Home > Uncategorized > Greece, Russia and all that…

Greece, Russia and all that…

During the first Putin presidency, the Russian government gave a very high priority to paying back Russian international debt and used quite a lot of  the income from oil to do this. Jeffrey Sachs answers why (also read the last paragraph):

The lack of Western assistance

The lack of Western assistance was grim and was my greatest frustration[32] during late 1991 and 1992.  The early days were inauspicious to say the least.  When the G-7 deputies came to Moscow in late November 1991, just a few days after Gaidar had come to power as head of Yeltsin’s economic team, the main focus of the G-7 message was the urgency that the Soviet Union should continue to service the external debts at any cost.  There was no discussion of the upcoming economic reforms, and no realism among the G-7 deputies about the extreme desperation of the economic scene.  Gaidar was warned by the assembled powers that day that any suspension of debt payments would result in the immediate suspension of urgent food aid, and that ships nearly arrived at the Black Sea ports would turn around.  Russia in fact continued to service the debts for a few more weeks before completely running out of cash by February 1992.

In December 1991 I had continuing discussions with the IMF about Western assistance for Russia.  The IMF’s point man, Mr. John Odling Smee, who lasted for a decade as the head of the IMF’s efforts, was busy telling the G-7 that Russia needed no aid, that the “balance of payments gap” as calculated by the IMF was essentially zero.  I believe that the IMF was simply parroting the political decisions already decided by the United States, rather than making an independent assessment.  This is just a conjecture, but I make it because of the very low quality of IMF analysis and deliberations.  They seemed to be driving towards conclusions irrespective of the evidence. The IMF’s approach was in any event just what the rich countries wanted to hear.  The technical methodology was primitive beyond belief.

  1. November 3, 2016 at 1:29 pm

    Poor Jeff Sachs has become a lone voice worth listening to amid the paranoia towards Russia, then and now.

    Also noted is how the Anglo-Saxon world cheered the pilfering of state resources and insisted that the criminal oligarchs and their fortunes stand as legitimate. Because the mafia buying financial assets off clueless citizens in the middle of an economic collapse is *obviously* part of orderly capitalism…

  2. November 4, 2016 at 5:05 am

    I often think about Sacks. His books and his consultancy situate him as a staunch opponent of poverty and proponent of sustainable development. Yet, some of the solutions he put forward as a consultant aggravate poverty and inhibit sustainability. He supported importing American system economic markets to the Russia after the collapse of the USSR. That he was certain these would help Russia recover more quickly only demonstrates Sacks lack of historical and cultural understanding of Russia. He criticized US efforts to financial destroy Russia in the 1990s, but did little in terms of direct action to oppose these actions. You’d think an elitist, “University Professor” at Columbia could raise holy hell with the White House. Apparently not. Also, while opposing and critiquing neo-liberal economics he continues to provide consultancy advice using the guides provided by this economics in market design, taxation, poverty policies, and monetary policies. Sacks either has a dual personality or is attempting to integrate incommensurate ideas and policies.

  3. merijntknibbe
    November 4, 2016 at 7:51 am

    Yep!

  4. Blissex
    November 9, 2016 at 11:58 pm

    The Greek case of the 2010s and the USSR case of the 1990s are utterly incomparable, because the absolute levels of income are inc omparable.

    The GDP per capita of Greece in the first half of the 2010s is the same as it was in the first half of the 2000s, when it was considered an up-and-coming prosperous economy, and the GDP per capita of Greece is still today four times larger than the GDP per capita of Bulgaria and Romania.

    In the 1990s the USSR was in a situation of near famine and of institutional collapse with most areas having absolute levels of income and consumption a fraction of those of today’s Greece.

    Gaidar himself tells his story here:

    https://www.aei.org/feature/the-soviet-collapse/
    https://www.pbs.org/wgbh/commandingheights/shared/minitext/int_yegorgaidar.html

    Some other perspectives on how compromised was the soviet economy:

    http://public.econ.duke.edu/webfiles/treml/collapse.293
    http://www.institutionalinvestor.com/Article/1020662/How-Harvard-lost-Russia.html

    • merijntknibbe
      November 10, 2016 at 7:49 am

      Dear Blissex,

      I agree with you about the situation in Russia. The comparable thing was the attitude of the creditors who (succesfully) tried to shift their risks, knowingly taken, on the shoulders of the russian and the Greek population and somehow managed to use the IMF as their obedient servant.

  5. November 10, 2016 at 9:33 am

    Russia and Greece are both instances in which creditors, both private and public attempted to use debt to force a sovereign people to make political and economic concessions, even if not necessary or justified by an emergency. In both instances the prime objective was intimidation. Hardly in line with neoliberal trade theory.

    • Blissex
      November 11, 2016 at 6:18 pm

      That’s ridiculous, precisely because of the vast difference in absolute levels of prosperity: denying food supplies to a country nearing famine is one thing, giving massive debt forgiveness to Greece and then capping at 3.5% of GDP repayments for the rest from a country with first-world levels of GDP per capita (again, four time those of Bulgaria and Romania, and nearly double those of Hungary) and prosperity is quite another.

      Especially when the right wing greek governments that borrowed so much did not use the debt to buy food, but organized a fraudulent bankruptcy to loot creditors to fund a fantastic consumption boom for their voters.

      • November 13, 2016 at 4:46 am

        You make my case for me. Russia was certainly experiencing near famine in the early 1990s, much of it the result of inept and corrupt government officials. Greece was not as bad off as Russia in the early 1990s but in 2014 and 2015 up to 25% of the population, especially children were going hungry quite often. Some of this was the result of poor, inept, or corrupt government decisions. But much was the result of Greek’s efforts to remain within the EU and with the Euro. And for much the same reasons the unemployment rate in Greece in 2015 and 2016 hovered near 20%-25%. I don’t care about the causes of the problems. First concern is how to stop the suffering of Greek and Russian citizens. The price for aid from the EU or the United States was not just more indebtedness and constrained food and resource supplies but the effective control of Greek and Russian domestic and foreign policy by these external and non-elected powers. This is a threat both to democracy and to voter sovereignty. How should a democratic nation respond to such provocations?

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