"They Are Going to Pursue Dangerous Policies"

By GEORGE M. TABER, JEFFREY SACHS

Last week Harvard economist Jeffrey Sachs resigned as adviser to the Russian government. On Friday he spoke with TIME's George M. Taber.

TIME: Why did you quit?

Sachs: Because I think the new government is going to pursue incorrect and even dangerous policies. The communist Old Guard has essentially retaken almost all the major power positions. That made it impossible to continue.

TIME: Dangerous in what way?

Sachs: Russia has been living on the edge of hyperinflation for two years. The most urgent task of reform has been to create an atmosphere of monetary stability. Inflation could get completely out of control and create profound social and political instability. The reformers struggling against this have faced intense resistance from the communist Old Guard, who have been pressing for enormous loans -- gifts, really -- to the military-industrial complex and to state farms. A lot of these loans are pure corruption. Others are attempts to keep alive money-losing parts of the economy. While the reformers succeeded in keeping the country away from hyperinflation, they have not been able to achieve monetary stability. Russia today has an inflation rate of 10% to 20% a month, but that is likely to go up significantly.

TIME: Is Russia on the brink of hyperinflation?

Sachs: Hyperinflation is not an act of nature. It is a result of government policies. So it depends on what the government does. But the people who have been fighting to stop the rampant printing of money are gone. The people who are now in power have very little self-control. The central-bank governor is a huge fan of the rapid printing of money. The restraints to inflation that existed before are gone. In Ukraine, where there has been a reform-communist government like this in power for two years, the inflation rate is 100% a month.

TIME: Shock therapy has been criticized for being too much shock and not enough therapy.

Sachs: There was no shock therapy in Russia. The reformers advocated it, but they never had the political power to implement it. The economic pain has been caused not by shock therapy but by a combination of three other things. First, the pain of communism's collapse, which was there well before the reformers. Second, the incredible inconsistency of policy because reformers have been battling conservatives for two years and have been unable to implement a strong reform program. Third, Western help never came and never helped cushion the change. ((U.S. Deputy Secretary of State)) Strobe Talbott did a terrible disservice to the reformers with his glib quip that there had been too much shock and not enough therapy. That was not U.S. policy, but boy, did it hurt Russian reformers badly.

TIME: A lot of reform is already in place. Can that be undone?

Sachs: Russia will not go back to central planning, but there is no guarantee that they will go forward to a working market economy. They're midway. The current is very fast in the middle of the river, and things could still get swept away in chaos. With a half-reform economy, huge budget deficits, corrupt lobbying groups, you could get rampant inflation. That could produce rampant political polarization and eventually a breakdown of the very fragile democracy.

TIME: What should the West do?

Sachs: We blew it in the past two years, when there were reformers in key positions. We withheld aid without realizing that it could have given them tremendous tactical support. We should continue grass-roots programs like student exchanges and technical assistance. But the large-scale aid, which should have been given before, is now likely to be wasted.

TIME: Is shock therapy dead?

Sachs: In countries that have undertaken real reforms, they are working. If you look at countries like Poland, the Czech Republic, Estonia or Latvia, inflation has been nearly eliminated and growth has been restored. Whether it is a left-of-center government, as in Poland, or right-of-center government, as in the Czech Republic, they are all following the same policy of privatization, open trade and integration with Europe. The policies work. There are lots of experiments going on. The successful countries uniformly are the ones undertaking strong reforms. The countries that are falling far behind or into chaos are the ones that have failed to take strong reform measures.