I gave up hope for Russia in April of this year. It was then that I began to foresee a process of disintegration without end. The process could take many forms: the continuing erosion of government authority leading to a breakdown of essential services and the rioting of troops; or a putsch that would remove Boris Yeltsin and seek to unite the nation by finding enemies both without and within; or a combination of the two.
My cataclysmic view was based on a recognition that the economic reform introduced by Prime Minister Yegor Gaidar was not working. Mr. Gaidar was trying to stabilize the economy by means of monetary policy at a time when the economy was not obeying monetary signals. Enterprises continued operating according to a nonexistent plan, which meant that they kept filing claims on each other for which there were no funds. Inter-enterprise debt was accumulating at a rate that was roughly half the total national output. What was worse, it was reaching across national borders, causing tensions among successor states of the Soviet Union, particularly between Russia and Ukraine.
In April, Mr. Gaidar won a parliamentary victory that gave him another six months’ lease on life, and Western governments went through the motions of offering economic assistance. But there was no reason to believe that the situation could be corrected within six months.
Now Mr. Gaidar’s lease on life is expiring and everyone is full of foreboding about the coming session of the Congress of People’s Deputies, which is scheduled to start Dec. 1. Even if a reformist government is endorsed by the congress, it is likely to be swept away in the subsequent hyper-inflation; and the inevitable attempt to reintroduce price controls and state orders would be resisted by the regions, leading to civil war. The window of opportunity is closing.
Is there nothing to be done? The truth is that the situation could still be turned around if only Western governments would put their heads together and use a little imagination. They could offer a social safety net that would provide minimum subsistence to the unemployed, the pensioners and the needy.
This could be done at a ridiculously low cost due to the undervaluation of the ruble. At present, the minimum wage is less than $6 a month. Admittedly, the exchange rate would be affected by the introduction of a large amount of foreign currency. Even so, $6 a month would enable those in need to buy bread and a few essentials at unsubsidized prices. As long as they had somewhere to live—and most people in Russia do—they could survive. Demobilized officers would need extra benefits; and the frozen North would require special treatment.
I propose distributing social benefits in cash: in dollars or marks. This would have a miraculous effect. It would introduce a stable currency into a hyper-inflationary situation. A hard currency in people’s hands would be a powerful inducement to reorient production to meet people’s needs—no need to rely on government policy. The production of all goods that can be sold for dollars or marks would soar.
Moreover, such a plan would remove the main obstacle to the closing of inefficient factories. Why keep people employed in nonexistent jobs when making them unemployed would bring a positive benefit from abroad? When enterprises whose output is worth less than the cost of inputs are closed, and food and energy subsidies are abolished, the budget can be balanced and inflation brought under control.
Of course, once the currency is stabilized, $6 a month would not be sufficient as an unemployment benefit, but by then the process of disintegration would have been arrested and the problem could be left to the Russian government.
The whole scheme could be put into effect with $10 billion even if all the successor states of the former Soviet Union that are not actually engaged in warfare are included. The money could be advanced in the form of a loan from the International Monetary Fund. The offer itself would be unconditional, but its continuation would depend on Russia meeting certain conditions, such as the observance of human rights and the eventual creation of a common market among the former Soviet states.
Since such aid would take a purely humanitarian form and would involve little interference in government policy, it is difficult to foresee any objections from the Russian side. Yet the political effect would be immense. It would not only preserve the reform orientation of the Yeltsin government but give it a tremendous boost.
I have discussed my idea with key policy makers in Russia and they agree that it would have the effect I envision. But they tell me it is an idle dream, since the Western powers would never endorse such a plan. Western governments are apparently too busy with their own problems. One thing is certain: They could save the world a great deal of aggravation if they helped Russia now—with hard currency. It would be a bargain compared with the amounts that will be spent on humanitarian aid as the former Soviet Union slips into the black hole of disintegration.