Russia's monetary turnabout

Russia's dramatic actions on Monday, allowing the value of the ruble to fall and declaring a moratorium on some government debt, reversed a pledge that President Boris Yeltsin and his government had issued as recently as Friday (Aug. 14). It threatens one of the few clear-cut accomplishments of his mixed record, which was to get inflation under control. It raises questions also about the West's strategy for aiding Russia, including the US$22.6 billion rescue effort that Washington pushed through only four weeks ago.

The latest development is not so much a failure of policy as an acknowledgement of failure that had become already clear. Russia's government was spending more than it could afford to defend the value of the ruble against those, Russians and foreigners alike, who had lost faith in the stewardship of Russia's economy. The floundering economy pushed President Yeltsin into a corner, and this was his responses.

In countries that leaped quickly from communism to a free market, such as Poland and Estonia, economic growth picked up early. Countries such as Russia and Ukraine, which jumped only part way, have been mired in corruption and stagnation.

This 180-degree reversal certainly will not inspire confidence among foreign investors, and there is a real risk that it could spark runaway inflation and that the government will not be able to defend its new announced level of ruble value. What is needed to forestall those worst-case outcomes is substantial progress on structural reform in fiscal management, the tax code, landowners' rights and bank soundness.

-- The Washington Post