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Monday, 24 December, 2001, 14:49 GMT
A decade of economic reform
the Red square
There is still a lot of work to be done
By BBC News Online's Alexander Koliandre

Ten years ago, as their country launched itself into economic reform, few Russians could have foreseen the amount of difficulty ahead.

For some, the past decade has been a complete disaster.

In that period, the country has lost its superpower status; millions have seen their jobs and life savings vanish; everything worth stealing has ben stolen, critics say; hospitals, schools and all the infrastructure is in tatters; talented youngsters have fled overseas; and the security and pride of the Soviet era has all-but disappeared.

But aside from nostalgia, as well as the very real failures of the past 10 years, it is easy to forget what the country looked like in 1991, the year the Soviet Union collapsed.

Some things, maybe even most things, have changed for the better.

On the brink of famine

On 25 December 1991, Mikhail Gorbachev, the first and the last Soviet president, stepped down, and the USSR was formally dissolved.

Ration cards in 1991
The coutry was on a brink of famine

The once mighty superpower was falling apart; food shortages and rationing reached Moscow.

For almost two centuries, Russia's rulers had been able to keep the capital fed.

But in 1991, dozens of goods - from soap to eggs - were rationed in the capital, and shops were all-but empty.

In distant provinces, the situation was even worse - the whole country was expecting a famine.

The economy, 80% of which was military-oriented, had collapsed completely.

There was political chaos - Russian laws contradicted the Soviet ones, and few were relevant to the situation on the street.

To make matters worse, during 1991 the Soviet republics were introducing their own money, but still using the Soviet rouble, printed in Moscow.

As one observer said, Russia was like a man with 14 disgruntled ex-wives, each of whom still had a credit card in his name.

A quiet revolution

Those were the conditions in which a group of economists, led by Yegor Gaidar, appointed prime minister in November 1991 by the then-president Boris Yeltsin, started their "shock therapy".

Yegor Gaidar and Anatoly Chubais
Yegor Gaidar and Anatoly Chubais are sure they were right

In the first week of January 1992, Russia's market transition began with liberalisation of prices.

On 2 January, the Detsky Mir department store in central Moscow was full of people - but not shoppers.

Instead, they were there to sell. People had come to peddle their possessions - cigarettes, old cloth, home made pickles and so on.

As by magic, goods shortages all but disappeared in a matter of months.

State for sale

Price liberalisation filled shops, but emptied the pockets of tens of millions of Russians.

Shops were full, but for many Russians everything was too expensive to buy.

The government then launched the more controversial leg of economic reform - privatisation.

It did not matter who owned property, the government argued, as long as open competition would bring it sooner or later to the most effective and professional managers and owners.

Boris Yeltsin
President Yeltsin traded political support for state assets

But in reality the best chunks of the economy were snatched by apparatchiks, old-time Soviet managers.

New aspirants with good connections in the Kremlin soon joined them.

As the result "the sale of the century", as the Russia's privatisation was dubbed, was much less open and transparent than the same process in, say, Poland or Hungary.

Insider's market

But worse was to come.

By 1996, public support for reform and the Yeltsin presidency had all but evaporated, and a communist victory in the upcoming elections was on the cards.

A woman on in Moscow
For many it was a disaster...

Mr Yeltsin's team then accepted the proposition of a group of mighty industrialists and bankers, the so-called oligarchs, to exchange their support for a favourable deal.

The government launched its controversial "shares for loans" privatisation programme, giving away the most profitable state companies to oligarchs for a fraction of the market value.

In a search of political support, the Kremlin offered tax exemptions and special support to its "close circle".

And just as the state's most profitable assets had been hived off, the communist-dominated parliament forced the government to spend more and borrow hugely.

Collapse and recovery

The Asian crisis of 1997, coinciding with a preiod of depressed oil prices, was the final straw.

Russia's economy collapsed in August 1998, as the rouble was devalued - losing 75% of its value almost instantly - and the country defaulted on its debt.

The Russian stock market, where the main index had risen fivefold in 1995-97, lost 93% of its value in half a year.

Girls in a Moscow night-club
... for many - a joy

But the disaster contained within it the seeds of recovery.

In the past three years the situation changed dramatically.

High oil prices and a cheap currency - good news for Russian exporters - helped the economy to recover.

The new president, Vladimir Putin, clawing back into his own hands the power previously devolved to the oligarchs, gained unprecedented support in parliament.

Some crucial laws were adopted - taxes found their way to state coffers, and the rouble remained stable.

Russia's stock market, such a miserable performer in 1998, has been the strongest performer in the world this year.

New hope?

The traumatic 10 years have not wholly changed Russia's economy.

The country is still dependent on exporting oil and non-ferrous metals.

Huge bureaucracy and corruption prevent small and medium-sized business from flourishing.

New oligarchs are muscling forward to take the place of the old ones.

Murky laws still persuade most foreign firms to avoid the terra incognita of Russia's market.

And it is still much more important whom you know than what you know.

Over and above all that, too much rests on the shoulders of one man - President Vladimir Putin - to feel absolutely secure that the country as a whole has turned the corner.

In the middle of the road

Ten years after the beginning of reform, street sellers are still lined up outside Detsky Mir department store.

But almost 90% of the economy is now in private hands.

And while many Russians admit to nostalgia, the vast majority hardly want Soviet times back.

A recent opinion poll showed that public optimism had risen for the first time since 1991.

Perhaps now, Russia is ready to harvest the fruits of a painful decade of reform.

But even optimists say that there is a lot of work to be done.

See also:

07 Dec 01 | Business
Bulls reign on Moscow's market
14 Nov 01 | Business
Russia's recovery in the spotlight
12 Oct 01 | Business
IMF upbeat on Russia
17 Apr 00 | Business
Putin's bid to encourage investors
16 Aug 99 | The Economy
From Russia with love
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