Casualties grow as Russia counts the cost of war

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Vladimir Putin admitted for the first time yesterday that his policy of war in Chechnya was having a severe effect on the Russian economy.

Vladimir Putin admitted for the first time yesterday that his policy of war in Chechnya was having a severe effect on the Russian economy.

However, the Communist-dominated Duma, the lower house of parliament, gave an easy ride to the Prime Minister, a former KGB agent who has won sudden popularity because of his determination to restore Russian rule to Chechnya.

Even when he let slip the "state secret" that the "anti-terrorist campaign" had already meant additional expenditure of three billion roubles (£470m), the deputies hardly stirred.

As far as they and 65 per cent of constituents are concerned, avenging the army's humiliation in the war of 1994-96 against Chechnya is worth every rouble. Mr Putin, in a speech marking his first 100 days in power, was allowed to get away with his cautiously optimistic economic assessment.

For the time being, at least, the Russian public seems to be accepting the disturbing casualty figures - which have been published though hardly given prominent coverage in the newly patriotic Russia media. With 460 soldiers dead and 1,500 wounded since August, the army is losing men at about the same rate as Soviet forces did in Afghanistan, where 15,000 died in 10 years of war.

But there is some dissent. "Not since Soviet times have we heard such monstrous lies," said Valentina Melnikova of Soldiers' Mothers, one of the few organisations to question the official line that this time the army's war of "liberation" in the Caucasus is going smoothly.

From the financial view, it seems the Russian economy can bear the burden. International Monetary Fund loans to Moscow are not yet in question, although they could be suspended if pressure for sanctions mounts in the West. But Russia says it is ready to live without foreign aid.

Mr Putin predicted that the economy would grow by 2 per cent this year, which would be the first such achievement since the Soviet Union collapsed in 1991. Production was up by 7.5 per cent, inflation was steady at 31 per cent, unemployment was down and the state had paid off its debt to pensioners, he said.

Corruption and the flight of capital at $1.5bn per month remained a problem, he said. Russia was still not ready to integrate into the global economy and it would be a while before Russians recovered the levels of relative prosperity they enjoyed before the economic meltdown of August 1998. But already it was possible to speak of a "modest upturn".

However, as Mr Putin admitted, the dire Russian economy has only improved because of last year's rouble devaluation, a move away from imports and the sudden rise in the price of oil, which is Russia's main earner. For none of these things can the Prime Minister claim any personal credit.

Rather, he is now breaking into the $4bn (£2.5bn) windfall to the budget that has come about as the world price of oil has jumped from $10 to $25 per barrel. According to yesterday's Moscow Times, the Russian Central Bank is spending an unsustainable $100m per day to prop up the rouble as the war puts extra strains on the Russian currency.

Despite heavy dollar sales, rouble cash balances in commercial banks had hardly changed, implying that the dollars were being soaked up as the government printed money to pay for the Chechen campaign, the newspaper said.

If Russia is storing up economic trouble for itself because of the war, then the situation on the ground - so far described in an upbeat manner by the military and Russian media - could also deteriorate.

Russian generals crowed at the weekend that they had the Chechen capital of Grozny "80 per cent surrounded" and predicted that they would soon take it "without firing a shot", as they have reoccupied several small towns in lowland Chechnya.

But Chechen officials said there were still big gaps in the "ring of steel" around the city, where some 5,000 Islamic fighters were reported to be waiting for the Russians.

Another 3,500 guerrillas were also said to be in the town of Urus Martan, 12 miles southwest of Grozny, and the Chechen President, Aslan Maskhadov, declared that they would make a stand there. Then the Russians, who have so far kept down their own casualties with air strikes that have put Chechen civilians at great risk, would have their first face-to-face encounters with the determined separatists.

"The real war has not started yet," said Pavel Felgenhauer, a Russian military analyst. "The rebels have been retreating and now they are waiting to engage the Russians in close combat."

At that point, the Russian appetite for the war might begin to wane. However, as long as Russians are still fired by anger over the Chechens' alleged terrorist attacks in Moscow in September, Mr Putin remains the front-running politician - so much so that December's parliamentary elections have lost much of their potential to excite.

Fatherland-All Russia, the anti-Kremlin bloc that was tipped to do well, has now found it politically expedient to support Mr Putin, who is President Boris Yeltsin's chosen successor, leaving the Communists as the only real opposition force.

Mr Putin yesterday endorsed the Unity bloc of Sergei Shoigu, the Emergencies Minister who has had to deal with the refugee crisis in Ingushetia. Unity was a constructive force with which he could work in future, said Mr Putin, clearly starting to believe the opinion polls, which show more than 30 per cent of Russians now envisage him as their next President.