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. Last Updated: 07/27/2016

Russia Needs Economic Consensus

Behind the recent blame-mongering over Russia's disastrous 1992 economic performance are warning signs that the country will continue the perilous economic policies that have brought it to the brink of hyperinflation. Current pronouncements to the contrary, it seems that Russia could be in for another year of chaotic economic policy leading to more disappointing economic results.


The first few weeks of 1993 had brought a glimmer of hope. With 1992 inflation ending up at 2, 600 percent, and more than 3. 5 trillion rubles of credits released into the economy in the fourth quarter alone, it looked like all the relevant decision makers understood it was time for a change.


One official after another proclaimed that the government would return to the tight monetary policy it abandoned last year only three months after price liberalization. But then the finger-pointing began.


Much of the fault was laid at the doorstep of the Central Bank's policy of issuing cheap credits to keep the large Soviet-era industries afloat. But Central Bank Chairman Viktor Gerashchenko has thrown the issue back at the government for its overspending and for failing to decide which industries it wants to close.


With the blame flying from one center of power to the other, the only conclusion can be that these centers remain in disagreement over crucial policy directions.


Neither the government, the parliament nor the Central Bank is willing to take responsibility for the unemployment and a further drop in industrial production that will accompany a cut in credits. The government wants the Central Bank to do it, the Central Bank wants the government do it and the parliament, it seems, does not want to do much of anything at all.


Through a combination of stubbornness, cowardice and overarching concern for their political future, officials are acting as though they can effect lasting structural economic change through economic tinkering. But the past year should have taught those in power that tinkering will not work. With the crushing weight of inflation, new businesses cannot get loans, and existing businesses cannot expand. Without unemployment there is no labor market to initiate and staff new, productive Russian businesses.


In Eastern Europe, there is proof of shock therapy's success. Production declines in some countries have abated, and in others GNP is actually on the increase.


Russia's fragile reform program does not have another year to waste on discordant economic policies. It is time to stop the finger-pointing. Consensus on economic policy is an urgent need.