The IMF Responds on Russia - A Letter to the Editor

November 30, 1998

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The IMF Responds on Russia
A Letter to the Editor
by John Odling-Smee
Director of the International Monetary Fund’s (IMF’s)
European II Department

November 30, 1998

Janet Bush ("Russia in need of 'third way' as economic winter bites", The Times, November 19) claimed that the IMF does not understand that the state has a special role to play in Russia's transition. She said that too much emphasis on free-market reforms had landed Russia in a crisis deeper than any the country previously faced. This is not true. Well over a year ago, the Managing Director of the IMF, Michel Camdessus, said in a speech in Moscow that the crisis in Russia was a crisis of the state. He quoted with approval the words of President Yeltsin who had said that the state "interferes in the economy where it shouldn't; while where it should, it does nothing." And Mr. Camdessus noted the Russian state needed to make progress in promoting an efficient market economy through transparent and effective regulatory, legal and tax systems. This continues to be the case.

The IMF has worked closely with several Russian governments to work out practical—and not orthodox—ways of defining a role for the state that can benefit the country. These included encouraging Russia to create a level playing field for the emergence of the private sector. Successive governments introduced policies to remove unnecessary government regulations and controls, strengthen the legal and tax systems, and establish an arms-length relationship between business and government. They were not unreasonable or unrealistic goals, and significant progress was made.

In the end, however, implementation has fallen far short of what was needed to see Russia through its difficult transition. A key reason for this was the failure of the Russian political establishment to take ownership of the reform agenda. President Yeltsin, the Duma, regional governments and portions of the federal executive all failed to support measures that were unpopular, especially with powerful interest groups. It is now up to the Russian government and people to find a solution to their country's crisis. The IMF and the international community stand ready to work with them, if there is a willingness to address the problems directly.