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>From Eero Carroll <[log in to unmask]>
>
>Somewhat off-purpose to the list, would like to concur with Gene Shackman's
>excellent points that assessing government program impacts on poverty
>depends on at least a) how one measures poverty, b) what government
>programs one includes in the assessment, and c) the assumptions one has on
>how the two may be related, and what happens in the absence of a program.
Greetings!
Though a teaspoon may be used for poverty aleviation, we tend to
welcome it. However, flawed assumptions may be inundating the world
with barrels of poverty that can even overwhelm fortress America too.
The news below has just come out on the Internet, and it is a large
case study that will come to be taken up in reappraising public policy
considerations. The paradigm called for the attention of the President
of the World Bank when he made a presentation on October 10th.
In July 1992 I had sent 3000 words to the Chief Economist of the World
Bank, Harvard's Lawrence Summers, to warn that flawed assumptions would
turn Russian reforms into catastrophe. There was little omniscence
involved; I had lived in the country and saw that enterprises were
controlled by a central planning organization (even text books said
that.) Besides, Sergei Khruschev (the son) wrote from Browns University
to the Washington Post in August 1992 to say the same thing. So there
as overt evidence to show that if a system of commercial law was not
quickly developed, a sudden privatization of thousands of enterprises
could not be sustained by a new, unprepared market.
Below comes the recent text and it concerns the unecessary creation
of poverty. Russian army officers and men have not been paid for months
while nukes are getting loose.
I not only alerted but I also made a suggestion in 1992 of the Henry
Carey model that President Lincoln used to create the American economic
miracle of 1861-76. A similar system was used by Count de Witte in Russia
though Jacob Schiff (Kuhn & Lobe and clansman of first FED chief Paul
Warburg) provided the NY-exiled Trotsky with $10 million and 300 Russian
subversives to unseat Nicholas and Alexandra which led to a putsch
(October Revolution) in 1917, Communism, and the long arms race which
the tax payer paid for.
On the other hand Japan after WW2 was positively encouraged to use an
analogue of the Carey model and that is what the Belgian economics
professor below suggested on time.
Good reading,
:-- - -- -- -- ----:
wendell w. solomons
management research
:-- - -- -- -- ----:
Date: Tue, 16 Feb 1999
Subj: THE IMF AND RUSSIA -- WHO PAYS THE PIPER CALLS THE TUNE
By John Helmer
--------------
John Helmer received a PhD in Sociology at Harvard University, and
served as a bureau chief in the US Office of Management and Budget
during the Carter Administration. He has lived in Moscow since 1989,
where he is the Russia Correspondent for The Journal of Commerce of
New York.
--------------
The decisions that were made by the Russian government and the International
Monetary Fund (IMF) during 1993 were decisive in transforming the rouble
from a central to a marginal role in the country's economic policy. In that
year, the rouble went from being an instrument that integrated production and
credit facilities of the former Soviet Union, to being an appendage of the
dollar and inducement to massive capital flight.
This is the story of what happened.
President Boris Yeltsin's success in demolishing the Congress of People's
Deputies and holding elections to a new parliament were rewarded with a
$1.5 billion loan -- money which Fund officials said, just before Yeltsin
dismissed parliament on September 21, they didn't want to hand over
(see Author's Note).
The loan decision by the IMF was complicated by a policy division over Russia
inside the world organization. That was a split between those who made a
highly political alliance with a faction of monetarists in the Russian
government; and those who thought this alliance, and the economic policy
that came out of it, were grave mistakes for both Russia and the IMF. When the
tanks opened fire on the Russian parliament building on October 4, they
blew away, not only the Russian opposition to Yeltsin, but the opposition
within the IMF to radical monetarism. The Russian opposition revived quite
quickly, but at the IMF the argument over Russia's policy course was
over.
The most persuasive evidence to explain that is not the ideological
record of the argument, but the political and financial interests --
the personal financial interests -- that drove a group of US advisors,
economists and government officials to promote an alliance of Russian and
IMF officials. Under the auspices of the IMF, and in the name of monetary and
fiscal orthodoxy, their goal -- they explained in confidential memoranda at
the time -- was to put Russia's internationally competitive industries into
bankruptcy, and sever Russia's economic links with the former Soviet
republics.
That group was headed by Jeffrey Sachs. It included his business partner,
David Lipton, who moved into a senior post in the US Treasury early in 1993.
George Soros participated in the group's lobbying of the IMF. He also
benefitted from the asset transfers that were set in motion by the IMF
policy that year. Janine Wedel and Anne Williamson have written at length
about the activities of this group (Wedel: June 1998; Wedel 1998; Williamson
1998).
Individually and corporately, the proceeds of their Russian policy made them
all very rich.
But in 1993 they were opposed by Jakues de Groote, the most senior director
on the IMF board. He drew fire for privately circulating a memorandum in
which he questioned whether the Fund was being used by "certain intelligence
circles and by some Western media", to promote the objective that "any
weakness of Russia is advantageous for the West" (De Groote 1993).
IMF staff admitted that de Groote fell under investigation for embarrassing
leaks from an IMF board meeting at which he blocked a move by the
Russian director, Konstantin Kagalovskiy. The Russian, egged on by the
Sachs-Lipton group, tried to block an IMF loan for Kazakhstan until
the republic left the rouble zone.
In Washington, as Russian finance officials attended the annual general
meeting of the IMF and World Bank, IMF officials predicted that support
for the rouble through the current political crisis is likely to exhaust
the Russian Central Bank's current reserves, estimated at about $2 billion.
[...]
Exactly what the West wants, or should want, from the Russian government
was the subject of an extraordinary memorandum circulated privately within
the IMF, and to Western European governments, in the summer of 1993, before
the Russian political crisis came to a head (De Groote 1993).
This was written by de Groote, the executive director representing the
fourth most powerful bloc of IMF member states, including several Western
and Eastern European countries, Turkey, Kazakhstan, and Belarus. A professor
of economics in his native Belgium, de Groote had been on the IMF board for
longer than anyone else at the time.
In his memorandum, he recommended against policies "copied from the
stereotyped image of the US economy held by some economists", and criticized
the Russian government for following American advisors "marked by the
ideological bias of the Reaganite school".
Sachs and Lipton are not mentioned by name, but they were de Groote's
intended American targets. During negotiations between the IMF and the
Russian government, the Sachs group had been paid to serve as advisors to
the Russian side. They played both sides, writing secret memoranda advising
the IMF negotiators as well (Author's Note).
Exactly who paid for Sachs and a team of half a dozen assistants was not
clear. A senior Russian official involved in the IMF negotiations said the
Russian government was not paying, but he didn't know who was. IMF officials
said they weren't sure either. There was speculation that at one time Soros
paid the bill. Others rumoured to be paying for Sachs's advice to Russia
include foundations from Scandinavia and Japan. Queries to Sachs on this
point went unanswered.
The IMF official argued that post-war Japan, South Korea and other Asian
economic development provided a better example for Russia, suggesting that
the government in Moscow should "develop its own approach, based on its own
national characteristics and taking account of the ways in which the
European and Far Eastern models seem to fit the Russian situation better
than the US model."
He described Anatoly Chubais's voucher privatization scheme as a "botched
attempt", and Gaidar's liberalization of prices as "premature and misguided."
[...]
To make this acceptable to the IMF, de Groote recommended "a reform of tax
collection methods and by restoring the satisfactory level of enterprise
activity needed to generate the required amount of fiscal revenue."
He also advised Russian negotiators that putting a new priority on restoring
production and recovering administrative control over the economy would
achieve IMF targets for the economy more effectively than the government's
current policies.
"It is one of the most crucial but paradoxical aspects of Russia's relations
with the Fund, that certain policies, which are traditionally viewed as
contradicting Fund objectives... are in reality necessary for the
achievement of those very objectives."
[...]
But by the time that was obvious to everyone, the government in Moscow was
engaged in its decisive battle with the Russian parliament. Yeltsin's decree
dismissing the Congress of People's Deputies, and the first deployment of
troops around the parliament building diverted attention from what had been
done to save the rouble zone from those Russian ministers who wanted to
destroy it.
The approach recommended from Washington by de Groote had prevailed in
Moscow. But not for long.
Ten days later, the White House was destroyed, the principal opposition
leaders arrested, and a presidential decree proscribed 18 organizations and
13 newspapers -- the most vocal of the so-called nationalist-communist
alliance.
This alliance had had virtually no impact on all that had transpired between
the IMF and the Russian government. The most rabid of the newspapers liked
to lump the IMF, Soros, Sachs, and the Clinton Administration into a single
conspiracy of international capital with a Zionist mastermind. Those in the
Russian parliament who took a non-Semitic version of the conspiracy idea
seriously chose not to press the government on the details of the IMF
negotiations.
Instead, they left them for Gerashchenko -- their ally, the deputies thought
-- to handle at the Central Bank.
Not once did the Supreme Soviet or the Congress of People's Deputies hold a
debate, or cast a vote on the terms which government ministers were signing
with the IMF. The Speaker, Ruslan Khasbulatov, an economist himself advised
by Professor Anatoliy Milyukov, an international banking specialist, never
complained at the government's reluctance to disclose the texts of the IMF
agreements.
The real battle was waged inside the Russian government, and inside the IMF
itself. It has taken five years before this revived on the Russian side. But
the events of 1993 eliminated all traces of opposition within the IMF.
[end of John Helmer text]
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