Give macroeconomic stability and growth in Russia a chance - Harden budgets by eliminating non-payments

This paper identifies and investigates conceptual and empirical links among Russia's disappointing growth performance of the mid-1990s, its costly and eventually unsuccessful stabilization, the macroeconomic meltdown of 1998 and the spectacular rise of non-payments. Non-payments developed into a sys tem that flourished in an atmosphere of fundamental inconsistency between a macroeconomic policy geared at sharp disinflation and a microeconomic poli cy of bailing-out enterprises through soft budget constraints. It embodies a large volume of untargeted, implicit subsidies in the order of 7-10 per c ent of GDP, which has stifled growth, contributed to the 1998 meltdown thro ugh its impact on public debt and made at best a questionable contribution to equity. The overwhelming priority at this point is to dismantle this sys tem, thereby promoting enterprise restructuring and growth (by hardening bu dget constraints) and medium-term macroeconomic stability (by reducing the size of the subsidies). JEL classification: E61, E63, E65, P26.