Prediction On Russia’s Constitutional Crisis: Yeltsin Will ‘Survive’ — But Hold The Champagne

Developments in Moscow over the past twenty-four hours should give serious pause to those who propose to give Russia urgent, unconditional aid in the name of "saving" Boris Yeltsin and his "reform" program. The legislative initiatives adopted by the hardline communist-dominated Russian parliament — with the support of the so-called "centrist" Civic Union, the military-industrial complex’s political arm — demonstrate conclusively who is calling the shots. Unfortunately, it is not the democratic, free market-oriented elements with whom President Boris Yeltsin has been associated in the past.

Indeed, the Congress of People’s Deputies today voted down Yeltsin’s compromise program for sharing power. It also approved measures that would strip him of much of his remaining presidential powers, making the President little more than a figurehead. And it torpedoed the referendum scheduled to be held next month that would have put these issues to a popular vote in order to break the legislative gridlock.

With his authority largely eviscerated and the future direction of his nation’s economic and political program firmly in the hands of the Old Guard, Yeltsin may choose to resign or, more likely, take other steps that would challenge the authority of the Congress and the communist-era constitution which gives it whatever legitimacy it enjoys. He may opt, despite the quashing of the referendum, to seek a new mandate for the sort of systemic reform that Russia so clearly needs — and that the legislature’s nomenklatura is determined to prevent.

‘Survival’ At What Price?

Another scenario is much more likely, however, given Yeltsin’s past track-record of backing down in such confrontations. Indeed, the Center for Security Policy expects that he will "survive" the present turmoil in the sense that, at the sufferance of the communist/nationalist majority, he will be allowed to remain in a much diminished office.

At the very least, this marriage of convenience — whereby Yeltsin’s continued presence in the Russian government provides a patina of international respectability to the Kremlin as it reverts to form — will probably be in effect through the period of three crucial meetings: the Clinton-Yeltsin summit in Vancouver on 3-4 April; an emergency meeting of the G-7 endorsed on Monday by President Clinton; and the Tokyo economic summit in July 1993.

Western friends of reform in Russia should be under no illusion: The rationale for such an arrangement is not that it will ultimately produce the transformation of political and economic affairs in the former Soviet Union — only on a more gradual, less tumultuous pace than originally envisioned by Yeltsin and his first administration led by Yegor Gaidar. Rather, the object will be to see how much financial, energy, technological and other assistance can be garnered from the West without effecting fundamental restructuring.

‘Fool Me Once…’

Of course, this gambit was used to great effect when it was employed under Mikhail Gorbachev’s regime. For example, some $50 billion in Western loans were obtained from Western governments over just five years — an onerous legacy that has done much to compound the difficulties inherent in adopting, following Gorbachev’s downfall, fundamental market principles and swift economic revitalization.

Tragically, the West seems poised to repeat the strategic error it made during that period: namely, focussing narrowly on the individual Russian political personality perceived to be most closely identified with reforms and throwing taxpayer-underwritten credit guarantees and other loans at him to ensure his "success" — even as his "success" on the one hand and the accomplishment of reforms on the other become increasingly incompatible. After all, this is the moment the Clinton Administration, some Members of Congress, distinguished public figures in this country (like former President Richard Nixon) and foreign leaders (e.g., French President François Mitterand and German Chancellor Helmut Kohl) have chosen to call for vast new sums to be provided urgently to "help" Yeltsin.

Worst of all, as the Gorbachev experience illustrated, the effect of this sort of blind embrace of a Kremlin "reformer" may actually serve to retard the pace of democratic and free market transformation of the old Soviet Union. For example, the Bush Administration’s insistence on sticking with Gorbachev contributed to its missing the window of opportunity to help Boris Yeltsin while he was genuinely engaged in reform. Had substantial, multi-year debt-relief (and even selective forgiveness) been provided early in 1992 — as the Center for Security Policy consistently urged(1) — it might well have made economic revitalization and political success achievable for those who correctly advocated "shock therapy."

If billions in new U.S. and Western taxpayer-guaranteed lending and other so-called "innovative" aid approaches now being prepared by the Clinton Administration(2) go forward now — the effect could be catastrophic: The beneficiaries will almost certainly be those who are dominating Kremlin politics today. Whether it encourages Yeltsin’s continuation in a figurehead status or not, such aid will do little to advance the prospects for real and swift structural reform.

A case in point is the $2-5 billion U.S. Export-Import Bank loan to the Russian energy sector now being hastily finalized in anticipation of upcoming the Clinton-Yeltsin summit. As PlanEcon’s senior economist, Matthew J. Sagers warned in a 4 March Journal of Commerce article, much of Russia’s annual energy income is being passed on to other failing industries in the form of subsidies that fuel inflation and frustrate reform.

The Bottom Line

The Center for Security Policy continues to believe that only disciplined, transparent and conditioned aid — tied to demonstrated progress, not to personalities — will actually promote needed reforms in the former Soviet Union. It shares the concerns eloquently expressed last week by House Banking Committee Chairman Henry Gonzalez (D-TX) to the effect that absent such transparency and discipline, we will wind up repeating serious mistakes made with taxpayer resources in past aid to both Baghdad and Moscow. These include describing as "loans" to sovereign borrowers what is, in effect, nothing more than grant aid.

Advocates of unconditional, urgent aid to Yeltsin often contend that, unless the United States is prepared to spend billions now, it will be obliged to spend trillions in the future as reform fails and U.S.-Russian relations are once again characterized by mortal hostility. Unfortunately, there is one outcome that could be even worse: spending many billions now and then having to spend trillions, in part to offset the damage done as the first billions help to resuscitate the threat the trillions will be needed to defend against.

Consequently, the Center recommends that the United States proceed now with clarity of purpose, prudence and determination. Help should be provided to those demonstrably committed to build and protect genuine democratic and free market institutions in the former Soviet Union. This cannot be done by throwing money at the problem or by simply turning discretion over such funds expenditure over to a Boris Yeltsin. It can only be achieved through firm conditionality and discipline and complete transparency — both with respect to the respective uses of American and Western largesse and with respect to the taxpayers who will be the source of such funds.

In this connection, two related policies should be adopted. First, the United States should not be party to European (especially French and German) efforts to coerce Japan to abandon its own, principled and conditioned position on providing aid to Russia. An emergency G-7 meeting that has the effect of supplanting Japanese leadership of the Group of Seven prior to the Tokyo summit — and that will likely be used as a forum for demanding that Japan abandon its position on the Northern Territories — will serve neither the long-term interests of the Russian people nor those of the industrialized world.

Second, the Center strongly disagrees with the notion that the job of dismantling the Soviet Union’s military-industrial complex will be advanced by facilitating its efforts to market hardware to customers outside the former Soviet bloc. An attached column by Center director Frank J. Gaffney, Jr. which appeared this week in Defense News elaborates on the arguments against this proposal.

– 30 –

1. See, for example, the following Center Decision Briefs: How Not to Screw Up Aid to the Former USSR; Robinson Advocates Conditionality and Debt Relief, (9 January 1992, No. 92-P 04); ‘Breathing Space’ for a Democratic Russia: Bush Should Offer Debt Relief/Forgiveness, (31 January 1992, No. 92-D15); and Russian Debt Relief Train Leaving the Station; Will the Bush Administration Get on Board? (4 February 1992, No. 92-D 16).

2. See in this connection the Center’s Decision Brief entitled Rep. Gonzalez Breaks the Code on on ‘A Tale of Two Cities’: Will Clinton Repeat Bush-Baker’s Financial Malfeasance?, (9 March 1993, No. 93-D 18)