Russia's economic crisis is primarily triggered by woes in Asia and comes as no surprise to informed observers. It is not insurmountable with world support, but it does jeopardize a fragile and fledgling economic and democratic infrastructure.
The United States and others in the international community should be prepared to provide financial succor to avoid an economic meltdown and a forfeiture of the reforms Russians have gleaned since their abandonment of Communism seven years ago. A collapse would undermine democracy and lead to massive social unrest in an already simmering cauldron. Angry workers are threatening widespread strikes to protest falling incomes.Admittedly, a huge rescue package through the International Monetary Fund or U.S. Treasury is difficult to stomach. Yet outside assistance appears the only way to save the ruble, and saving the ruble must be a priority.
While IMF officials said no bail-out plan is under way, some $4 billion of $10 billion the IMF agreed to loan Russia in 1996 remains undisbursed. Releasing as much of that money as quickly as possible is a prudent starting point. Wisely, IMF officials have recommended quickly freeing up $700 million.
As capital has flowed out of Russia and interest rates skyrocketed, public spending has been slashed, weakening the country's underpinnings. Problems with tax collection have been extreme, leading to President Boris Yeltsin's firing Friday of the country's top tax official, Alexander Pochinek. The gaping gulf between tax revenues and government spending has thwarted economic prosperity.
Russian markets steadied with Yeltsin's efforts, as he and Premier Sergei Kiriyenko conducted an offensive to bolster investors' confidence in the government's ability to cope with the crisis. Their efforts appear to be succeeding short term, but outside support will still be needed for long-term stability.
The root of Russia's problems have been the Asian financial crisis. When markets collapsed there, shaky investors pulled their money from emerging markets. Russia's stock market lost 40 percent of its value the past month. The slowdown of economic activity in Asia drove oil prices down, further depleting tax revenues. Oil is one of Russia's greatest exports. State-owned oil companies have been devalued as well.
All of that comprises three tough strikes against a sapling Russian economy that is still swinging, albeit feebly, with sustenance from the IMF and the United States. There is too much at stake for those and other supporters to pull out now.