Time - Man of the Year/Time_Man_of_the_Year_Compact_Publishing_3YX-Disc-1_Compact_Publishing_1993.iso/moy/032392/0323003.000

Text File | 1992-10-19 | 6KB | 122 lines

                                                                                WORLD, Page 35

AMERICA ABROAD

Underwriting Peace in Russia


By Strobe Talbott


    How to rescue the people of the former Soviet Union from
the economic abyss? It is a question of money, obviously, but
not of how much we should give them. The most important task is
to help them develop real money of their own.

    In a normal country, currency is more than just a medium
of exchange between a buyer and a seller: a dollar bill or a
thousand-yen note is a contract between the individual and the
state. The citizen does his part by producing and consuming,
while the government ensures what economists call a stable
standard of value -- a sound currency -- for the transactions
of life.

    Money must be versatile. It can be used to purchase goods
and services at rates determined by the laws of supply and
demand. Or it can be saved for moments of need or retirement.
Or it can be converted into the currency of other countries. In
this way, money both reinforces national identity and
stimulates international commerce.

    The Soviet Union, however, was a very abnormal country.
Genuine money did not exist. Instead, the state issued little
pieces of paper like scrip redeemable only at the company store,
or like the play money used in Monopoly, with the Kremlin
making all the rules. Those rules had nothing to do with basic
economics. What was in supply had little to do with what was in
demand, and prices had little to do with the cost of production.
Too many rubles chased too few goods, and too many citizens
spent too much time in lines.

    The social compact was a joke: "We pretend to work; they
pretend to pay us." As for savings, which are an economic
statement of faith in the future, what was the point? To have
more rubles with which to scour empty shelves or to stuff under
the mattress? But there was also no point in complaining. The
Ministry of Finance was, like everything else, subordinated to
the Ministry of Fear. The ruble, quite simply, was the monetary
manifestation of totalitarianism.

    Moreover, while the ruble was nearly worthless at home, it
was totally without value abroad. No banker or investor wanted
to hold an artificial, or "soft," currency. The ruble was an
impediment to foreign trade and contributed to the isolation of
the U.S.S.R.

    Then came Gorbachev, glasnost, democratization and their
natural consequence: the collapse of the Soviet state. We in the
West have tended to underestimate the economic factor in the
breakup of the U.S.S.R. We saw Balts, Georgians and Ukrainians
venting their hatred of Russia and wrenching free of those
notorious Russian-dominated institutions of repression -- the
Communist Party, the KGB, the Soviet army.

    But the secessionists also wanted to escape the tyranny of
the ruble. So did many Russians. In 1990 I paid an eye-opening
visit to the Pacific port of Vladivostok. The population there
is overwhelmingly Russian, yet the local leaders were almost as
eager to break with Moscow as the most fire-breathing
nationalists in Lithuania and Georgia. I got the feeling that
the city fathers of Vladivostok would have happily annexed their
fair city and, better yet, the entire Maritime province of the
U.S.S.R. to South Korea or Japan -- if they could only turn in
their rubles for won or yen.

    The U.S.S.R. is gone, but the funny money remains in
circulation. Having fueled the disintegration of the union, the
ruble now makes a mockery of the Commonwealth of Independent
States. How can a cluster of states that have the weak ruble in
common be considered either wealthy or independent?

    The ruble threatens the survival of Russia itself. Muslim
enclaves have economic as well as tribal and religious
incentives to head for the exits. So do my old friends in
Vladivostok. Russia may break into a dozen or more parts,
reverting to the medieval politics of the city-state. The
chances of that arrangement being peaceful are slim. The
atomization of the former Soviet Union is bad not just for the
people who live there but for the rest of the world too.

    To become a viable, modern state, Russia must transform
the ruble into a convertible currency. The major industrialized
nations should back the International Monetary Fund in setting
up what is known in the jargon of the dismal science as a
currency-stabilization fund. This would be a pool of hard
currency that would guarantee the exchange rate of the ruble at
a steady, uniform and realistic level so that it is useful in
both internal and external markets.

    If such a mechanism had been introduced in the former
Soviet Union, say, in January, when prices soared 350%, millions
of citizens would have lined up to unload their rubles in favor
of dollars or deutsche marks. For a stabilization fund to work,
it should be like an insurance policy that provides peace of
mind but is never cashed in, or like the gold in Fort Knox that
used to back the dollar.

    It can be done. For all its troubles, Poland has made the
transition to a convertible currency without having to draw on
the hard-currency reserves set aside in a special account by the
West.

    Last week the IMF endorsed the idea of a stabilization
fund for Russia, and President Bush indicated for the first
time that the U.S. may contribute. The more Moscow does to
reduce deficit spending and control inflation, the more money
the West and Japan should put into the fund, and the greater the
chance of peace in the heart of Eurasia.