But no sooner had their celebrations ended than the United States and its Western allies found themselves at odds over how best to capitalize on the triumph of Soviet democracy. The point of contention is whether to reward the Soviets with major new infusions of Western money. At the London summit of the G-7 industrial nations in July, President Bush, joined by the leaders of Britain and Japan, vetoed an appeal by Gorbachev for $20 billion to $30 billion in new Western capital, saying the money would go to waste unless the Soviets carry out market reforms first. For now, the Bush administration sees no reason to change that position. In Brussels last week, Secretary of State James Baker said the Soviets’ economic problems could not be solved by “free check writing. " But Germany, which supported Gorbachev’s plea in London and has already promised the Soviets $35 billion in loans and grants on its own, is urging the G-7 to reconsider its stance. France and Italy agree, and there are signs that Britain may be about to reconsider its stance. German Chancellor Helmut Kohl said the West’s reluctance to help Gorbachev earlier was partly to blame for the coup itself and warned that democracy would fail without Western support now: “The dumbest politics possible now would be for us to sit back as interested onlookers.” Last week Kohl’s government called for a world economic summit, including the Soviet Union and its former East European satellites.
The debate, though sharp, won’t split the alliance. Both Americans and Europeans agree on providing humanitarian relief if the Soviet winter turns harsh and food supplies begin to run low. “These people took the fight for democracy into their own hands, and that means we have a greater commitment now–politically and morally–to make sure they don’t starve this winter,” says a senior State Department official. Germany has its own highly detailed list of reforms it would like to see the Soviets carry out. And the United States has provided some money to Moscow, including a projected $1.5 billion in loan guarantees for the Soviets to buy American grain, as well as technical advice to Soviet business people and officials. What the United States and Germany mainly disagree over is the pace of Western help: the Bush administration wants the Soviets to move step by step toward a market economy and would provide small quantities of aid as the Soviets complete each stage of reform. Germany seems more willing to advance Moscow the money in exchange for what are essentially detailed promises of change.
Still, the squabble over aid among the G-7 countries does reflect their divergent national interests. In formerly communist eastern Germany, German officials have seen firsthand how a sudden transition to capitalism brings painful sacrifice and social unrest. With a long eastern border across which thousands of impoverished Soviet refugees have already fled in search of jobs, the Germans want the West to prevent economic change from engendering political instability in the Soviet Union. The Germans reject Washington’s argument that aid would merely postpone the economic pain Soviets must inevitably face. Instead, they see it as a means of easing the transition to a market economy.
The United States, by contrast, isn’t worried about a flood of Soviet refugees. Its main concern has been to avoid the rise of leaders who want to rebuild the Soviet military. The Bush administration wants to achieve this as cheaply as possible, and now that the Communists are being routed in Moscow, it seems to be getting a militarily weakened U.S.S.R. almost for free. Moreover, U.S. skepticism toward a big bailout of one government by others is consistent with its overall approach to the problems of Latin America, where the United States has been preaching a self-help doctrine of “trade, not aid” to countries struggling with market reforms and debt reduction. George Bush and his advisers are well aware that foreign aid to the U.S.S.R. is not a popular cause with American voters–and the Democrats aren’t likely to turn it into a winning issue in 1992. Though some Democrats picked up the banner of aid to the Soviet Union last week, others, such as Sen. Bill Bradley, Democrat of New Jersey, backed Bush’s cautious approach.
In the wake of the hard-liners’ collapse, there was certainly no shortage of reform promises emanating from Moscow. “The victory of democracy and the progressive forces create new conditions for development,” says Abel Aganbegyan, who accompanied Gorbachev to London but plans to leave the Communist Party to help Boris Yeltsin. “I expect that we will now be able to launch sweeping reforms.” Yet for all the heady talk, repairing the economic damage done by seven decades of central planning will take years and inflict new suffering on the already impoverished Soviet people (page 58). The Soviet Union’s productive apparatus consists mostly of grossly inefficient state-owned monopolies, guided by bureaucrats and funded by a government that makes up all deficits by printing rubles. Despite Gorbachev’s touted advocacy of defense conversion, only six of 430 Soviet arms factories have in fact made the change from military to civilian production. .BI.- Symbolic Impact:
Western economic experts estimate that the Soviet economy will shrink by about 15 percent this year-after a 4 percent decline in 1990. Thanks to the black market, the food supply might not be as sparse as the bare grocery shelves make it appear. Yet the massive government printing of money and the diversion of consumer goods into the underground economy are feeding a hidden inflation rate that could reach 200 percent this year. American officials argue that even if calls for drastically increased aid to the Soviets were answered, the impact of the new money might be mainly symbolic, if only because the sheer size of the $2 trillion Soviet economy dwarfs the amounts of money being discussed. Says Dave Johnson of PlanEcon, a Washington consulting firm specializing in Eastern economies: “Even the $30 billion a year in aid that Gorbachev’s advisers were talking about is only $100 a year per citizen. Without reforms that halt the decline, that $100 a year would just get swallowed up.”
As Washington sees it, the Soviet Union wouldn’t even be able to absorb Western aid or investment until it has first worked out the new constitutional arrangements that will apportion power among the center and the republics. “Right now,” says an International Monetary Fund official, “no foreign or domestic Soviet business knows who to sign contracts with, who they’ll have to pay taxes to, and how much, and who issues the necessary permits–the republic or the union.”
The IMF, asked by G-7 leaders in 1990 to come up with a basic reform blueprint for the Soviet Union, recently spelled out what the Soviets would have to do first: sharply cut military spending; create a central bank to control interest rates and the money supply; end state monopolies; legalize private property, including agricultural land, and open the Soviet market to world trade and competition. Once that lengthy process has been started, the Soviet Union would be given membership in the IMF, the World Bank and other international lending agencies. This would let the U.S.S.R. qualify for official loans and, more important, would let newly private Soviet enterprises routinely draw down commercial loans from Western banks. Also, the IMF and World Bank are supplying technicians to show the Soviets how to collect real statistics on budgets, finances, trade and output levels. This would enable a semblance of control in the Soviet and republican governments and give international markets an accurate picture of Soviet production and finances.
Complex as they are, these structural changes are relatively easy compared with the difficult task of eliminating the mental residue of communist rule. For decades, any Soviet sense of initiative has been stifled by the rigid dictates of central planning. Soviet views of capitalism range from suspicion of “monopoly” and “exploitation” to an almost naive faith in “the American way.” Even with foreign help, it will take years to inculcate a sober understanding of such basic concepts as the role of profit, cost accounting and money as a commodity. The Soviet Union has no legal system to guarantee property rights, regulate commercial transactions and protect people from business fraud.
Still, the Soviet Union has tremendous internal resources to draw upon. The vast country, covering one sixth of the earth’s landmass, has gold, diamonds, natural gas, timber, one of the world’s largest steel industries and a large cadre of well-educated technical and scientific personnel. The thriving underground economy shows that entrepreneurship never completely disappeared from Soviet life. Western diplomats in Moscow estimate that cutting defense spending in half could save Moscow $90 billion a year, a figure that is itself triple Gorbachev’s maximum request at London in July. “We do not expect U.S. dollars,” says Aganbegyan. “You need them for yourselves.” Whether or not the United States and other Western countries supply money, the prosperity of the Soviet economy really depends on how many people are able to adopt such a self-help attitude and stick to it through what are bound to be hard years ahead.
Western aid would ease the painful transition to market economics–and perhaps forestall future destabilizations like last week’s coup attempt.
A fast-crumbling Communist Party is no longer in a position to siphon off shipments of money and consumer goods.
Until new market structures are in place, Western money will be wasted.
No amount of government money can take the place of private investment.
The United States doesn’t have the money to bail out such a giant economy.
The Kremlin hasn’t yet begun to draw on vast resources now being squandered on military spending.
HOWARD FINEMAN
Mr. August was back. Last M Tuesday, senior aides found George Bush hunched over his personal computer in the small study off the Oval Office. “I’ve drawn up a list of things I want to do this morning,” he said. The items ran from the obvious (get updates from State, Defense, the CIA) to the political (be sure the administration speaks with one voice, plan to brief the press daily) to the momentous (call Boris Yeltsin, exhort world leaders to speak out in support of Mikhail Gorbachev). After reeling off his list of to-dos, Bush went before the cameras and did them.
Another August, another foreign-policy crisis to manage. Loopy and flappable when forced to play street politician, Bush gathers himself into a sure-footed presence when the tanks roll abroad. Leader of the Free World is the role Americans admire him for, and in which he feels most at home. He draws on a deep faith in his world-ordering duty, on a lifetime of big-ticket government jobs and on a knack for the relevant operational detail. “He’s prepared all his life for weeks like this,” said one confidant. “It’s what he does best.”
This was no Desert Storm II History was not in George Bush’s hands, but in the freedom-seeking hearts of Russians, the fortitude of Boris Yeltsin and the make-or-break decisions of the Soviet armed forces. TV inadvertently said as much. On CNN, Bush’s press conferences often were shown postage-stamp size, alongside bigger live pictures of tanks and buses on the streets of Moscow.
Bush was left with the diplomatic tasks he relishes: working the phones, reporting to the nation, standing as a model of resolve. “What is it about August?” he wondered aloud. Then he hurried back to Kennebunkport to monitor the crisis and resume his hyperkinetic “rec mode”: speed golf, Cigarette boating, briefings conducted from the door of his shingled estate while his dogs sniffed at the press corps. His vacation routine, once ridiculed, has become a comforting pageant of global stability.
Bush has been fortunate in the enemies that so far have risen to challenge his new world order: first the overreaching Saddam Hussein, then the Gang of Eight, whose B-movie ineptitude already is legend. “How lucky can a guy get?” muttered Brad Johnson, an adviser to Mario Cuomo. Bush’s deft crisis management once again left Democrats gasping for air-and air time. Some criticized his slowness to rhetorically climb aboard the tank with Yeltsin. Others said he should have done more to buttress Gorbachev earlier, and should do more to elevate Yeltsin now. But it was hard to argue with the results.
The Democrats have been laboriously constructing a campaign message for 1992 that accuses the president of ignoring domestic issues. That may be apt, but it seemed beside the point. For now, Bush has all the excuse he needs to dwell on his first love, foreign policy-and the more global a stage he plays on, the more parochial the Democrats look in comparison. “I’ll be more than happy to fight the campaign on the question of whether George Bush spends too much time on foreign affairs,” said Ron Kaufman, the White House political director. As if to underscore what a tough road the Democrats face, Tennessee Sen. Albert Gore, a moderate who supported Bush on the Persian Gulf, last week said he would not run for the 1992 nomination.
Bush has a fresh to-do list to handle: the START treaty, up for ratification in the U.S. Senate next year; the Yeltsin-Gorbachev tangle; new economic aid for the U.S.S.R.; the question of independence for the Baltics. Each has its perils, but all will be fought on Bush’s turf. Democrats, sipping cider in New Hampshire in advance of the presidential primary, can expect to see the Bush campaign roll out the triumphal 30-second spots. All of which could be titled: “What I did on my summer vacation.”
