Russians told there is no alternative: Helen Womack in Moscow on the plummeting rouble

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The Independent Online
RUSSIA'S new Prime Minister, Viktor Chernomyrdin, shocked conservatives in parliament last week by giving an uncompromisingly monetarist speech.

As the ex-Communist deputies, who were hoping to hear him announce plans for increased state spending, gasped in disbelief and disappointment, he declared: 'We cannot spend money that we do not have. The state of our economy leaves us little room for manoeuvre.' It was a speech that could have been made by Yegor Gaidar, the architect of Russia's free market experiment, who was ousted under pressure from conservatives last December.

Mr Chernomyrdin, a former oil industry bureaucrat, gave the impression when taking over that he intended to satisfy Congress by increasing support to ailing industry and beefing up social welfare. His first act was to release millions of roubles from state coffers for the oil industry. And he followed this up with a decree restoring price control, although he later had to rescind it.

So what happened to convert the apparatchik to market reforms? Perhaps he learnt some quick lessons from the rest of his cabinet, almost all young economists who had served Mr Gaidar and who President Boris Yeltsin insisted must stay on to keep reforms on track. More likely, he sobered up when he saw January's inflation figures and realised he had his back to the wall. All he could do was fight to prevent inflation of 50 per cent a month from turning into hyperinflation, and to attack the budget deficit, projected to rise this year to 3.5 trillion roubles (dollars 6.1bn).

Russians already know all about inflation, which has been gathering strength over the past year and threatens to create a platform for fascism, as in pre-war Germany. Millions are living on, or not much above, the official minimum wage of 2,250 roubles (just over dollars 4) a month. It is a struggle for survival: a piece of cheese now costs 600 roubles and a loaf of bread 20 roubles.

At first, inflation rose quite slowly as Mr Gaidar, having freed prices in January 1991, kept a tight rein on state spending. But control was lost in the summer when the Central Bank, which answers to parliament, brought back its old head, Viktor Gerashchenko. When he saw the danger of mass unemployment looming, his response was to issue large credits to lame-duck state industries. From then on, there was nothing to stop inflation, which reached a level of 2,200 per cent for 1992.

Now it is rising at 10 per cent a week and lapping at the threshold of hyperinflation, beyond which, experts say, complete anarchy overcomes the economy. As a hedge against inflation, Russians are desperate for US dollars, and the rouble-dollar exchange rate speaks volumes. Before reform, the rouble was worth dollars 1.67 officially, though less on the more realistic black market. Last August, it was 163 to the dollar, but last week it crashed through the psychological barrier of 500 to the dollar, reaching 572 at Moscow's Interbank Currency Exchange and 650 on the street. It steadied only after Mr Chernomyrdin promised to strengthen the local currency, but without resorting to the artificial exchange rates favoured by the Communists.

One effect (and cause) of the economic nightmare has been a catastrophic flight of capital from Russia. According to Security Ministry estimates, the outflow last year was as much as dollars 26bn: dollars 8bn more than the West sent to help Russia build capitalism. Cyprus and the Bahamas are reported to be popular 'offshore' places for Russian businessmen with illegal funds, and members of the mafia - who easily evade the government's inefficient tax collecters and are conspicuous on the streets of Moscow in new Mercedes and BMW cars - are said to be building villas for themselves abroad. At the same time, leading democratic politicians have discredited themselves by taking bribes from shady entrepreneurs.

Not surprisingly, resentment and disillusionment are growing, playing into the hands of the hardliners whose power struggle with Mr Yeltsin is not yet over. In April, Russians are to vote in a referendum on a new constitution, and that vote will come down, one way or another, to a choice between empowering either the President or the deputies in a Congress created in the Soviet era. Also coming up soon are elections for Moscow mayor, in which at least two openly fascist politicians will be standing.

Opinion polls show that Mr Yeltsin still enjoys more popular trust than any other politician, but the kind of active enthusiasm needed to get people to go out to vote for him is tailing off, compared with the heady days after he defeated the hardline coup attempt in August 1991. People such as Nina, a cleaner, were enamoured of Mr Yeltsin then, but her verdict last week was: 'Russia's in a right mess, and Yeltsin is doing nothing except travelling abroad. I'm not one of those people who say we need a new Stalin, but I won't be bothering to vote in the referendum.'

A few million more like Nina, surrendering to apathy, could open the way for those who argue that what Russia needs is a good dictatorship. But even a dictator would not be in power long before being struck by the economic reality that faced Mr Gaidar and now faces Mr Chernomyrdin: Russia is bankrupt.

(Photograph omitted)