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RUSSIA: The ghost of Carlos Salinas

Christopher Jones wonders if Russian prosperity is a bubble: "Cameron Sawyer's views on the German malaise are correct and even a little mild. I would go even farther. But it is the Russian situation that most interests me. The numbers look great but it sounds too good, even a little creepy, in other words just like Mexico under Carlos Salinas or Argentina under Menem. What Cameron Sawyer has not told us is how the Russians are financing their government debt. The real problem with Salinas' management of the economy and the Peso/dollar exchange rate was the fact that the Mexican government borrowed on a very short term basis. In a myriad of bonds called "Ajustabonos" they guaranteed refunding in US dollars. When the Peso came under pressure and the government committed the stupidity of wasting their reserves (and mighty they were) on intervention depleting the money necessary for those paybacks. If became a vicious circle that forced the government to come up with cash in any way possible. This led the country down a path that ended in depression, Salinas leaving for exile and the end of PRI's monopoly on the presidency. If hope the Russian authorities have learned from the Mexican experience and finance state debt long term. Cameron Sawyer is right to be very proud of Russia's economic performance, but there in almost every point he lists, the Mexican economy under Salinas looked the same. At one point the dollar was falling below 3 pesos, there was a government budget surplus and personal incomes were on the rise. Russia should learn from Mexico's unhappy past so it does not repeat those mistakes in the future".

RH: See the next posting on Marshall Goldman.

Ronald Hilton - 6/16/03