Soviet Economy

HC Deb 13 January 1992 vol 201 cc441-2W

Mr. Flynn

To ask the Chancellor of the Exchequer what recent assessment he has made of the effects on the Soviet economy of the advice he has given.

Mr. Norman Lamont

The authorities of the former Soviet Union and of the republics have been very keen to discuss their reform plans with the United Kingdom Government and others in the west. During my visit to the Soviet Union last summer, and in the many contracts which I have had in recent months with policy makers, I have urged the adoption of a comprehensive and radical reform programme with the aim of achieving macroeconomic stability and establishing a market economy.

Other G7 countries and the international financial institutions, in particular the International Monetary Fund, have been providing similar advice.

The United Kingdom set up a 'know-how-fund' for the Soviet Union in 1990 to provide technical assistance and advice. This fund was more than doubled to £50 million last summer. A number of other countries and the European Community are also providing technical assistance, training and advice to the ex-Soviet Union.

The Russian Government have now taken the first major step in the direction of creating a market economy by freeing most prices from 2 January. Many other republics have followed or will follow this move. I have constantly emphasised to the Russian Government, and the Governments of the other republics, the importance of continuing and intensifying their discussions with the IMF on the implementation of these and further reforms. Russia and the Ukraine have now both applied for full IMF membership. Other republics have also applied or are expected to do so soon.

In the short term, I expect that these reforms will lead to higher prices and a fall in output as inflationary pressures are brought out into the open and uneconomic enterprises close. However, I am convinced that in the medium term a successful move to a market economy will create the conditions for a substantial improvement in living standards. The ex-Soviet Union is rich in natural resources and has a well educated workforce. If reform is successful, the prospects for growth are very good.