Mistrust among former republics has complicated the race toward independence in the USSR. The West is paying too little attention to that as it hurriedly revises its ideas about the types of aid the former republics should receive and the economic unions they should form. This mistrust can be overcome by redefining the traditional notion of sovereignty.
Among widely publicized ideas is the notion that the West should provide only humanitarian and technical support until the former republics offer minimum assurance that the aid will not be wasted. Another idea concludes that regardless of the chaos in the Soviet Union, the West should come forward with substantial financial aid. Yet another theory advocates that international organizations should distribute financial assistance conditional on the implementation of detailed economic policies in each former republic.
These diverse ideas assume that the former republics will realize that it is in their own best interest to form an economic union. That assumption may seem especially reasonable in light of the recent efforts among some republican representatives to create a tariff-free economic union. It is important to note, however, that similar agreements reached during the past two years have never been implemented because of an inability to agree about the distribution of taxes, expenditure responsibilities and ownership of infrastructure. Even though the latest negotiations have borne some fruit, no convincing provision has been made for a stable monetary policy.
The West should offer the republics generous financial and institutional incentives to form a common currency, a single, independent central bank and low internal tariffs. By concentrating only on these areas, this strategy could be implemented quickly and may increase the number of participating countries. While membership in this economic union should not be the sole criterion for aid, some minimal participation is needed to benefit from the prevailing structure of economic integration-say that of Russia, Byelorussia, Ukraine and Kazakhstan. By limiting the initial length of the union to the number of years the West would be willing to offer aid, say five years, members would have time to rethink their commitments once their economies became more market oriented. By staying out of the republics` politics, the West would be pursuing a foreign policy that respects the independence of newly emerging countries.
The fact that the former republics are unusually interdependent in terms of energy, raw materials and components for manufactured goods is the reason for this proposal. The absence of an economic union would make it much more difficult to take advantage of long-established relationships, thus forcing firms to close their doors and greatly increasing the short-term economic costs of political independence.
The arguments in favor of a common currency, a single, independent central bank and low tariffs would be compelling in themselves were it not for mistrust among republics. A stable common currency would eliminate exchange-rate uncertainty and lower transactions costs. This and a larger internal market would, in turn, lead to greater trade and investment. Even more important in the short term, business associates in the participating republics would have the option of maintaining traditional contacts without having to obtain scarce convertible currency. Moreover, benefits for the West would include better use of aid and a diminished probability of mass immigration.
The importance of an independent monetary authority dedicated to maintaining the value of the currency cannot be overemphasized given the widespread prevalence of barter. This monetary authority would be forbidden to fund budget deficits of any type. While this is a tough policy to impose so strictly and suddenly on economies in transition, trust in the value of the currency needs to be established.
Low, non-discriminatory tariffs would enable consumers to purchase goods to which they have become accustomed. Ideally, the non-discriminatory internal tariffs would be zero, although each republic`s efforts to attract foreign capital could result in tariff protection of newly formed companies. The tariffs, nonetheless, should be low and non-discriminatory among union members.
More controversially, the union should be formed with the explicit involvement of representatives from donor Western countries in the actual management of the single independent central bank, the aim of which would be to reach and maintain monetary stability. To do this, both the excess volume of money in circulation and the flow causes of inflation (budget deficits, expansion of involuntary inter-enterprise credit and the accumulation of tax arrears) should be eliminated. In addition, the single, central bank should have responsibility for the uniform supervision of commercial banks and financial markets.