To critics who ask why the Clinton administration has done so little to curb the looting of Russia, the administration has responded with a pragmatic question of its own: What would the critics have done differently that might have prevented the Russian debacle?
Yes, the administration concedes, things in Russia haven't worked out as the West had hoped: The country is weak and demoralized; its resources have been plundered by corrupt oligarchs and outright thieves; and now, it appears, its crooks have been using our banks to hide their money. As national security adviser Sandy Berger said on this page Sunday, "There are indeed plenty of troubles in Russia today." But Berger and others have implicitly asked: What alternatives might have spared Russia this fate?
Good question. Because unless we understand what went wrong during the past few years in Russia -- and how our mistakes or inaction contributed to the mess we now encounter -- we have little hope of helping the Russians get it right in the future.
Russia's transition from communism was bound to be messy, no matter what the United States did. One observer likens the administration's dilemma to that of a gambler who has to bet on a roll of the dice with these rules: If a 1, 2 or 3 comes up, you lose $5,000. If you get a 4, 5 or 6, you lose $10,000. Obviously you'd make the first bet, but you wouldn't feel good about the choice, or the outcome.
But privately, some of the people who have been intimately involved in framing our Russia policy concede that they'd like to do some things over again. Here's my list of those misjudgments, drawn from conversations with policymakers and Russians who were on the receiving end:
(1) The Clinton administration should have been warier about the short-term scheme the Russians adopted to finance their budget deficit. The U.S.-backed plan was to sell ruble-denominated bonds, known as "GKOs," bearing very high interest rates. The GKOs were a form of Russian junk bonds, and they were certainly a better idea than simply printing money.
But short-term financing schemes often come a cropper, whether in Mexico or Russia. And the GKOs blew up disastrously. Indeed, they appear to be at the center of both aspects of the Russia problem -- the policy failure symbolized by the Russian government's Aug. 17, 1998, default on the GKOs, and the corruption scandal symbolized by the alleged $10 billion money laundering scheme through the Bank of New York. Indeed, some insiders speculate that the $10 billion may have included flight capital from Russian oligarchs who were tipped off about the impending GKO default.
A better way to finance the Russian deficit would have have been more aggressive tax collection. In addition to reducing the GKO mess, a workable tax system would have checked Russia's gangster capitalism and made it a more lawful society.
(2) The administration should have pushed harder to stop Yeltsin's "reformers" from embracing a 1996 privatization scheme known as "loans for shares." This corrupt deal allowed Russia's new business tycoons to acquire the crown jewels of the economy -- the mining and natural resource companies -- in exchange for cheap loans to the government.
Loans for shares was "the reformers' original sin," argues journalist Chrystia Freeland. In the mind of ordinary Russians, it linked capitalism with thievery.
The worst of it was that key U.S. Treasury officials suspected then that loans for shares was a potential disaster. The administration protested -- but not loudly, because it feared that without U.S. support, Yeltsin might lose the elections. The Russian people are now paying for our mistake.
(3) The administration should have allied directly with the Russian people, rather than with Yeltsin and his reformers and the corrupt oligarchs who stood behind them.
In practical terms, this would have meant relying less on macroeconomic policies -- and the hope we could create instant capitalism -- and more on grants and aid programs. Targeted aid programs, focused on such areas as health care, would have helped ordinary Russians feel their lives were improving in measurable ways, thanks to help from the United States.
Administration officials accept this criticism. But they are right that much of the blame should go to the Republican Congress, which wouldn't fund even the modest aid programs the administration requested.
(4) The administration should have been more honest. Perhaps it was inevitable that Russia's transition to a market economy would produce a generation of robber barons. But we didn't have to embrace them quite so enthusiastically. We didn't have to call Boris Yeltsin another Abraham Lincoln, as Clinton did. And we didn't have to watch quite so idly as supposed capitalists looted Russia's wealth.
Truth, in the end, is America's most powerful weapon. When Ronald Reagan called the Soviet Union an "evil empire" in 1983, critics laughed. But his blunt remark gave hope to a generation of Russians. We need that kind of honesty now.