Newspaper article The Christian Science Monitor

Soviet Union Chose `A Costly Detour'

Newspaper article The Christian Science Monitor

Soviet Union Chose `A Costly Detour'

Article excerpt

EDWARD BERNSTEIN was present at the beginning.

The Brookings Institution economist was part of the United States delegation to the 1944 conference in Bretton Woods, N.H., which set up the postwar international economic and financial system, including the International Monetary Fund (IMF) and the World Bank. He heard the objections of the Soviet delegation to their prospective limited influence in these multilateral institutions. Displeased, the Soviet Union decided not to join this new system.

And this week Dr. Bernstein - the last living member of the US delegation - observed as Yegor Gaidar, first deputy prime minister of Russia, was symbolically welcomed into the IMF's policymaking Interim Committee, escorted by British Chancellor of the Exchequer Norman Lamont.

"What a costly detour the Soviet Union has traveled since Bretton Woods," Bernstein notes.

He criticizes the economic advice the West has been giving Russia and the other republics as well as Poland as they leap toward a free-market society. The advice is correct for the long run, he said in an interview here, but wrong as to timing and order of importance.

These countries must move toward the essentials of a free market. They must have prices based on costs, he says. They can't, for instance, sell oil cheaply to their own people just because they produce it. They can't have huge subsidies, even if these are considered socially good. Further, personal spending must be based on income. And the pattern of prices must approximate those in the "great trading nations." Otherwise, these countries won't be able to export. And they will be swamped with imports substituting for their own high-cost or poor-quality goods.

However, Bernstein says Russia and the other republics don't need convertibility of the ruble until the economy is operating efficiently. In the meantime, the exchange rate for the ruble into Western currencies should be set at a level enabling them to export and earn the currency to pay for imports. The big industrial countries of the West, he says, have forgotten the lessons of the post-World War II period in Western Europe. …

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