…CONFIDENCE, NOT STRUCTURE, AT THE HEART OF THE PROBLEM.

The crisis is one of confidence. Russian government spokesmen insist that there are no structural reasons for the crisis and point out that the basic principles of national economic policy remain unchanged. Last year, the economy showed its first signs of growth since the reforms began. Optimism was undermined, however, by the general crisis of confidence in emerging markets worldwide that began in Asia last fall. Investors were further shaken by President Yeltsin’s March decision to sack the experienced government of Viktor Chernomyrdin and Anatoly Chubais and replace it with an inexperienced team led by Sergei Kirienko. The budget cuts that Yeltsin announced two days ago did little to restore confidence, since the problem is not the size of Russia’s budget deficit but the fact that it is bigger than the government’s proven ability to raise revenue. Moscow’s failure to collect taxes is legendary and is in turn a symptom of Russia’s real, underlying problem: weak government.

The government is hoping that the IMF will quickly decide to release the latest tranche of its US$10 billion loan to Russia. Moscow also wants the IMF and leading western governments to consider a special “fighting fund” of between ten and fifteen billion dollars to support the ruble. (Ekho Moskvy, May 27) The IMF welcomed yesterday’s decision to raise interest rates and announced that a senior IMF official, John Odling-Smee, would stop off in Moscow today on his way from Bishkek to Washington.

NEW AGREEMENT BARELY SCRATCHES NUCLEAR WASTE PROBLEM.