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. Last Updated: 07/27/2016

Spend on Infrastructure, Not Debts

The consensus seems to be that RussiaТs economy will keep on growing. The IMF World Economic Outlook Ч a twice-yearly report on planetary prospects Ч came out two weeks ago and forecasts GDP growth of 7 percent this year. The Russian government is aiming for a less optimistic 6 percent. Both Moscow and Washington agree growth will slow to 4 percent in 2001 while inflation will also ease up, from about 20 percent this year to about 12 percent in 2001. "The Russian economy is continuing its rapid recovery from the financial crisis of 1998," the IMF report says.

The State Duma has accepted that 4 percent prediction for 2001 by tentatively approving a budget that assumes as much. Meanwhile, world prices for oil and gas Ч RussiaТs No. 1 currency for foreign trade Ч continue to remain comfortably high.

So is now the time to be bullish on Russia and the KremlinТs energetic new young managers?

Not so fast, says Charles Frank, first deputy president of the European Bank for Reconstruction and Development. The EBRD, Frank told HarvardТs Russian-American Investment Forum this weekend, does not believe the government deserves any glory. Instead, credit for the economic revival, such as it is, should go to "high oil prices, a quite significant devaluation of the ruble and to the tenacity of the Russian people."

The EBRD is right: The economy remains a puppet of oil prices. If oil should fall, then expect wage arrears again. On the happier side, falling oil might lead to a renunciation of the war in Chechnya Ч which grinds on at horrific human cost Ч as too financially expensive a post-election luxury.

But what really worries Frank Ч and us Ч is that there has been, and continues to be, no real investment in infrastructure, whether it be the roads, the military, the schools or the transport system. In remarks reported (in Russian) by the AK&M financial news agency, Frank warned conference attendees that "the sinking of the nuclear submarine Kursk and the fire at the Moscow television tower have highlighted the crumbling state of RussiaТs physical infrastructure." (He might have added MondayТs fire in the Moscow metro to his list).

"A decade of improperly addressed investments, of disdain for maintenance and repair, and of the foolish waste of enormous natural and human resources has led to an aging of infrastructure that has diminished effectiveness."

This is exactly the sort of economic national security we would like to see the nationТs leaders acting to protect. It is also something the IMF and World Bank could help with Ч by agreeing to write off debts on the condition that the money freed up would be invested in public infrastructure.

The 2001 budget earmarks about a fourth of revenues Ч $11.3 billion Ч to pay off foreign creditors. But if one accepts FrankТs analysis that the Т90s were a decade of foolish and wasteful investment, shouldnТt those who helped direct investment policy all along Ч the IMF and the World Bank Ч share the pain? Or is that burden forever to be shouldered by "the tenacious Russian people," who continue to pay the Fund and Bank back Ч with interest Ч for their mistakes?