Gorbachev Balk On Reform Forces Choice On West: Endorse Freedom Or Renewed Authoritarianism?

Soviet President Mikhail Gorbachev yesterday threw down the gauntlet to his opponents in the Soviet Union bent on genuine, urgent structural economic and political reforms: He announced that "in some places, we may have to introduce and impose [presidential rule]" and "halt the activity of all institutions, including elected ones." Toward this end, Gorbachev sought, in the words of the Washington Post "extensive new powers to rule by decree during the coming months" (emphasis added), ostensibly in order to ease the transition to a market economy.

In fact, Gorbachev has already given an unmistakable signal that he is determined not to "ease" the transition to a market economy but to delay — if not forestall — it. On 17 September 1990, the Soviet President announced that he would seek a "national referendum" on the centerpiece of any such transition: the permissibility of private land holdings. In so doing, he threw a major roadblock in the implementation at the national level of a 500-day economic reform program named after Stanislav Shatalin, one of his own economic advisors, but largely drafted by economists close to Boris Yeltsin, President of the Russian Republic.

As Roger W. Robinson, Jr., former chief economist at the National Security Council and member of the Center’s Board of Advisors, noted the next day on CNN’s World Day, "If there is any significant delay in the implementation of the 500-day plan as envisioned by Shatalin, himself, we will likely see a showdown between Moscow central authorities and the individual republics and localities."

Even as he strives to portray himself as a supporter of the Shatalin plan, Gorbachev has indicated that he also opposes another of its key elements — the devolution of economic decision-making from the central authorities to the republics. At particular issue is the Kremlin’s taxing authority: Will Moscow center retain its ability to skim off from the republics those revenues essential to maintaining the USSR’s bloated military sector, its overseas empire and its technology theft and espionage activities (both of which are on the rise)?

Or will the reform-minded, popularly elected local- and republic-level governments have discretion over their resources (including oil, gas, gold and diamonds) and revenues? It would seem — if Gorbachev’s economic agenda, purportedly leading to a less militarized, more inward-looking Soviet Union, is real — that the central government would have far more modest spending requirements and less trepidation about a devolution of this kind.

And yet, Gorbachev has clearly indicated his intentions: If he has his way, the central authorities will retain control over critical economic and political decision-making — evidently by presidential decree and possibly force of arms, if necessary. The The question now for Western governments, investors and taxpayers must be: Will Gorbachev be able to continue to rely on their help, as he has thus far?

Given recent decisions by the European Community in the midst of these signs of the Soviet leadership’s backsliding on reform, Gorbachev may believe that he can secure undisruptedeven if he engages in a recentralization of power. Within the past week, for example, the EC has reportedly decided to create a $5 billion currency stabilization facility for the USSR and has preliminarily decided upon a multi-billion dollar balance of payments support package for each of the next several years — despite Gorbachev’s balk on reform. While this outcome of the EC deliberations on aid to Moscow comes as no surprise, it does illustrate just how politically "wired" the Community’s initiative has been from the start. access to the West’s economic, financial and technological assistance

A far more important test of the where the West’s loyalties lie with respect to genuine, radical reform in the USSR will occur next week at the annual meetings of the International Monetary Fund/World Bank in Washington (25-27 September). The IMF-led study commissioned last July by the Houston economic summitteers was originally intended (at least by the United States, Great Britain and Japan) to serve as a more analytically rigorous assessment of the wisdom of providing taxpayer-guaranteed assistance to the USSR at this time — a hedge against precipitous aid flows already initiated by Germany, Italy, and others.

In the intervening period, however, the United States government has evidently decided to reward Moscow for what is described as its "superb cooperation" in the Persian Gulf. One manifestation of this new (and unjustified) attitude evidently is a decision to be far more forthcoming on the question of Western aid to the Soviet Union. In part as a result of that sea-change in American thinking, the Soviets were granted "special" (read de facto observer) status at the Washington IMF/World Bank meetings.

The Center for Security Policy is concerned that the IMF and World Bank are being pressured into departing from their traditional, rigorous economic and financial analysis in order to produce, in response to the Houston summit’s mandate, results like those of the EC study. Were they to adopt similarly pre-cooked and politically motivated recommendations — designed to catalyze accelerated and expanded Western assistance resource flows to Moscow — these institutions would risk serious, lasting damage to hard-earned reputations for unflinching honesty. Worse yet, they would be setting the stage for massive new and unjustifiable liabilities for U.S. and allied taxpayers.

The Center believes that the need to avoid such pitfalls — and to ensure that the West does not wind up on the wrong side of the historic choice now taking shape in the USSR — requires the leaders of the IMF and World Bank, Michel Camdessus and Barber Conable respectively, to clarify at once their views on the following:

• How concerned are they about Gorbachev’s national referendum ploy and his efforts to dilute the program for genuine economic reform?

 

• How such developments will be factored into the IMF-led study’s findings?

 

• Will that study, unlike that conducted by the EC, be the product of an honest, open and rigorous analytical process?

 

• Do their institutions regard full economic and financial data disclosure (regarding, for example, Moscow’s remaining strategic gold reserves) as essential to any informed assessments of the advisability of Western economic and financial assistance to the USSR — and will they demand that such data be provided by the Soviet Union by year-end?

In the absence of such clarifications, the Soviet observers at next week’s meetings may conclude that these organizations, like the European Community, are determined to conduct business as usual with Moscow — irrespective of the progress toward systemic reform and without regard for Gorbachev’s efforts to tamp down political and economic devolution so clearly in the interest of both the people of the Soviet Union and the West.

The Center also believes that it would be utterly inappropriate for the United States to consider granting the Soviet Union access to the resources of its Export-Import Bank, Commodity Credit Corporation and Overseas Private Investment Corporation prior to the completion of a rigorous IMF assessment of the advisability of such assistance , not to mention the codification of Soviet pledges on emigration and satisfaction of other preconditions set by the Bush Administration at the Houston Summit.

"Were the Bush Administration to proceed with a policy of exposing American taxpayers to vast new liabilities to Moscow without first establishing the economic and financial risks inherent in doing so, it would be making an epic fiscal — as well as political — miscalculation," said Frank J. Gaffney, Jr., the Center’s director. "Even if one set aside the real danger entailed in further aligning the United States with the wrong side in the Soviet Union, the risks inherent in such a policy approach would give new meaning to what we call the impending ‘Red Bear S&L’ crisis."