To: SOROS who wrote (245 ) 9/13/1998 10:40:00 PM From: SOROS Respond to of 1151
Russia Today - 09/13/98 MOSCOW -- (Reuters) Russia's economic team apparent, with key members hand-picked by the Communist Party, has sparked fears that an endless stream of credits may drown the economy without addressing the problems which drove Russia to crisis. Prime Minister Yevgeny Primakov, in calls to rebuild the economy, has referred as an example to the New Deal of U.S. President Franklin Roosevelt, who mobilized government funds to pull his country out of the Great Depression. But analysts and Western businessmen say that new credits will not help Russia if they are not aimed at improving efficiency, the consequences of which Russia has long shirked. Credits, which will cost the country dearly, could revive and bloat the economy, recovering from nine years of stagnation and shrinkage. But without real change, a short surge in productivity could be swallowed by disaster and inflation. Those possibilities appear realistic because Primakov has said Yury Maslyukov, the Communist former head of Soviet super-ministry Gosplan, would be his first deputy prime minister in charge of the economy. Victor Gerashchenko, a former central bank chief who has some support among reformers but who turned on the presses in the early 1990s, has already been nominated by President Boris Yeltsin to return to that post and promised to be cautious with new monetary issues. Neither has detailed his economic plan but both were put forward by the Communist Party which has vowed to revive industry by giving credits. "If these appointments happen, I would expect hyperinflation in Russia," said Vladimir Mau, deputy director of the liberal Institute for the Economy in Transition, adding communist plans pointed the way to "economic disaster." There is broad consensus in Russia among liberals and conservatives that some credits must be used to revive the industrial and banking sectors. Primakov said on Friday that factories must also become more efficient. "Support to domestic producers must be a priority of the government," he told the Duma before being approved as prime minister. "At the same time this must be done in such a way that domestic producers are not given such extraordinary conditions so that they do not worry about the quality of their goods." But he declined to say how he would draw that line, which may be the line between recovery and failure. Vagit Alekperov, head of Russia's premier oil company, LUKoil, one of the most respected Russian companies by Western investors, said on Friday that Russia needed to change course. "Financial policy must have the effect of stimulating industry rather than a financial character," he wrote in Izvestiya daily newspaper. "For instance you can never say that monetary emission is only evil." He said Russia should address 30-50 percent overstaffing at its companies by creating new companies and new jobs. "Here you cannot get around major government aid." But the Russian treasury is close to broke, having practically defaulted on its domestic treasury bills and missed most of a payment of foreign debt interest to Germany, and it is already under pressure to pay wage and pension arrears. Scott Blacklin, president of Moscow's American Chamber of Commerce, said Russia had not made hard choices. "There has been a big orgy in this country over the past six years. The middle class has had their knees cut off from them." He said the problem with issuing credits was that Russia had no record of making, announcing, and sticking to a plan, which threatened its credibility and judgment. "You've actually got a weaker situation than before," he said. His recommendation for inefficient companies was, "bankruptcy and sales of those assets to people with money. And that means foreigners. That is where the pain comes. There is no escaping the pain. The statist, nationalist approach is doomed to fail." ( (c) 1998 Reuters)