of a disengagement policy, a hit-or-miss, one-issue-at-a-time standard, one which has defaulted our responsibilities to other leaders or institutions. Was President Clinton properly advised not to visit Moscow until Start II is ratified? Now, more than ever, our head of state should visit Moscow to make a strong statement on behalf of the American point of view, emphatically stating to Russia's president, the Duma and the press, why Start II ratification is so pressing, not to mention the good-will symbolism and bolster of support for beleaguered reformers it would provide. Turning off available valves of communication during tension periods is always unwise; it limits opportunities for sincere efforts at problem solving. Why did Mr. Clinton abstain from directly assisting the Russian crisis, but instead handed over American decisionmaking authority to the IMF? The strongest nation in the world, and we default high-order issues of national security to financial technocrats whose policies and prescriptions may or may not produce outcomes that are critical to our own well being. Political leaders in the West should be more directly involved in advising IMF leaders as to the general strategic purpose of their funding. If the amount and timing of the funding is closely correlated with goals and objectives that we deem must be achievable, than such institutions must be given explicit benchmarks for how much they are giving and how fast they should deliver it. We have disengaged from driving forward any sort of a visionary Russian policy exactly at the moment our leadership and participation in these crisis times could play a major role in ensuring Russian economic recovery and the viability of policies of reform and democracy, all outcomes in our own best national interest.

It's not too late for the U.S. to realize the shortcomings of its Russian policy and change in a positive direction. We can still assert a leadership role in shaping a comprehensive, sound Russian stabilization plan and directing the right amount of resources, in the right way, to produce outcomes viable for Russians, Americans and the global community.

A state-of-the-art stabilization strategy, incorporating input and resources from the aforementioned sets of players, is the only way to go to guarantee Russian political and economic solvency.

Deborah Anne Palmieri
Russian Commerce News, May-June 1998