The Global Crisis: Moscow - A train off the rails: The spectre of Weimar hovers, but no Hitler - yet

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The Independent Online
ANYONE LOOKING for proof of Russia's economic disaster need only telephone its official statistics department. Ask how many squillions of roubles are now owed to the country's workers, and how many months these unfortunate people have waited for their money.

You might think that as this information is of unarguable public interest, particularly to Russia's army of international creditors and to its even larger army of miserably poor, it would be freely available. Wrong.

So dire is today's crisis, the state's fact-gatherer, Goskomstat, charges the equivalent of pounds 5 from members of the public who want the latest news about how much their government has - without so much as asking - borrowed from them. As this is a week's income for the 40 million Russians below the official poverty line, few of them can now afford to find out.

In fact, the wage arrears bill stands at more than 77 billion roubles (pounds 2.1bn) - although not all is owed by the federal government. Of this, pounds 470m is owed to teachers, of whom tens of thousands went on strike last week because they, too, had not been paid. Two officials were taken hostage to publicise their misery. But Russia is used to the sight of its own suffering; the media paid scant attention.

The bubble burst last August, but trouble had been brewing for months. A key source of hard currency - the sale of oil and gas - had dropped sharply amid a fall in world prices. Tax collection was, as usual, inadequate. With a widening hole in its budget - and the clamour of unpaid miners, doctors, pensioners and many others ringing in its ears - the government relied increasingly on short-term borrowing, selling T-bills often to under-capitalised and criminally controlled banks. Asian jitters helped to drive interest rates through the roof, locking the government into a mad cyclical scramble to raise money at increasing cost just to stay abreast of maturing short-term debt.

In the end, the train came off the rails. A pounds 14bn IMF rescue package failed to inspire investor faith. Moscow defaulted on foreign and domestic debts, and abandoned its battle to defend the currency. The rouble dropped in value by 75 per cent.

Scattered signs of recovery, brandished by the more optimistic Western economists in 1998, vanished at once. Foreign investors fled and tens of thousands of young Russians - the beginnings of an urban middle-class - found themselves out of work as the economy sank back into refrigeration. Russia's annual per capita income - 4 per cent of the United States' - is expected to drop this year to pounds 750 and perhaps lower. Economic output of this vast former superpower is forecast this year to be well short of that of Belgium.

The causes of this disasterare rooted in both the chaotic aftermath of the break-up of the Soviet Union and the Communist empire itself. Chief among them was the failure of Russia's privatisation programme. Industries that should generatewealth were too often sold for a pittance in rigged auctions to cliques of Soviet-era managers intent on excluding outsiders at any cost, and thereby choking investment and growth.

The West sought with evangelical fever to impose an economic creed on a society where decades of Soviet management - with its bartering, bogus production figures, institutionalised corruption and centralised government - had created an environment lacking the basic requisites of a market economy. Without the right tools - such as access to long-term cheap credit, functioning laws and real competition - there was never much hope of kick-starting the engine of reform.

So what next? The IMF, which has already lent pounds 12bn to Moscow, is trying to decide whether to hand over more. Russia faces another possible default on a slice of its pounds 94bn external debt; it has already said it can only pay pounds 6bn of the pounds 11bn (including pounds 2.8bn to the IMF itself) that is due this year.

The IMF wants promises of good behaviour before signing another cheque, and no rouble printing sprees. The Russians seem to be gambling on the fact that the fund will cave in, partly because its Western shareholders fear isolating a volatile nuclear power and partly because another Russian default would further damage the IMF's credibility. Russia hopes the low rouble will boost exports and revive moribund domestic production.

Whether it can contain the worst of its Soviet reflexes is unclear, but the signs are not hopeful. One such came last week when a senior minister, Vadim Gustov, fulminatedagainst the need to close any coal mines - the centrepin of a World Bank-funded plan to restructure the hugely subsidised and outdated mining industry.

No one knows what the social and political consequences of further economic decline will be. The more despairing onlookers summon up the spectre of the Weimar Republic. They comfort themselves in the knowledge that there is no Russian Adolf Hitler on the horizon. So far.

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