A U.S. economist serving as an adviser to President Boris Yeltsin said Wednesday that rampant inflation and an uncontrolled money supply threaten the good start Russian officials have made on economic reform.
Harvard University economist Jeffrey Sachs said Russia`s central bank, together with the old central bank of the former Soviet Union, are responsible for the hyper-inflation sweeping the country, and must rein in credit and stop printing money if economic reform is to succeed.
”It is amazing what they have accomplished,” Sachs said at a news conference called to discuss economic reforms launched by the Yeltsin government Jan. 2.
Sachs repeated an earlier call for the United States and its allies to provide substantial aid for the former Soviet Union to help sustain the reforms.
Western governments should quickly provide Russia with between $15 billion and $20 billion in financial assistance to stabilize the nation`s economy as it moves toward free markets and privatization, Sachs said.
An international conference will be held in Washington later this month to coordinate the aid efforts.
Yeltsin has been barnstorming Russia seeking to calm public opinion and drum up support for his unpopular reforms. He has promised people that things should start to improve within six to eight months. He repeated this message during his latest stop in Russia`s second city, St. Petersburg, on Wednesday. Prices have skyrocketed since the start of the year, when Russia ended decades-old subsidies that had kept the price of most basic goods and services far beneath the cost of producing and providing them.
Acknowledging the enormous social costs, Sachs urged Russian politicians and legislators to stay the course, arguing that it is only through such determined steps toward a free market economy that the lives of hundreds of millions of Russians would improve.
”Of course it is very difficult now,” said Sachs, who contributed many of the ideas being implemented by the Yeltsin government. ”No miracle is going to solve this in two weeks, no matter what are the illusions of some people.”
He said that last year, at a time when inflation was exceeding 100 percent, central bankers issued hundreds of millions of dollars worth of credit at a rate of about only 6 percent. Moreover, the central bank printed money with abandon, creating runaway inflation, he charged.
Sachs said that if the Russian government sticks to its present plan and if the nation`s central bank adopts tight credit and monetary policies, a significant improvement in supplies of food and other goods could be seen within a few months.
Prices that have risen by between three and five times could start to fall as early as next month, Sachs said. But if market forces are thwarted, or if the central bank doesn`t rein in credit and stop printing money, inflation rates could rise even further, he added.
There already has been improvement in the supplies of some goods, although at enormously high prices by Russian standards.
Shops have more meat, bread and other staples, and the long lines for gasoline that developed before the end of last year have all but disappeared. Although he held out hope for improvement soon in the lives of average consumers, Sachs said long-term prospects for Russian industry are gloomy because it is geared to feed the military rather than producing for human needs.
