More IMF Poison for Russia Jude Wanniski September 1, 1998

Memo To: Rep. Tom De Lay, House Republican Whip
From: Jude Wanniski
Re: The International Monetary Fund's Evil Empire

You were exactly right in your response to Tony Snow yesterday, when he asked you on "FoxNewsSunday" about IMF replenishment. In pointing to the IMF austerity program for Russia, you cut to the heart of the problem. We give the IMF a big bag of taxpayer money and they give it to the Russian government ON THE CONDITION that it drink a big bottle of austerity poison. The tax dollars Russia gets never leave the United States, but are paid directly to the accounts of the multinational banks that have loaned funds to Moscow. The banks would not lend mega-billions to Russia if they did not feel the security of the IMF bailout program. And Russia would not have to get outside "help" if it took a few simple steps to promote internal growth. Outside capital would flood over the borders if it saw Russia adopting Reaganesque economic policies.

The reason the Russian parliament, or Duma, drags its feet on passing the laws demanded by the IMF is that the legislators know how much suffering the IMF program will cause ordinary people. You were precisely correct in saying this is exactly the wrong time for the Russian government to be raising taxes, that it should be cutting tax rates instead. The chief reason the government has such trouble collecting taxes is that the rates are oppressively high when taken in combination. The state owns almost everything in 11 time zones — all the land and mineral resources — easily worth $10 trillion. In my several visits to Moscow at the invitation of the Gorbachev and Yeltsin governments, I pointed out to my hosts that the government had to find a way to transfer these assets to its citizens — to get capital into their hands. The IMF and the Harvard economists instead counseled "shock therapy," which cheated the people out of the tiny bits of capital they held in ruble deposits.

If I were advising Moscow today, I would repeat the advice I gave on my several visits. FIRST, fix the ruble to gold, so that its own currency is more valuable than the dollar. They cannot build a market economy without a unit of account. By trying to fix the ruble to the dollar, Russia imported our dollar deflation, which is the primary reason for its current financial crisis. It should forget about the dollar and fix its own money by pegging the ruble to gold at 2000 rubles per ounce — which is the most credible rate and therefore the most defensible. SECOND, I would offer unlimited amounts of ruble bonds to the public at that gold-guaranteed rate. THIRD, I would tell the Russian people a budget DEFICIT in rubles is necessary, to be able to transfer wealth from the state to the people. FOURTH, I would end the system of oppressive tax rates that now prevent the development of entrepreneurial capitalism.

Under no circumstances would I give the IMF another $1 of replenishment as long as Michel Camdessus and Stanley Fischer are in charge. I hope you can persuade Newt to stop talking about giving the IMF more tax dollars to support its evil deeds around the world.