One problem with borrowing foreign currency is that interest must be paid – indeed, interest in the form of foreign exchange. A “hard-money” philosophy thus has led Russia to pay vast sums of interest to the world’s investment bankers for the privilege of printing currency that it could just as well do for itself.
How Russia May Create a More Viable Financial and Fiscal System
English translation of a pamphlet published in Russia by The Land Policy Association, St. Petersburg, Russia, April 1999
Instead of becoming wealthier and more like America since 1990, Russia is being turned into a third world country. In less than a decade the nation has been stripped of its capital and forced into debt to its former NATO adversaries. The point now has been reached where new credit merely covers the interest charges on past loans, so that the debt grows exponentially. Russia is being turned into an indebted raw materials exporter, told to sell off its natural resources and public utilities at distress prices to obtain the money to pay interest on its foreign debt – and to enable investors to convert their ruble earnings into foreign exchange.
Even after this experience, Russia is being told to take yet more IMF advice as the price for obtaining new loans. The alternative is to be declared a pariah in the global economy. The policy leverage obtained by creditors thus threatens to lead to the industrial dismantling of Russia under continued austerity, or else to isolate Russia commercially much as Cold War containment did prior to 1990. One is tempted to amend von Clausewitz’s famous dictum to read that economic warfare is the continuation of military policy by financial means.
Russia’s financial distress was not inevitable. It is largely the result of having followed IMF and World Bank directives. Foreign advisors are telling Russia to depend on other countries for its food, consumer goods and most other manufactures. Russia is to pay for these imports by exporting more raw materials (thus depressing their world price, much to the benefit of industrial raw-materials importers) and selling off yet more of its public utilities to foreign buyers. The rental value of these assets is thus to be taken by their new owners, not by the public sector.
Many Russians are coming to realize that this advice has been bad, but they may . . .