Letter: Short-sighted Western politicians argue over pennies while time runs out for Russia

From Sir Fred Catherwood

Sir: Last week I visited two Russian ministers, saw three leading members of the Russian parliament, chaired an all-day seminar on defence conversion with the leaders of Russian industry and visited the local MiG plant on the way back to Moscow airport.

The Soviet economy collapsed because it piled all its resources into the defence industry until it could do no more. Whole cities depend on defence. Even in major cities such as St Petersburg, the defence industry is the dominant employer. Russian defence orders have been cut by 70 per cent, while the West has cut by only 10 per cent, because we cannot throw people out of work in a recession. Yet we have shuffled off this biggest political challenge in half a century to the IMF and given the political lead to the finance ministers of the G7, who demand, as bankers do, that further aid has to wait until Russia can cut its budget deficit.

Six months ago I organised a hearing in the European Parliament; it was clear then that these conditions could not be fulfilled. Russia could not throw all the workers in the defence industry on to the streets through a Russian winter. Forced to choose between hyper-inflation and hyper-unemployment, they would choose hyper-inflation because at least it buys time - and so they have. Meantime, the West has given them dollars 1bn (compare the dollars 71bn given us under the Marshall Plan) while spending an estimated dollars 100bn last year on defence equipment. Even the rescheduling of the debt is held up because the IMF conditions have not been fulfilled.

Both ministers I saw complained bitterly of the fix in which Western policies had landed them. The committee chairmen I met in the parliament may, for all I know, have been unrepentant hard-line Communists, but their arguments were the same as any member of parliament would put - that government policy had evidently failed and the country needed ministers who were closer to realities.

In Washington three weeks ago, I found that the Americans were beginning to see all this. Lee Hamilton, chairman of the House Foreign Relations Committee, told me that he considered help to Russia should now be the first foreign priority of the US, 'because failure there would affect everyone'. The Senate Armed Services Committee pointed to the Nunn/Lugar Act, which was transferring dollars 800m from the defence budget to aid for Russia - mainly in decommissioning nuclear weapons. And at the World Bank, they thought that Russia needed at least dollars 15bn to survive.

The European Parliament is having a second hearing on 28/29 April to see whether aid near the World Bank's dollars 15bn is practicable under an 'aid instead of arms' programme along the Nunn/Lugar lines. Whether or not that can be done, Russia has oil and gas reserves estimated to be worth more than dollars 1,000bn, and it seems absurd that it cannot raise loans on that for its reconstruction, especially when trade with a viable Eastern Europe is estimated at dollars 200bn to dollars 300bn a year.

Following President Yeltsin's announcement of a vote on 25 April, we are in a race against time. If we count the pennies as the centre quarrels and Russia falls apart, we will soon have local warlords in charge of the fully primed nuclear arsenal. This is not a time to leave it all to the IMF, it is a time for generosity and political leadership.

Yours sincerely,

FRED CATHERWOOD

Vice-President, Foreign Affairs

and Security Committee

European Parliament

Brussels

22 March