Russia: The IMF, Private Finance, and External Constraints on a Fragile Polity

Abstract

In the years since the collapse of the Soviet bloc, a vast new territory has become integrated into the world economy, international capital movements have threatened governments throughout Central Europe and Eurasia, and multilateral lending agencies have gained striking influence over economic policies. As of this writing, the International Monetary Fund has signed conditionality agreements with every country of the former Soviet Union and Eastern Europe except Bosnia, Serbia, Tadzhikistan, and Turkmenistan. Indeed, critics of unbridled capital markets and the ‘Washington Consensus’ that supports them — including Leslie Elliott Armijo, Mary Ann Haley, and Tony Porter in this volume — worry that international institutions and international investment may so constrain economic policies during the transition that weak democratic institutions are swept away by popular discontent. This chapter takes a different view. I argue that the policies urged by international financial institutions are in fact the ones best suited to consolidating democracy in post-Communist countries, because inflation has such disastrous consequences. Unfortunately, however, the multilateral lending agencies are not very effective at constraining Russia’s economic policies. Instead, the most binding constraint on government policies comes from international capital markets; but the lessons that they teach are often learned too late, and the compulsion that they exert comes on the heels of economic disaster.