In Washington: Deadline to rescue Russia

STANLEY Fisher got it right almost a year ago when he predicted that Western aid to the former Soviet Union would be slow, inadequate and hopelessly unco-ordinated.

Last week Mr Fisher, former chief economist at the World Bank, renewed his appeal for more 'muscle' in the aid effort. His latest prediction is that unless the Group of Seven nations steps up its aid, President Boris Yeltsin's young reformers and their programmes are doomed.

Together with a flurry of activity in Washington last week, this warning has set the stage for more immediate assistance to Russia. The International Monetary Fund approved a dollars 1bn loan, the first tranche of a three- stage standby arrangement that is conditional on dramatic policy reforms. Hours later, the World Bank kicked in with a dollars 600m loan for urgently needed import support in sectors including medicine, energy, agriculture and transport. Not to be left out, the US Congress - after months of intense lobbying led by Robert Strauss, the US Ambassador to Russia - approved a historic multi-billion aid package: dollars 1.2bn in bilateral US assistance to Russia and a dollars 12bn increase in the US commitment to the IMF for loans to the former Soviet republics.

So the die has finally been cast and for all the right reasons: to provide critical support to Mr Yeltsin's faltering reforms; to end the Cold War once and for all; and to begin building a new world without military superpower confrontations. About dollars 790m of the US bilateral aid would be earmarked for dismantling nuclear weapons.

The pledges of assistance could be a siren's song, however, and should not dispel Mr Fisher's prophetic warnings. As political warfare intensifies between the supporters of Yegor Gaidar and anti-Gaidar factions, led by Victor Gerashchenko, acting chairman of the central bank, it is clear that Western aid is politically invisible in Russia. It is also clear that despite the optimistic statements of Michel Camdessus, the IMF's managing director, Russia has almost no chance of meeting the reform targets that will unlock more aid.

As Mr Camdessus explained last week, Russia will receive dollars 1bn from the IMF over the next five months however badly it performs. But as in Poland's case, the second tranche and any further payments will be withheld if Russia fails - as it almost certainly will - to meet the policy reform targets. These include achieving a budget deficit of no more than 5 per cent of GNP and a 9 per cent monthly inflation rate by the end of the year. Mr Camdessus was asked repeatedly whether these targets were realistic. His response was: 'If nine months ago I had told you that prices would be freed and exchange rates stabilised, you would have said 'impossible'.' However, Mr Camdessus admitted that he could not say for certain whether Mr Gerashchenko would undermine the reforms by providing massive central bank credits to enterprises to allow them to pay off their debts. The IMF estimates that these totalled between 2.5bn and 3bn roubles at the end of June.

'I can only say that if there is unexpected frivolity in dealing with the budget deficit over the next few months, then Russia will lose IMF support and that of the rest of the world,' Mr Camdessus said.

This is just what Mr Fisher and others expect to happen in the absence of a renewed effort by the G7 to take charge and of larger, more immediate Western aid. Much of the dollars 24bn of Western aid negotiated in April by Chancellor Kohl and President Bush is intangible. About dollars 10bn was designated for debt relief and another dollars 6bn was for a fund to stabilise the rouble, leaving about dollars 8bn in various credits and for other discretionary uses. An estimated dollars 6bn of that has already been lent and applied to import purchases. That is why the IMF money, about dollars 4bn of the total, is now so critical. The next tranche could be the make-or-break factor in Mr Gaidar's reform efforts.

So how much more is needed? Mr Camdessus confidently predicts that the new IMF loans will unlock additional Western bilateral assistance as well as more debt relief on commercial bank loans by the Paris Club in September.

All of this may turn out to be wishful thinking. One need only listen to the voices of Western electorates to realise that the zeal to aid the former Soviet republics is fading. In addition, although the IMF is in the forefront of the Russian reform effort, it may not be the right institution to play the critical co-ordinating role. For starters, Russian politicans do not get on well with IMF bureaucrats. A second critical point is that no one body is taking a broader view, with the aim of providing assistance that meets both short-term and longer- term goals. Thus Mr Fisher's call (which he admits may even now be too late) for an extra dollars 5bn to dollars 8bn in Western funds this year - to show necessary G7 support for the reformers - has a certain appeal. So does his earnest plea for someone to take charge of an otherwise haphazard and unco-ordinated aid programme among the often competing Western bureaucracies.