Leading Article: Cautious Russians learn to thrive

BORIS YELTSIN faced such daunting economic odds a year ago that he must have been tempted to yield to Dostoevsky's dictum that 'the formula 'two and two make five' is not without its attractions'. But through cautious change and a degree of political subterfuge, Mr Yeltsin may just be presiding over the transformation of Russia into a country with sound money and a recognisably developing economy.

Mr Yeltsin himself has summed up the cultural change that is overcoming Russian managers and business people. 'Economic conditions are being decided more and more not by how many concessions you can beat out of the Moscow cabinet but by how the political leaders of a region can succeed in creating a business climate,' he said. All over Russia, the visible evidence of thriving street commerce and the growth of a freewheeling entrepreneurial class belie the gloomy state statistics. There may still be too many poor Russians, but Russia is not a poor country.

The pursuit of cautious change is largely the work of Prime Minister Viktor Chernomyrdin, who has adopted many of the tight money policies he publicly decried at the beginning of this year. The political subterfuge lay in a combination of patriotic talk and quiet monetary orthodoxy. Stripped of its eager reformers, such as the radical economist Yegor Gaidar, the government was therefore able to pursue its agenda without presenting an easy target to the nationalist and Communist opposition.

The result is that Mr Chernomyrdin has overseen a fall in inflation to around 6 per cent a month, compared with some 26 per cent a year ago. The rouble may ebb and flow, but it functions as a convertible currency and most Russians no longer feel the need to accumulate a stack of dollars under the bed. Surprising both his opponents and some of his allies, the Prime Minister has supported the privatisation minister in a drive to make factory managers face a real choice between reform or bankruptcy.

Russians travel abroad to buy consumer goods in Dubai and to invest in hotels in Cyprus. New dachas, imported cars, and brash advertising reflect the aspirations of an emerging merchant class and a burgeoning underworld. At the same time, exotic tax dodges, widespread corruption and such risky ventures as the MMM pyramid sales scheme show that Russians are embracing both the splendours and miseries of capitalism.

The official statistics paint an apocalyptic picture of slumping industrial production and a descent into penury. But they are based on the old state enterprises and take little account of the private sector.

Of course Mr Yeltsin and his men face a mighty task. Debt is building up to alarming levels. Underpaid workers are becoming disaffected. The powerful military, industrial and agricultural interest groups are demanding a return to lavish spending. All this would send a Western finance minister to the psychotherapist's couch. But Russia's reformers still, against the odds, seem intent on administering therapy, not receiving it.