Required Reading

Another Sachs Solution

Jeffrey D. Sachs '76, Stone professor of international trade, in the same issue of The Economist, offers advice on how the International Monetary Fund can help rescue the new Russian Republic. Here's part of the Sachs Solution (dire warning: Ec 10 may not be enough to understand what follows):

It is clear that the West has so far responded inappropriately to the engulfing financial crisis...What [the IMF managing director] should propose, and offer to help co-ordinate, is the following:

Economic Reform: First, and most important, the IMF should seek to negotiate a formal macroeconomic programme with every ex-Soviet republic prepared to make the radical reforms needed. In effect, it should treat the republics as member countries, their programmes being subject to approval by the IMF executive board and to standard IMF monitoring and conditionality...

The Money: Since the republics are not in fact members, the IMF will not be able to lend directly to them. Instead, it must rely on western governments to do so. At the same time, preparations for full membership should move forward...A plausible financial package to back the Russian programme should be set as follows: Russia will need a stabilisation fund of around $5 billion to help peg the newly convertible rouble...In addition, Russia should receive in 1992 around $6 billion of general balance-of-payments support, and another $6 billion of food aid.

Technical Assistance: The IMF should urgently sponsor technical-aid missions to the Russian central bank and finance ministry (and soon to the other republics).


Foreign Debt: The IMF should call on western creditors--governments, suppliers and banks--to forgo all debt service, interest and principal alike, in 1992. As in any virulent financial collapse, a stand-still is needed while the bankrupt party puts its house in order under new management. The debts would still remain payable, in full, eventually.