Economists say Russia is 'going over a cliff'

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The Independent Online
The Russian government, led by the reformist Prime Minister, Yegor Gaidar, has put a brave face on its problems this week by issuing economic forecasts for 1993 that suggest life will become more difficult but not impossible for the country's 150 million people.

But some Western economists are not so optimistic. One said: 'The whole country is going over the cliff.'

Government experts predicted industrial production would drop by 8 to 10 per cent next year, compared with 18 to 20 per cent in 1992. Gross National Product (the total output of goods and services) would fall by 5 to 8 per cent, compared with about 25 per cent this year.

Almost 10 months after Boris Yeltsin launched Russia's free- market economic reforms, several Western and Russian experts believe his experiment may be at a standstill. Some say the reforms have created inflation, falls in output and a collapse in living standards so catastrophic that Russia's efforts to construct a stable democracy are under serious threat.

Mr Yeltsin's conservative opponents have exploited the sufferings of the people to strengthen their position in the government and presidential organs of authority.

The government forecast still implies tremendous hardships for ordinary citizens, particularly the unemployed and those on low incomes. But one government expert, Alexei Ulyukayev, said: 'We shall guarantee that there is no overall collapse of the system.'

Pavel Bunich, the first vice-rector of the National Economy Academy, said: 'The economy is geared to inflation. Health services, education and culture are either doomed to extinction, or their personnel will consist of good-for-nothings. A majority of Russians have become poor.'

Mr Bunich, who blames the government for allowing too many state enterprises to go bankrupt, added: 'When we have second thoughts, it will be extremely difficult to put back industrial plants into full operation. Their personnel will leave them, and their equipment will be stolen or become unfit to use. In short, we will have to start again from ruins.'

The Economics Minister, Andrei Nechayev, estimated that inflation, expected to soar above 1,000 per cent this year, would rise by no more than 10 per cent a month in 1993. However, Western economists such as Jeffrey Sachs, a Harvard University professor who advises the government, believe that may be optimistic. 'The money supply has doubled in the last three months and that is a recipe for economic disaster. The whole country is going over the cliff,' he said. Russia would need dollars 22bn ( pounds 13bn) in foreign aid next year to keep on its feet, he added.

The inflation is partly a result of a decision by the government and central bank last April to grant hundreds of billions of roubles in new credits to ailing industrial and agricultural enterprises. It has also been caused by an enormous expansion of money supply in other republics of the Commonwealth of Independent States, which have exported billions of roubles to Russia as payment for goods.

The recent collapse of the rouble against the dollar means that prices will soon soar for imports and products made with imported materials. The rouble, which stood at about 125 to the dollar in late July, fell yesterday to 338 on Moscow's new currency exchange.

The government has set up a commission, headed by a deputy prime minister and Gaidar ally, Alexander Shokhin, to draw up a programme of anti-crisis measures for the rest of this year and the first three months of 1993. It has made no mention of Mr Yeltsin's earlier promise that the worst hardships associated with the economic reforms would be over by the end of last August.

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