Russia's economy on the ropes

March 4, 1992

By Renfrey Clarke

MOSCOW — Everybody knows January in Russia was a bad month. But just how bad? The figures are now coming in.

According to the Russian State Committee on Statistics, retail trade turnover during January, measured in physical terms, fell by a staggering 63%. In a survey conducted in St Petersburg, only 15% of respondents reported that they were eating as well as last year. Fifty-nine per cent said their diets had deteriorated markedly.

Official calculations put the rise in average retail prices during January at 350%. However, this figure includes the farmers' markets and private "cooperative" stores, where prices were already astronomical and where few Russians could afford to shop. According to a widely quoted estimate, the rise during January in the price of a typical "market basket" was 500%.

Even by the official figures, wholesale prices quintupled on average during January. In specific cases, the rises were much greater; the wholesale price of tyres, for example, rose by 2300%.

The overall volume of industrial output fell during the month by 15%. This decline seems certain to accelerate, since the government's "shock therapy" is expected to have its main impact on the factories during February and March.

Production of tractors fell during January by 49%, with alarming implications for agriculture. Oil output declined by 14%. The volume of milk processed for sale fell by 46%.

Still, Russians had been warned: shock therapy was a painful but "necessary" corrective. The freeing of prices, so that they could find their own levels, was supposed to end the shortages and help bring about economic stabilisation — a prerequisite for renewed growth and eventual prosperity.

It is true that since price liberalisation the shelves of Russian shops have gradually become less empty. If shoppers are patient and resourceful, they can now buy goods such as refrigerators, washing machines and colour television sets for 16 or 17 times the price of last year.

In general, however, the hopes that low-priced scarcity would be replaced by high-priced abundance have not been borne out. Consumer industry fared badly during January, with output of various product lines falling by as much as 20%. Countless small, necessary items, from tap washers to light globes, remain impossible to find — at any price.

Russian President Boris Yeltsin continues to assure the public that an improvement in the economic situation will be evident "before the end of this year". However, the January figures lend weight to mounting suggestions that the economy will not even "bottom out" during 1992, and that real stabilisation may be years off.

Price liberalisation set up a powerful inflationary dynamic, which the Russian government shows no sign of being able to rein in by limiting growth in the money supply.

The state taxation service reported recently that in nominal terms, tax revenues in January 1992 were up by 4.1 times on the figure for January 1991. However, inflation during the twelve months to the end of January was in the region of 2000%.

In real terms, the government's tax income has fallen drastically. This is confirmed by a report that revenues during January from the new 28% value added tax, on which the government has pinned most of its hopes of curbing the state deficit, were only 25% of the expected figure.

These facts, which have received little publicity in the liberal-dominated media, point to chaos in state finances. Self-financing state firms and their privatised counterparts appear to be evading tax on a gargantuan scale. While inflation impoverishes the bulk of the population, the state budget deficit remains out of control, pumping fresh purchasing power into the hands of a favoured minority and creating still more inflation.

At a certain point, millions of Russians who have accepted the government's strategies as the price of future prosperity will realise that their sacrifices have been in vain — that in the new capitalist Russia, the impoverishment of the masses is meant to be permanent. When that realisation dawns, it will take more than Yeltsin's charisma to save him. n

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