Ex-Soviet Republics Join World Banking CommunityBy Steven Mufson
The Washington Post
Russia and twelve other former Soviet republics Monday won membership in the International Monetary Fund and the World Bank, opening the way for tens of billions of dollars of Western aid to help resuscitate economies crippled by seven decades of communism.
"Today, we witness a far-reaching turning point in the history of the IMF and the World Bank," Treasury Secretary Nicholas F. Brady said.
He said entry of the former Soviet republics meant that the international financial organizations "can for the first time be described as truly global."
As full members, the former republics could receive more than $6.5 billion in IMF and World Bank loans during the next 12 months. Reaching agreement with the IMF on economic reform is also a prerequisite for unlocking billions of dollars of additional aid already pledged by Western nations.
When the IMF and World Bank were founded in 1946, the Soviet Union spurned an invitation to join. Forty-six years later, Western leaders hope the two institutions will help spearhead the transformation of the republics into free market-style nations on a more stable economic and political footing.
Two remaining republics of the former Soviet Union -- Turkmenistan and Azerbaijan -- hope to gain admission to the World Bank next month. Turkmenistan was admitted to the IMF, but a vote on Azerbaijan's membership to the fund was postponed until May because the republic had not finished the paperwork required.
The admission of the former Soviet republics Monday marked the end of a decades-long ideological struggle over the best means of running a modern economy. It also marked the beginning of the toughest challenge ever for the IMF and World Bank, which not only lend funds to countries needing help but, in the case of the fund, also encourage, and often require, economic discipline.
As the "sad experience of our country has shown to us very clearly, it is very easy to destroy the mechanism of private property, market, democracy; it is terribly difficult to rebuild them," Yegor Gaidar, deputy prime minister of Russia and architect of its radical economic reform program, said in a speech to the U.S. Chamber of Commerce Monday.
Speaking in fluent English, he added that Russia "had no other choice than to put all of our eggs in a basket and to concentrate on the most fargoing, most radical economic reforms."
Gaidar mapped out an ambitious schedule, saying he hoped an IMF program would be negotiated during May and that anyone would be able to freely exchange the Russian currency, the ruble, for foreign currencies after July 1. Convertibility is important for foreign companies interested in investing in the former Soviet republics and for companies there that are making goods for export.
The Russian economist said that his government would raise oil prices to world market levels in two weeks and already was privatizing some state-owned small businesses. He said the government would withhold money to municipalities that were not selling state-owned businesses.
Gaidar said that western oil companies would be asked to bid on oil field work to boost Russian oil production.
Support for the effort to undergird the ruble could come from an international stabilization fund, which the Group of Ten industrial nations approved in principle Monday morning. The $6 billion stabilization fund would be drawn from the General Arrangements to Borrow, a $24 billion pool of money the ten nations established in 1962 for international financial emergencies. The G-10, which actually includes eleven countries, includes the G-7 countries -- United States, Britain, France, Germany, Japan, Canada, and Italy -- plus Sweden, Switzerland, the Netherlands, and Belgium.
But even though the G-10 approved the fund, smaller members of the group expressed deep reservations and set down tough conditions for Russia to meet before the fund could be put into use.
Members were especially anxious about separate central banks in every republic and about the control of the money supply. Slowing the expansion of credit and the central bank's printing presses is needed to stop the country's runaway inflation rate.
"The question is whether the Moscow (central) bank will be able to control the other central banks," said a key European central banker. If not, he said, " ruble stabilization will not have a chance."
At the moment, the ruble is worth about a penny, although Georgy Matyukhin of Russia said Monday the central bank was intervening in exchange markets in small amounts to keep the ruble stable even at that weak level.
The monetary policy and banking system of the former Soviet republics remain at the heart of anxiety among Western nations about radical reform of the communist countries.
Most experts doubt that these issues can be cleared up before June or July, which is when both Gaidar and IMF Managing Director Michel Camdessus said they hoped an IMF program could be in place.
Monday, the first 20 of 1,000 people from the republics arrived in London for six-month training stints at British financial institutions.
But in Russia, financial confusion continues to disrupt the economy and experts said clearing it up will require not only policy changes but skilled professionals that the country lacks.