Market holds its breath at red return

Russian reforms could be under threat, writes Yvette Cooper

"I want to cast my vote like every other Russian. I'm hoping there will be a ballot box in the Russian consulate." Vladimir Rojankovsky, on a work attachment with city stockbrokers James Capel, is just one of many frustrated Yeltsin voters stuck in London during today's presidential election. Whether it be courses in economics, classes in finance and business, or exchange programmes with City firms, the Russians are here - and learning fast.

The big question is whether their market-oriented skills and experience will be much use to them when they return, if communist leader Gennady Zyuganov is elected president. "I don't want to be a pessimist," says Vladimir, "but I think the opinion polls underestimate the communist support. If Zyuganov wins, my position is vulnerable."

He is right to be cautious. Despite bullish confidence among the Yeltsin campaigners, no one can be sure of the outcome either today, or in a second round head-to-head between Yeltsin and Zyuganov if neither wins outright. True, the opinion polls this week put Yeltsin ahead, but these have understated the communist vote. Pavlov Peplukin, former advisor to the Russian government and chief economist of the Russian investment bank Troika Dialog, says: "In Moscow everyone is certain Yeltsin is going to win. But Moscow isn't Russia, and that's what worries me."

Not that anyone can predict what will happen even if Zyuganov does win. The Communist party has remained remarkably slippery about what it would do with power - largely because members disagree so vehemently with one another. At least three economic policies emerged as different factions leaked their proposals before the final draft was agreed. Some favour atavistic measures to restore elements of Soviet planning whereas the moderate communists sound almost like European social democrats.

But what about Zyuganov himself? In his speeches several important themes recur: protectionism and hefty support for key industries and massive increases in state spending on welfare-state transfers, science, education, health and defence.

This kind of industrial policy would be a disaster for Russia's real economy, which is only starting to recover. One of the reasons the economy contracted so dramatically during the transition was because such a large proportion of the resources were tied up in industrial production. A sustainable economic future depends on redeploying those resources in response to domestic and international demand.

Macro-economic prospects for Russia under Zyuganov don't look too promising either. Rising inflation, rapid capital outflows and a collapse in inter- national confidence all look likely, as the communists try and fail to fund massive spending plans. Tax revenues are proving hard to collect, thanks to poor administration, plenty of allowances, and sophisticated tax evasion.

According to Peplukin, further borrowing - and funding existing debt - will be a problem. The $10.2bn (pounds 6.1bn) IMF loan has tight strings attached, and neither international nor domestic markets will be keen to lend to a communist government they distrust. Nor could Zyuganov just decide to print money to finance his plans - not without persuading the governor of the independent central bank. Of course they could always resort to unconstitutional strategies like ditching the governor.

However, it is possible that a sensible communist president might find himself bounced by financial crises and fiscal constraints back into a policy that looks just like Boris Yeltsin's.

Of course, it won't be an easy ride even if Yeltsin is re-elected. Large sectors of the economy remain inefficient and unproductive. Lack of faith in the rule of law - to enforce business contracts as well as to protect people on the streets - constrains business confidence and investment. Although inflation is falling and the economy is growing, Yeltsin has little fiscal freedom to manoeuvre. As a result, much-needed welfare support to cope with growing inequality is not forthcoming.

But it is too easy to succumb to a Russian gloom about the future. In a new book - The Coming Russian Boom, to be published next month - Professor Richard Layard of the London School of Economics and John Parker, a journalist, provide an optimistic prognosis. They argue that the country's natural resources and educated population mean that the only question is when, not whether, Russia will prosper. As Vladimir says: "We can be optimistic as long as there are no more shakes. All we need is a quiet and supportive atmosphere in which people can start producing and doing normal things."

Start your day with The Independent, sign up for daily news emails
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Marketing Manager - B2B, Corporate - City, London

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Loren Hughes: Financial Accountant

£45,000 - £55,000: Loren Hughes: Are you looking for a new opportunity that wi...

Sheridan Maine: Finance Analyst

Circa £45,000-£50,000 + benefits: Sheridan Maine: Are you a newly qualified ac...

Day In a Page

General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?
How Tansy Davies turned 9/11 into her opera 'Between Worlds'

How a composer turned 9/11 into her opera 'Between Worlds'

Tansy Davies makes her operatic debut with a work about the attack on the Twin Towers. Despite the topic, she says it is a life-affirming piece
11 best bedside tables

11 best bedside tables

It could be the first thing you see in the morning, so make it work for you. We find night stands, tables and cabinets to wake up to
Italy vs England player ratings: Did Andros Townsend's goal see him beat Harry Kane and Wayne Rooney to top marks?

Italy vs England player ratings

Did Townsend's goal see him beat Kane and Rooney to top marks?
Danny Higginbotham: An underdog's tale of making the most of it

An underdog's tale of making the most of it

Danny Higginbotham on being let go by Manchester United, annoying Gordon Strachan, utilising his talents to the full at Stoke and plunging into the world of analysis
Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police

Steve Bunce: Inside Boxing

Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police
No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat