Re: The Next IMF Loan to Russia
Dear Keith: I heartily endorse your analysis and I would like to point out that this may actually become a trend/direction in the future - to actually redistribute money from the highest level to the lowest level - to create a circularity of energy. Leaving aside all the excesses and stupidities of our current governments, the crisis in Russia, Indonesia, South Korea and the other trashed economies would respond almost immediately to grants given to people. There is no other method of aid that has the same probability of instant success as the infusion of a large amount of "good" money to the poorest. In many cases, this need only be a one time grant because a certain amount of that new money infusion will stay circulating among the poor while a certain amount will start making it's way into corporate and government coffers, allowing them to have an income source so they can start re-planning their own survival. This would avert the worst effects of the coming suffering of millions of people this winter and allow the poor to plan ahead for the spring in some measure other than the most immediate survival needs. At it's crudest form, I could envision long lines of people - similar to an Army pay parade in which individuals lined to receive an outright grant of $100 US per person or it's equivalent in local currency. Once this money, however unevenly distributed enters the economy of real goods and services, it will act like a blood transfusion to a dying person, alleviating shock, allowing the body to recover quicker without having to use up it's already reduced reserves trying to create a surplus for trade. (sloppy metaphor, but it's 5:30 in the morning) If you do some math on this, 1 billion dollars would give 10 million people a $100. Therefore, 10 billion would give a 100 million people income. If Russia and Indonesia were each supported in this way, 20 billion dollars of direct aid would probably kick start both these economies. We have already given more than this to both countries (I think) with little or no effect except to protect Western Investors. Respectfully, Thomas Lunde -Original Message- From: Keith Hudson [EMAIL PROTECTED] To: [EMAIL PROTECTED] [EMAIL PROTECTED] Date: September 20, 1998 5:25 AM Subject: The next IMF loan to Russia It seems certain that, even if only for humanitarian reasons, the IMF will have to give a further tranche of money to Russia -- and pretty soon, too. However, no coherent policy has emerged from Primakov so far. If such a policy does emerge in the next week or two, which is unlikely, it is highly questionable whether it would be practicable and, indeed, whether the IMF could realistically appraise it. The two immediate dangers facing Russia are that: (a) Primakov is unable to form a government of ministers with the economic insight and courage to force through necessary changes; (b) the next tranche would be as completely wasted as before. It seems to me that the next tranche from the IMF should be based on one simple principle: It should be applied to the lowest possible level, in order to short-circuit the multiple layers of corruption, administrative and private. The only practical method of doing this is to lend it to the Regional Governors in proportion to their populations. In the first instance this would only be a percentage game, of course and a great deal of the money would undoubtedly be wasted. Some would be lost completely, some would be partially wasted, but some regional loans might find their way more directly to the population, improve local services and, with simultaneous regional de-regulation for small and medium business, stimulate enterprise. I suggest that there should be only one condition for the loans. This is that a small team of IMF observers should be based in every region in order to record the effect of the loan on price levels and public services. This would necessarily be a rough-and-ready estimate in the first instance, but the benefits (or non-benefits) of a loan in any particular region would be pretty quickly apparent. Further regional loans would then be given according to the effectiveness of the first one -- some regions, one would guess, not receiving any further help at all. Of course, this strategy would be interpreted as political interference in the internal affairs of Russia leading, as it would, to further administrative independence of the regions. This I see as inevitable anyway, but perhaps, as a sweetener, a proportion of the overall loan could be applied to the central government. However, once the conditions of the proposed loan were known to the regions, it would be politically impossible for the central government to resist. Such a strategy would also meet with objections from Western statesmen because it would appear to undermine the integrity of Russian nation-statehood -- and thus, by implication, their own amour propre -- and also weaken the central control
The next IMF loan to Russia
It seems certain that, even if only for humanitarian reasons, the IMF will have to give a further tranche of money to Russia -- and pretty soon, too. However, no coherent policy has emerged from Primakov so far. If such a policy does emerge in the next week or two, which is unlikely, it is highly questionable whether it would be practicable and, indeed, whether the IMF could realistically appraise it. The two immediate dangers facing Russia are that: (a) Primakov is unable to form a government of ministers with the economic insight and courage to force through necessary changes; (b) the next tranche would be as completely wasted as before. It seems to me that the next tranche from the IMF should be based on one simple principle: It should be applied to the lowest possible level, in order to short-circuit the multiple layers of corruption, administrative and private. The only practical method of doing this is to lend it to the Regional Governors in proportion to their populations. In the first instance this would only be a percentage game, of course and a great deal of the money would undoubtedly be wasted. Some would be lost completely, some would be partially wasted, but some regional loans might find their way more directly to the population, improve local services and, with simultaneous regional de-regulation for small and medium business, stimulate enterprise. I suggest that there should be only one condition for the loans. This is that a small team of IMF observers should be based in every region in order to record the effect of the loan on price levels and public services. This would necessarily be a rough-and-ready estimate in the first instance, but the benefits (or non-benefits) of a loan in any particular region would be pretty quickly apparent. Further regional loans would then be given according to the effectiveness of the first one -- some regions, one would guess, not receiving any further help at all. Of course, this strategy would be interpreted as political interference in the internal affairs of Russia leading, as it would, to further administrative independence of the regions. This I see as inevitable anyway, but perhaps, as a sweetener, a proportion of the overall loan could be applied to the central government. However, once the conditions of the proposed loan were known to the regions, it would be politically impossible for the central government to resist. Such a strategy would also meet with objections from Western statesmen because it would appear to undermine the integrity of Russian nation-statehood -- and thus, by implication, their own amour propre -- and also weaken the central control of Russian nuclear weapons. Both of these are deeply serious considerations, of course, and I wouldn't wish to downplay them. But I cannot see any possible IMF policy that would do any good other than the one I suggest above. The IMF has only one more opportunity to help Russia. Subsequent strategies will not be those of statesmen, world bankers, and small cliques of economists, as they have been hitherto, but of the electorates of the Western world. The power of this opinion is already being expressed by Republican Senators in Washington and it is already obvious, too, that European countries will be disinclined to contribute much more, if at all, to the IMF. If the next centralised loan to Russia is seen to be totally wasted, as the last one was, public opinion will simply -- but very powerfully -- say: "No more", and the IMF will become a political and financial invalid. In reality, being pretty close to bankruptcy already, the IMF will have nothing more to disperse in the coming months and years, whether to Russia, South-East Asia or to Latin America. Keith ___ Keith Hudson,6 Upper Camden Place, Bath BA1 5HX, England Tel:01225 312622/444881; Fax:01225 447727; E-mail:[EMAIL PROTECTED]
