THE DOG THAT DIDN'T BARK

by Paul Goble

The most remarkable feature of the current Russian economic crisis is one that most commentaries have overlooked: namely, that the Russian collapse has not spread to the other post-Soviet states.

Even five years ago, most of the former Soviet republics were still sufficiently integrated that difficulties in the largest of them would inevitably have a large and immediate impact on all the others.

Now that has changed. More and more post-Soviet countries have succeeded in diversifying their trading partners so that problems in Russia will not be the determining factor in their development.

That is not to say that the problems in Moscow will not have an impact. Rather, the ways in which these Russian problems will affect the non-Russian countries are very different and more indirect than many are now assuming.

First, some but by no means all of the post-Soviet states remain sufficiently integrated with the Russian economy that problems in Moscow will have precisely the kind of impact that some are assuming will happen across the region. Ukraine, Belarus and Kazakhstan, for example, will be under enormous pressure to devalue their national currencies if the Russian ruble continues to fall.

Second, many of the post-Soviet states have not yet completed the reform of their economic and legal systems that would make them able to withstand negative trends abroad. These countries--which are in the majority--thus suffer from many of the same kind of problems that Russia does and for the same reasons. Without reforms, they cannot attract the kind of investment that will help power their future development. Indeed, the exceptions to this general pattern-- Estonia, Latvia, and Lithuania--prove the rule.

The three Baltic countries rapidly liberalized their economies and now enjoy some of the highest rates of Western investment and economic growth anywhere in the region. Those that have failed to reform their economies, on the other hand, are in increasing difficulty. But the primary cause of their problems is the absence of reform rather than difficulties in the Russian marketplace.

Third, all of these countries are profoundly affected by the attitudes of Western investors. Because the Russian market is the best-known, many in the West have concluded that all post-Soviet states and indeed all emerging markets are in the same situation. That is absolutely wrong. In the most recent quarter for which economic statistics are available, virtually all the post-Soviet states did better than Russia on virtually every measure of economic development, relative to the size of their markets.

But while those judgments are incorrect, they have an impact on the economies of the other countries in the region, an impact that some analysts in both Moscow and the West will undoubtedly suggest shows just how "integrated" the region remains.

To a large extent, this misreading of the economic situation in the post-Soviet states reflects a larger misunderstanding of the situation there. Nearly seven years after the Soviet Union collapsed, all too many in the West continue to refer to the countries there as "new independent states" and to think about the region as a single whole rather than as 12 new countries and the three restored Baltic States.

Such observers thus have missed the broad diversification over the last few years in a region dominated until a decade ago by a single center. If the Russian economic crisis does in the end have an impact across all these countries, it is far more likely to be the result of Western misperceptions than the product of integration left over from Soviet times.

1998, Foreign Area Officer Association
Springfield, Virginia
Maintained by LTC Steve Gotowicki.
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