January 9, 1995 in Nation/World

War Ruins Budget, Endangers Reforms

Washington Post
 

Russia’s disastrous war in Chechnya, now entering its fifth week, has shattered Moscow’s financial and budgetary plans for 1995 and thrown into question the future of economic reforms, according to top economists here and abroad.

With no immediate letup in sight, the war has cost the country $2 billion to $5 billion, according to unofficial estimates, and continues to drain the nation’s meager coffers at a rate of nearly $30 million a day.

It is money Russia can ill-afford to spend in the midst of a delicate transition to a market economy. President Boris Yeltsin launched the war Dec. 11, on the eve of what Russian officials described as a critical economic crossroads - the introduction of an ambitious, anti-inflationary 1995 budget planned to slash monthly inflation to 3 percent or 4 percent.

But that reform program depended on tight limits on government spending that have been dashed by the military debacle in Chechnya. It also relied heavily on an unprecedented infusion of cash from the West, which also may be seriously jeopardized now.

Western officials say there already is a growing reluctance to extend Moscow billions of dollars in loans that now would be used largely to finance the Chechen war.

Those funds, including a pending $6.4 billion loan from the International Monetary Fund (IMF), originally were designed to help stabilize the Russian economy and strengthen the currency.

Among some senior Western officials and economists, there is a sense that one heavy casualty of the war has been the credibility of the Russian government, which has lost the backing of most reformers and appears increasingly to be in the grip of a power struggle.

“More than affecting the credibility of financial programming and projections, they have damaged their own credibility as politicians,” said a top Western economist in Moscow. “How can we sign a standby (loan agreement)? We could sign it and the next day (find) it’s not respected.”

“Even today these expenses have brought us to the point beyond which the current fragile financial balance will inevitably collapse,” Otto Latsis, a member of a presidential advisory council, wrote in Izvestia Dec. 29. “Two or three more weeks of this (war) and we will have to say goodbye to the entire economic plan.”

Said former Prime Minister Yegor Gaidar, the main architect of Yeltsin’s reform program: “Another three or four weeks and you can forget about next year’s budget.” Gaidar, a critic of the Chechen invasion, made his remark just before the new year.

In an analysis last week, The Moscow News said the economic costs of the war are likely to mount for months no matter what the result of the fighting is.

If the Russians defeat the Chechens decisively, trillions of rubles will have to be injected into the renegade republic’s economy to rebuild basic infrastructure and to help resettle refugees, the paper said.

If the Chechens are not defeated soon, the paper added, Moscow may face a long guerrilla war that also could cost trillions of rubles and generate even more refugees.

The paper concluded: “In both cases, the result will be the same: a collapsed budget, outlays above planned levels, higher inflation, cuts in all social programs. And the final result is social, economic and political crisis.”


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