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Money Can't Buy Reform

MOSCOW: A big squeeze is on in Moscow, as President Putin seeks to drill the country's wayward regions into line with Kremlin policies. Soon a squeeze of a different type will be put on the West, as the Kremlin bids for new international loans. With the IMF and Russia engaged in talks over such loans, and as the summit of the Group of Eight (G8) big industrial countries approaches, the time is ripe to assess a decade of economic cooperation between Russia and the West. The verdict may determine the success of Vladimir Putin's presidency.

Until recently, flashy aid packages for Russia were fashionable. For seven years the G8 and the IMF shipped billions of dollars to Russia and Western banks surged into Moscow. All of them made every mistake imaginable, then wrote off or reduced the debts owed to them. Russian and foreign investors alike were duped by the Kremlin's debt pyramid schemes. The only concrete things to result from the vast inflow of money are to be found in Russian-owned villas on the French Riviera, a money-laundering scandal at the Bank of New York, and the secret Swiss accounts of Kremlin officials.

Ten years and $20 billion dollars of official debt later, indeed, Russia's economy remains a shambles. Faith in the ruble is negligible: 70% of business transactions are conducted in dollars. Indeed, Russia's dollar money supply is much larger in value than its ruble money supply. It is as if Russia is a rogue subsidiary of America's monetary system. For a credible banking system remains the stuff of dreams; external debt and corruption are as high as ever, and capital flight continues unabated. And I have not even mentioned such minor things as tax reform, pension reform, and privatizing land ownership.

Despite all this, it is boasted that Russia's economy is rebounding. But no economics diploma is needed to understand that today's upturn results mostly from a fourfold devaluation of the ruble and big increases in prices for commodities such as oil. Sadly, history suggests that when oil prices rise everybody starts lending Russia money again, bringing reform to a standstill.