Officially, of course, this message was sugarcoated. With great fanfare the Soviet Union was granted “special association” status in the International Monetary Fund and its sister institution, the World Bank. This ostensibly short-circuits a process for achieving formal membership that could take two or more years. The new status supposedly accelerates the process of IMF approval-and bankrolling of Gorbachev’s reforms.
But to get there the Soviets must first swallow bitter capitalist medicine. Applicant countries don’t tell the IMF what they want to do. Instead, the international agency tells them what they must do to gamer Western aid. In an IMF-approved program a nation’s past economic sins are typically beaten out of it with a dose of financial austerity and free-market reforms. As it happens, the IMF, in conjunction with the world’s other major economic agencies, has already completed an exhaustive study of the Soviet economy. (The study was done at the request of the G-7 summit in Houston a year ago.) The IMF lays out a detailed program for creating a modern capitalist phoenix from the ashes of collapsing communism. The major elements:
Changing and codifying the relationship between the national government and the republics in order to set up a federal political system in which central powers are limited.
Eliminating or slashing most state subsidies, drastically shrinking the budget-including defense spending-and creating a uniform sales tax and personal and corporate income-tax system to replace the current haphazard tax system of marking up wholesale prices.
Establishing a commercial-banking system, boosting interest rates to provide genuine after-inflation earnings to savers and creating an independent central bank that would halt the current inflationary practice of simply printing money to close government spending gaps.
Breaking up state monopolies and industrial cartels, which now prevent competition in most products and services, and privatizing the ownership of all enterprises except such traditionally nationalized sectors as public utilities and railroads.
Freeing the price of everything except-for a transitional period of several years-energy, public transportation, housing and a few basic consumer goods like bread, milk and meat.
These and other reforms will produce-with luck-a socioeconomic system something like Sweden’s or Italy’s in half a decade or so. The question is whether Gorbachev is now prepared to abandon communism and negotiate such radical change; and if he is, whether he can persuade such hard-liners as his own prime minister, Valentin Pavlov, and First Deputy Prime Minister Vladimir Shcherbakov, to go along. The vaguely worded 23-page draft of reforms that Gorbachev himself provided the summit leaders offered few clues.
Officially, President Bush and the other leaders were optimistic. “We’re on friendly terms,” Bush said. “The ’evil empire’ syndrome ended when the cold war ended. Now we can move forward on the economic front. " As Treasury Secretary Nicholas Brady puts it: “These people do believe the things they have been uttering. They say, ‘Look, we’ve made the commitment, we have no alternative.’ [But] is their economic understanding and vocabulary at a level that will let them do it rapidly? No. Will they eventually do it? Yes. The difficulty is, the reforms go against hundreds of years of Russian history and the lack of a commercial tradition in the land.” Given that, the IMF is in for a lengthy set of negotiations, and the ink in this year’s G-7 pens will likely be long dry before the West starts writing Gorbachev any new checks.
