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Johnson's Russia List #5034 18 January 2001 [log in to unmask] #3 Moscow Times January 18, 2001 Editorial New Realism Better Than Old Illusions While it is not entirely clear whether U.S. President-elect George W. Bush fully understood what he was saying earlier this week about international lending to Russia during the '90s, we suspect that he may be right. A harder line toward Russia back then might well have prevented a lot of money from being squandered or stolen and might have left Russia in a far better position than it is in now. In a crippled verbal style that is reminiscent of his father's way with words, Bush told reporters Monday: "It just seems like to me that we don't want to be lending money and/or encourage the lending of money into a system in which the intention of the capital is never fulfilled." If we are parsing him correctly, then it just seems like that to us, too. The stubborn refusal of the Clinton administration (and other Western governments such as that of Britain's Tony Blair) to face facts about the true situation in Russia — particularly about the Yeltsin administration's nonexistent commitment to real political or economic reform — was a major obstacle to effective assistance. In retrospect, the position of President Vladimir Putin's chief economic adviser Andrei Illarionov that Russia never needed Western lending at all and that endless borrowing merely undermined any incentive for real reform seems increasingly creditable. Now Russia is stuck between a rock and a hard place. It is saddled with a foreign-debt burden that is clearly putting a strong brake on further growth, sapping funds that could be invested in infrastructure. On the other hand, not paying its debts will undermine the confidence of investors, whose direct investment in the real economy (as opposed to institutional lending) is what Russia really needs. Restructuring merely puts off the dilemma until tomorrow, when it is a few billion dollars more intractable. Bush, then, is right to make a break with the self-delusions of the past and to assert that Russia certainly does not need "more of the same" from the West. But that doesn't mean that Russia does not need help and that the West cannot provide that help. Ignoring Russia would not be any more "realistic" or "pragmatic" than was pretending it is already a free-market democracy. Russia needs assistance that stimulates reform, rather than inhibits it. It needs incentives for pursuing policies that will make it, in Bush's words, "a safe haven" for capital. Most of all, it needs to be judged by its deeds rather than its words. This kind of "realism" would be a welcome change. *******