2.1 The Course of Economic Policy
New Strategy
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A new strategy for the reformation of Russia's
post-
socialist economy might be built upon the following
principles.
It is necessary to reject an orientation toward short-term
success in economic policy ("shock" methods of
fiscal and
monetary policy, "voucherization" as means of
institutional
transformation, etc). Success is possible only given a long
interval of time. Economic policies must be oriented toward
the achievement of long-term goals.
The priority in this transformation must be devoted to
those systemic changes in the economy which, in the future,
will provide the possibility of economic recovery. This
is especially important if one considers that systemic changes
are, as a rule, irreversible.
The greatest demand upon fiscal and monetary policy is not
to disrupt the systemic transformations, but, as much as
possible, to stimulate them. There must be found a way to
conduct fiscal and monetary policy so as not to interfere,
even in conditions of high inflation, with the pursuit of
business activity and investment. The most important feature
of such fiscal and monetary policies is
predictability.
One must stop the practice of arbitrarily changing the
rules of economic activity such as in the spheres of
taxes, credit distribution, the parameters of foreign
economic activities, etc.
The public's panicky inflationary expectations must be
replaced by rational ones. That with which the developed
market economies struggle might become a guarantee for
stability in our economy.
In order to do that it is necessary to create in the economy
a "nominal anchor," following the dynamic of which
industry
and the public would be able to predict rationally the
dynamics of the macroeconomy as a whole and thereby plan
their business and investment actions. However, the
stabilization of the current exchange rate level is not
possible; this is a long-term task. One might create a
unique "floating nominal anchor," deciding on
a standard
change in the single commercial rate of the rouble depending
upon a percent or absolute equation. Using a percentage
equation this assignment would be continuous. An absolute
equation would yield a continually declining rate of
inflation. It is clear that an unconditional commitment
by
the government to carry out this floating rate is necessary.
Upon that commitment must be built the entire macroeconomic
policy. A back-stop fund of hard currency reserves might
act
as a shock absorber. Such a fund could be created by
Russia's own reserves or by borrowed funds in the amount
of,
say, three months worth of imports. The shrinkage or growth
of such a fund would be a signal to tighten or loosen fiscal
or monetary policies.
If we accept the impossibility of a sharp
reduction in the
rate of inflation, we must then take the next best step
--
minimize the loss due to inflation. In order to minimize
the
redistribution of financial resources, which is tied to
rising prices, it is necessary to create a mechanism of
wage
indexation and a range of other indicators. Presently there
are newly formed economic policy pressure groups from the
side of industrial enterprises, agriculture
and other social
and economic spheres. This provides the possibility of
creating a "social peace pact against disorder,"
which would
guarantee the confidence and backing of manufacturers,
agriculturalists and different pressure groups in the
execution of several measures; the indexation of state
budget expenses (including wage indexation for workers in
state budget funded organizations), indexation of income
tax, of the interest rate charged for credit by the Central
Bank of Russia and of taxes on the increases in the average
wage rate, etc. Indexation would have to be tied to the
dynamic of the rouble's exchange rate.
In this manner one achieves a logical noncontradictory
mechanism of macroeconomic control. Elements of such a
mechanism are well known and have already been used in part
during 1992. They have been used in different combinations
in several other countries (e.g., a standardized mechanism
for the Mexican exchange rate during the late 1980s, Japan's
system of fine-tuning its macroeconomic regulation in its
support of the yen from the 1950s to the 1970s, etc). At
the
same time the individual composition of the reform must
not
take a standard form, invariable with its change of venue.
The mechanism used must be unique to each country,
especially for a country as unique as Russia.
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