Trip to Moscow Jude Wanniski April 1, 1991

On an official invitation from the Soviet government, received only last Tuesday, I'm flying to Moscow tomorrow for three days of meetings with top officials of the Gorbachev government. It now seems almost certain the government will formally accept my proposal of a joint Soviet/Polyconomics study of the USSR economy. The invitation comes from the Foreign Ministry, which has recommended the proposal to Prime Minister Valentin Pavlov, whom I am advised has approved the proposal in principle. I'd met Pavlov a year ago in Washington, when he was still Finance Minister, and hope to meet with him later this week in Moscow to formalize the agreement.

It would come none too soon, as the USSR is approaching political and economic crisis. In early September 1989 I traveled to Moscow with Federal Reserve Governor Wayne Angell, at the invitation of the USSR State Bank. Even then the economic situation seemed desperate, the coal miners having gone on strike earlier in the summer, the Baltic states kicking up their heels of independence. As I wrote in my client report, "Mission to Moscow" (September 14, 1989), Angell and I pointed out to our Soviet hosts "that the one economic tool a central government cannot decentralize is the value of its money. A gold ruble would set up centripetal forces, binding the outlying regions to Moscow, offsetting the centrifugal forces now working to tear the Soviet Union apart." In April of last year, I made a second trip to Moscow at the government's invitation and made a formal proposal of a joint study to Deputy Prime Minister Leonid Abalkin. The proposal languished until it was revived recently by Peputy Foreign Minister Ernst Obminski, who had been an academic economist in Moscow until he was drafted into the foreign service five years ago. Obminski, the equivalent of a U.S. Undersecretary for Economic Affairs, has offered to head the Soviet team. The WEFA Group of Bala Cynwyd, Pa., has agreed to participate as part of the Polyconomics team.

The Soviet government tomorrow initiates a poorly conceived "price reform" that will almost certainly cause more distress ~ holding some prices constant, boosting others, and freeing still others. In so doing, the government is getting further and further away from establishing a credible unit of account -- the prerequisite for all other economic reforms. Opposition forces, led by Boris Yeltsin, president of the Russian Republic, have no better idea of how to proceed than does the central government. The recently completed IMF-EBRD study, which the USSR government has asked us to critique, is not much help either. I hope that our study team, by June or July, can work out an approach to stabilize the financial system that will receive the support of the various factions. It's pretty dicey, though, any way we look at it.