Moscow's wind of recovery: Russia's progress is real and Sunday's elections should provide the missing mandate, says Anders Aslund

TIME and again, prophets of doom have issued severe condemnations of the Russian transformation to a market economy and democracy. A few years ago the argument ran that Russians had lost their spirit for entrepreneurship - yet current complaints focus on excessively aggressive capitalism. Two years ago the cry went up warning of imminent starvation and economic collapse because of a fast push towards a free market. Since then the grain harvest has increased substantially and, more importantly, prices have been freed, allowing all kinds of retail goods to surface throughout the country, in spite of recalcitrant bureaucrats who neglect liberalisation laws.

In October the pessimists were out again, insisting that Russia had become a dictatorship because Boris Yeltsin, the democratically elected president, had used force against the not-very-democratically-elected parliament when it launched a coup d'etat. However, the cause of the parliament's revolt was that President Yeltsin had dissolved it on 21 September in order to hold new, democratic elections, and he has not abandoned that cause. On Sunday, parliamentary elections and a referendum on a new constitution are to be held.

During the campaign many allegations have been made about undemocratic practices or tendencies, but 13 parties representing all shades of opinion are standing, and they have had substantial coverage on television. The election campaign and the elections are not a sham: even negative comments can be made. A peaceful pre-election campaign has already proved that political pluralism has won the day.

The old parliament was flawed in two key respects. First, it was sovereign. It could change the constitution at any time with a two-thirds majority. The president could not win if he played by the rules, because the parliament altered the rules all the time. Second, the parliament was elected without parties, before the democratic breakthrough in Russia in March 1990.

Frequently, voters crossed out known senior Communists, but did not realise that the candidates they then voted for were second-rank Communists. No fewer than 87 per cent of the new deputies were members of the Communist Party at the time of their election. Initially, several tried to gain democratic credibility by moving in a liberal direction, but most of them were not credible democrats and therefore returned to the Communist camp. The parliament has represented the old Communist establishment against the population, and it resisted all President Yeltsin's calls for new parliamentary elections.

Inflation and criminality have persistently come top of the list of public concerns in Russian opinion polls during the past year. However different, both are consequences of the characteristic problem of most former Communist states: the state is too weak, while the old Communist elites are too strong.

The East European Communist countries and the Soviet Union were not reformable because the state as a bearer of common interests had collapsed, while many members of the Communist elite were frantically trying to transform their power into wealth before they were ousted. They utilised both inflation and crime for transferring money from the state to themselves.

The main cause of Russia's 2,500 per cent inflation last year was subsidised credits, with annual interest rates running as low as 10 per cent. Even so, Russia has not done all that badly. It has avoided the sort of hyperinflation that rages in Ukraine, where the old nomenklatura rules without restraint. Ukrainian inflation is likely to exceed 10,000 per cent this year, while Russia's will probably stay below 900 per cent.

Out of 27 countries in Eastern Europe and the former Soviet Union, only eight will experience inflation rates of less than 40 per cent this year, while the International Monetary Fund forecasts average inflation at 582 per cent. The relatively successful countries are mainly central European, but two former Soviet republics, Latvia and Estonia, are also stunning successes. Their inflation rates in 1993 are likely to be about 23 per cent and 30 per cent respectively.

The eight countries with inflation under control have three features in common. They have all gone through democratisation, with free and fair parliamentary elections. Non-Communist parties have won and formed governments. All of them have opted for swift and far-reaching systemic change.

The crucial difference between failure and success is the re-creation of a legitimate state as a central policy-making apparatus, through democratic parliamentary elections. Central state functions, such as fiscal and monetary policies, legislation and the imposition of the rule of law, should be restored to central control. At the same time, the power of the old nomenklatura must be broken - for which democratic parliamentary elections are also ideal.

In fact, although it is seldom acknowledged, much has been accomplished in the Russian economy this year. The rouble zone has broken up, allowing each country to pursue its own monetary policy. Import subsidies, most subsidies to agriculture and subsidised credits have been abolished, and Russia has positive real interest rates. Foreign trade has been further liberalised - though more is still needed.

The greatest success is privatisation. As much as 40 per cent of the labour force already works in the private sector, and entrepreneurship is impressive. After the parliament was dissolved, President Yeltsin could at long last introduce fully fledged private ownership of land.

So the prospects for the Russian economy look pretty promising. In President Yeltsin, Russia possesses a strong, democratic and legitimate political leader. There is an impressive array of prominent, able young economic politicians - Yegor Gaidar, Anatoly Chubais, Boris Fedorov and Grigory Yavlinsky - with a lot of administrative and political experience. The West has shown a reasonable understanding of the Russian situation, and public international financing is likely to be forthcoming as soon as the Russian government can put together a sensible reform programme.

The missing link is a liberal and democratic political mandate. To judge from the forecasts of the opinion polls, a huge victory of the two centre-right blocs, Russia's Choice and the Yavlinsky-Boldyrev-Lukin bloc, appears likely, and they should be able to form a government together. If this does happen, the elections are likely to provide the forces of reform with the political mandate which up to now they have been denied.

The writer is an economic adviser to the Russian government and director of the Stockholm Institute of East European Economics.

(Photographs omitted)