Massive aid to Russia won't help.

• Author: LaFollette, Karen

It merely would provide hard-liners with a new source of patronage and plunder, strengthen state institutions, and slow the transition to a market economy.

THE ARGUMENTS against aid to Russia that would strengthen the old order hold today just as they did when Western policymakers were anxious to save Mikhail Gorbachev and when they wished to support democratically elected Boris Yeltsin. In 1991, Yeltsin and Moscow Mayor Gavriil Popov opposed financial aid to the U.S.S.R. because they believed that it would be used by the Kremlin to prop up decrepit Soviet institutions. With real money at its disposal, the Soviet government would have been able to repurchase loyalties and subvert or slow the transition to democracy. Once the Soviet institutions began to decay, hard currency would frustrate real economic reform for the simple reason that there would be nowhere for the financial aid to flow except into reviving the very institutions that had caused the U.S.S.R.'s economic problems in the first place.

The West, in its desire to help, should resist the urge to pour in aid indiscriminately, especially in light of the Russian elections and the rebirth of militancy. Government-to-government transfers of more than one trillion dollars to the Third World since World War 11 have not helped those nations to develop. On the contrary, cutting-edge scholars in recipient countries have concluded that the aid has institutionalized corruption, entrenched atavistic institutions, and sidelined the private sector to the black market. In Russia, the danger is that reformers could be distracted by the opportunities for graft presented by large-scale financial transfers, and then there would be no one to undertake the transition.

No aid at all is better than using Western taxpayers' resources to undermine reformers by strengthening institutions that they have to overcome. Policy changes that would stimulate the private sector - deregulation, privatization, lowering the tax burden, and eliminating barriers to trade - can be accomplished without aid. The Russians themselves have to construct a viable market economy.

If the West is determined to help, there appear to be several constructive ways it might assist the transition. The Western nations could encourage the Russians to introduce reforms to stimulate entrepreneurship, enter into free-trade agreements with Russian and other struggling ex-soviet republics, promote private investment by eliminating disincentives to it in their own countries, help finance mass privatization of the Russian economy, forgive or restructure the foreign debt incurred by the former Soviet Union, and finance the dismantling of nuclear weapons. With most of the Group of Seven countries strapped by budget deficits, those suggestions have the advantage that none of them involve new large-scale financial transfers to the Russian government.

The West should advocate policies that will stimulate the productive area of the Russian economy - the emergent private sector. The focus should be on rapid privatization, deregulation, and the establishment of a favorable business climate based on a sound currency. The government should be advised to establish a regime of low taxation and minimal regulation, uphold and expand private property rights under a rule of law, and establish investment laws and trade policies that would attract foreign capital and stimulate rapid growth of the private sector.

Another way the industrialized nations could help Russia and the other countries of the former Soviet Union is by removing trade barriers. Nations that have received the most Western aid since World War II report that lowering barriers to trade is far more helpful to their development than are large amounts of government-to-government aid. For example, in Latin America, a region that has received more than $400,000,000,000 in development assistance since 1945, the catch phrase today is "trade not aid."

Some progress already has been made. The Bilateral Trade Agreement, signed by the U.S. and Russian governments in June, 1992, granted Most Favored Nation status to exports of both countries. The Bilateral Investment Treaty, which is awaiting ratification by the Russian government, would guarantee nondiscriminatory treatment of U.S. investments and operations in Russia, hard currency repatriation rights, expropriation compensation, and third-party international arbitration in the event of a dispute between an American company and the Russian government.

The industrialized countries further could help the former Soviet republics by eliminating subsidies to export industries to foster a Ievel playing field" in international trade. Particularly prevalent in agriculture, subsidies result in higher prices for domestic consumers and give an unfair advantage to privileged...