[FOUNTAIN]Mr. Rubin’s economic prescription

In 1998, Russia was a unique case. Unlike the Asian countries of Thailand, Indonesia or Korea, Russia had thousands of nuclear warheads ready to be launched at the United States. The markets began to say Russia was “too nuclear to fail.” Even on the verge of economic collapse, Russia was not prepared to agree to economic reforms in exchange for rescue packages from the United States and the International Monetary Fund.
In July, the United States and the IMF promised a total of $23 billion to Russia, and provided $5 billion as a start. Concerned that a possible worsening of the political climate could trigger further damage, then White House national security adviser Sandy Berger insisted on giving additional funding immediately. The U.S. secretary of state, secretary of defense and chairman of the joint chiefs of staff shared that opinion.
But the Treasury Department and Secretary Robert Rubin opposed the idea. Mr. Rubin insisted on no further cash for Russia as long as it did not accept reform. He did not want Russia to think the IMF’s rescue package was a free lunch. Firmly believing in the “too-nuclear-to-fail” mantra, some investors sank a large sum of money into Russia, and Mr. Rubin considered the moral hazard of benefiting them. Unconditional aid would only fatten the wallets of Russian oligarchs and foreign investors. Because of Mr. Rubin’s ardent opposition to assistance, Russia declared a sovereign default in August. Many foreign investors lost money, and the American stock markets and international financial markets fell into chaos. But the markets soon recovered stability, and Russia had no choice but to accept market reform. Now, the Russian economy is on the rebound.
In his memoir, “In an Uncertain World,” Mr. Rubin wrote that an unconditional rescue package had its benefits, but on a more fundamental level he was right to refuse further financial help. He has famously said that he was raised in the market, and claimed that it was important to stick to economic theory based on market principles.
So-called Rubinomics oversaw the longest period of economic prosperity in American history, and the essence of it was market theory. His memoir is required reading for Korean economic officials, who would often neglect market principles, justifying themselves with political and social reasons or temporary market confusion.

by Lee Se-jung

The writer is a deputy business news editor of the JoongAng Ilbo.