In 1993, one of the biggest challenges facing the West was to ensure that Russia managed a peaceful transition to a fully fleged democracy based on free market principles.  The assistance proposed by the West emphasised financial aid rather than the need for fundamental reform of land and property rights.

This paper addresses that problem and was based on some of the following premises:

· That Russia's problem were unique in scale and complexity;
· That western governments were incapable of allocating resources as efficiently as freely-operating markets;
· That the programme of privatisation being pursued by the Russian government was fragile; and
· That western efforts should have been aimed primarily at encouraging the formation of a stable investment regime.

The paper argues that the most effective way western governments could help Russia was not by extending aid but by offering to underwrite its social safety net so as to catch the unemployed and other casualties of the sweeping economic transformation that is needed.

A market-driven solution to Russia's attempts to achieve reform was proposed and would create internationally tradeable assets whose value could be expected to appreciate substantially over time.  As the benefits of these proposals materialised, Russia would develop a strong incentive to see economic reform through to completion.  Consequently, western governments would be able to claim to their constituencies that money spent purchasing bonds to finance the programme had every prospect of being repaid in full.