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Recipe for Market Economy Hasn't Served Up Recovery : Russia: Food remains scarce. Inflation has soared. The people are edgy and growing more angry by the day. The government's answer: 'Be patient.'


The Russian president remains equally committed to policies aimed at privatizing state-owned enterprises by the thousands, at giving farmers their own land to cultivate and ending agricultural collectivization and at making the country's currency, the ruble, convertible into other currencies on the international market.

Together, these policies have been the key elements in the transformation of other centrally controlled economies. But their success elsewhere depended on how closely they were linked so that they supported and reinforced one another.

The Gaidar team, however, almost prides itself on not having a clearly defined, stage-by-stage program, believing that Russians and potential Western donors alike long ago grew tired of anti-crisis programs, numbering 17 by one count, that were never implemented.

"We don't have a program like (Grigory) Yavlinsky," Nechayev said, referring to the prominent free-market economist who drafted several programs for Gorbachev and who now criticizes the Gaidar approach as "harsh, naive, uncoordinated, ultimately catastrophic."

"Yavlinsky prefers to write plans; we prefer to fulfill them," Nechayev said.

Yavlinsky is equally dismissive of Gaidar and his associates. "They are incapable of implementing a serious policy," Yavlinsky said. He predicted that hyper-inflation will devalue the ruble completely, that prices will continue to skyrocket, that unemployment will be three or four times the projections and that industry will halt production.

With this will come the end of Russian democracy, Yavlinsky argued, for only a leader with dictatorial powers will be able to restore order and begin to rebuild the Russian economy after such a collapse.

Ruslan Khasbulatov, chairman of the Russian legislature and a prominent reform economist, also contended this month that the government's "anarchic" policies will bankrupt the country and destroy popular confidence in the reforms. People will then turn, he said, to "a strong hand" to govern.

And yet the Yeltsin-Gaidar approach has its defenders.

"This is a very courageous strategy politically, and there are already very significant achievements," Jeffrey Sachs, a Harvard University economist advising Yeltsin, said as criticism of the government mounted here. "The goal is to stabilize prices within several months, to establish a convertible currency, to have goods in the shops.

"People will remain poor here, however, for economic stabilization doesn't change the quality of life except to make it more bearable."

Many economists nonetheless remain skeptical because price reform, seen for so long as the main lever for the country's transformation, did not bring the overall economic liberalization this month that many expected.

"Not much seems to be happening except for a few fights in the stores, a few strikes in the mines," a senior official of the International Monetary Fund observed here. "It is difficult to feel that something fundamental is going on.

"And maybe not much, in fact, is happening as people adapt to the new prices as nothing more than the old price structure at higher levels. That would be a pity, for we want deeper changes, not everybody acting the way they did under the lower prices."

Another economist, one of the 13 senior advisers Yeltsin has hired from abroad to help guide the transition to a market economy, made a similar point. "Pain--we are not seeing real pain yet," he commented, also asking not to be quoted by name because of his position. "Until we do, then the reforms are still working on the margins of the economy, not at its core.

"Don't misunderstand--we do not want to see bread riots or starvation. What we do need is evidence that market forces, such as supply and demand, and not government decrees, are ruling. So far, we see only the beginnings, the very beginnings, of this change, and they are emerging more slowly than we hoped."

The IMF official, while praising the general direction of the Gaidar policies, said: "The best they can hope for is to avoid the worst--and the worst would be social unrest, civil wars, a war between the (former Soviet) republics. There is such a risk, and for the time being, it has been averted."

Specific criticism comes from Russian economists, who contend that without ending the monopolies enjoyed by state enterprises and privatizing many of them first, the price reform was simply punishing the workers, whose wage increases are to be kept about 30% behind the price boosts.

Nechayev and Sachs replied that price reform must come first in practice so that potential buyers will be able to assess a firm's profitability. "To privatize, you need real prices," Nechayev said.

The price reform is also criticized as failing to free prices completely and amounting to little more than a government effort to end its huge budget deficit by eliminating state subsidies to unprofitable firms. These critics see it failing to force any fundamental economic restructuring.

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