One year after the ascent of the Yeltsinites to near absolute power they have little reason for optimism. The IMF-inspired economic shock therapy carried out by acting prime minister Yegor Gaidar is in a dead end while a fierce power struggle is taking place in the pro-capitalist camp. This struggle centres on the intertwined questions of the economic reform strategy and the foreign policy objectives of the "new Russia" particularly in relation to the non-Russian republics of the former Soviet Union, most of whom are now part, with Russia, of the so-called Commonwealth of Independent States (CIS). This article looks at the struggle over economic strategy; a later one
- with people purchasing 25% less milk products and 50% less clothing and shoes. About half the population is now living below the official poverty line. Malnutrition is increasing — a recent poll of young people in St. Petersburg found that 40% were "constantly hungry" while a further 40% said they "often felt hunger". 4
The drop in real income has affected most groups but at the same time wage differentials have widened sharply with white collar workers in education, the health service or the administration as well as students and pensioners lagging far behind, while some groups of workers (notably the miners) are faring comparatively well.s
But even if nominal wages are increasing, the shortage of cash money created by the tight monetary policy means that many workers are not getting their pay at all: "The deficit of money is growing sharply — there is nothing to pay out to people. The situation has been particularly catastrophic in (mining) Kemerovo and (oil-producing) Tyumen. On the first of May unpaid wages and pensions to the population may have been some 70 billion roubles. According to estimates, on the first of July the state may owe people well above 100 billion roubles" 6
The slashing of public spending has had very serious consequences for education and the health service. Among signs of the deteriorating conditions and the general impoverishment are the rise in infant mortality (up by 9% between January 1991 and 1992), a drastic decline in the birth rate and the re-emergence of epidemic diseases such as typhoid fever not encountered in Russia for decades.
### Bankrupt industries
In the first nine months of shock therapy inter-enterprise debt increased from less than 100 billion roubles by early January and 600 billion by April 1 to the current astronomical figure of 3,000 billion (around 40% of GNP). This means that most enterprises have considerable outstanding debts, most of which cannot be paid. Izvestiya recently reported that nine out of ten enterprises in the Yekaterinburg region were seriously in debt. Many factories have had to reduce production due to problems with financing and lack of orders, sending their 1. Izvestiya, August 20, 1992. 2. Ibid, August 24, 1992. 3. Ibid, July 20, 1992. For a more comprehensive analysis of the Yeltsin-Gaidar reform see "Shock therapy comes to Russia" by David Mandel, International Viewpoint, no. 224, March 16, 1992. 4. Izvestiya, July 7, 1992. 5. There are varying estimates of the drop in real income. On August 8 The Economist wrote: "real wages so far this year are only 40% of their average in 1991" 6. Pravda, June 9, 1992.
will look at the role of Russia
POUL FUNDER LARSEN T HE only substantial promise that
Yeltsin was able to make the Russian people at the end of August, apart from the offer of a privatization voucher worth 10,000 roubles (nominally about $50), was that "the end of this year will be the most difficult period" - at least so far.? Indeed the first eight-months of Gaidar's shock therapy have plunged the Russian economy into a state of unprecedented depression.
According to official figures from the State Committee for Statistics, production fell by 18% in the first half of 1992, but several independent experts give higher estimates. On top of the falls of previous years, there has been a drop in production of as much as 50% since 1989. This fall is not likely to stop since investment fell by 46% in the first six months of 1992.
Inflation is estimated at between 1,600 and 3,000% by the end of the year, while the rouble has collapsed in relation to the dollar. Earlier this year the government was having sweet dreams of a rapid move towards convertibility at a rate of 80 roubles to the dollar, but at the start of September it was 210 to the dollar and likely to 12 deteriorate further. The budget deficit, International Viewpoint # 235 within the CIS. which the Gaidar government has several times promised the IMF it will reduce to 5% is likely to reach 20%, as it did in 1991.3
All in all the IMF inspired policy has failed even to reach its so-called financial stabilization targets, while aggravating the crisis of the whole economy. The freeing of prices and the restrictions on money supply, in the framework of a strongly monopolized economy, has accelerated the rapid fall in production. The short term consequences of the total disarray in the economy have had a disastrous impact on agriculture where prices are rising more slowly than in industry, making producers reluctant to sell. With a harvest below expectations, a lack of machinery and bad infrastructure could lead to a severe food crisis in the coming winter.
But even before the winter, Russians have been paying a high price for the "initial phase of reform". Real incomes have been drastically cut: prices for consumer goods have risen 1,170% over the past year with money incomes rising on average by 590%. Meanwhile runaway inflation has wiped out the savings of most ordinary people. Consequently total consumption went down by one quarter in the first six months of 1992
September 28, 1992
RUSSIA