The Deseret News recently published an editorial titled "Stand by Russia in hard times." This editorial stated that "the root of Russia's problems have been the Asian financial crisis," and it advocated "releasing as much (RAF) money as quickly as possible."
This analysis of the crisis in Russia is not only misleading but also proposes more aid money without correcting core economic problems. Certainly, Russia (and all emerging markets) has been impacted by the Asian financial crisis. However, Russia's economic fundamentals deserve the blame for recent market turmoil. Russia has no rule of law, a burdensome tax regime and an oppressive environment for business.Investors do not target markets and currencies at random but have rationally selected Russia because of its deteriorating fundamentals and economic mismanagement. I agree with The Wall Street Journal's assessment on June 5 that Russian fundamentals "have not been remotely fine since before the 1917 Communist Revolution." In many ways, Russian politicians have yet to distinguish between policy reform and propaganda. An article in the Deseret News (AA4) on June 7 reported that Boris Yeltsin is attempting to strong-arm Russia's media into printing only good news about the economy.
Additional IMF funds and international aid might temporarily calm the Russian storms but would fail to address the need for fundamental change in the Russian economy. We all want to "stand by Russia in hard times," but we need to help in a way that promotes reform and does not create a moral hazard for both investors and governments. Ultimately, Russia's citizens will most benefit from letting a well-deserved crisis run its course rather than from the temporary international aid that allows for continued economic mismanagement.
Salt Lake City