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Last Updated: Tuesday, 24 April 2007, 08:38 GMT 09:38 UK
Yeltsin's economic legacy
By Alexander Koliandre
BBC News, Moscow

Boris Yeltsin
Boris Yeltsin's reforms created both wealth and poverty

When rulers die, Russians keep shopping.

They did when Communist Party Secretary-General Konstantin Chernenko died in 1984. The period of national mourning did nothing to stop people queuing for the few goods that state-owned shops had available.

In those days, there were no other legitimate outlets for commerce. Any private economic activity was regarded as a criminal offence and a mere buying of a 10-dollar bill could have resulted in 10 years in prison.

More than two decades on, the shopping continues - but the economic landscape is altered beyond recognition.

With the body of former President Boris Yeltsin about to lie in state, Moscow's stock exchange is trading as normal, banks are open, private shops are full of goods and streets are clogged by new cars.

This is Yeltsin's legacy: the result of the turbulent years of his rule.

Dire situation

Russia's first president came to power with the words "business freedom" and "economic reforms" written on his banners.

It is difficult to imagine today the state of the Russian economy in 1991 when the Soviet Union collapsed.

All goods were scarce: food, soap and even cigarettes were rationed. The nation's entire industrial base was crumbling.

Early reforms during the Soviet Union's later years resulted in the widespread takeover of production units by their current managers, which in turn led to a colossal siphoning-off of funds and assets. The rouble weakened against other currencies and inflation soared.

Economic reforms

In 1992 Mr Yeltsin took on board a group of young economists and gave them a free hand in reforming the country's economy.

Khodorkovsky sitting in the dock of a Moscow court
The government has clawed back power from the oligarchs

Their first step, something that many Russians still recall with dread, was to abandon price controls and open the market for everyone.

The policy immediately sparked galloping inflation, and as prices soared the gap between haves and have-nots widened.

The gap became a chasm when Mr Yeltsin started the privatisation of the state property. Everything from state-owned small shops to large factories was sold off.

Still, those reforms also laid the foundation for future economic developments, which ultimately gave the country something it had not enjoyed for many years: economic freedom.

Yet Mr Yeltsin came under fire. Those on the left argued that his economic reforms were unnecessary and criminal. Those on the right criticised their slow pace and said the reforms were not tough enough.

The oligarchs arrive

The Russians had to learn quickly, as their vocabulary expanded to embrace new words such as marketing, advertising and exchange rates; or barter, leasing and - not least - profits.

Those who were unable to adapt quickly suffered. In particular, those employed by the state - including teachers, doctors, professors and policemen - learned to hate the "new Russians" who were flocking to the newly-opened restaurants, night clubs and casinos.

The disparity of wealth sparked a powerful revival of the Communists. In 1995, they led the polls and the demise of Yeltsin looked imminent.

In order to secure his own survival and the continuation of the capitalist reforms, Boris Yeltsin took one of his most controversial economic steps. He succumbed to the pressure of a dozen bankers and promised them a hefty prize for their financial support.

Those bankers, known as "oligarchs", provided the state with loans, taking oil and metal shares as collateral.

Soon they became the owners of some of Russia's most profitable assets, which made them the de facto rulers of the country.

Mixed views

In 1997, Russia's economy started to grow for the first time in a decade.

"You never had it so good," was the message of the day.

But the day was short. Sliding oil prices, rising state borrowing and the currency crisis which gripped the Asia-Pacific region led to economic collapse in 1998.

Even in those days of total despair, however, Mr Yeltsin was able to stick to his guns, refusing to reverse the reforms he had implemented and return to a Soviet-style economy.

He strongly believed in a liberal market orthodoxy: respect for private property, concern about inflation and an emphasis on a strong currency.

In today's Russia, continuing privatisation efforts raise tens of billions of dollars for the government every year, yet its powers are not diminishing.

Under President Vladimir Putin, the Russian state has clawed back power from the oligarchs, and business people's influence with regards to how the government implements economic policy or with regards to new laws being introduced has diminished sharply.

Inflation is low and economic growth is strong, yet new imbalances are emerging and the gap between the rich and the poor is widening still.

Equally polarised are the views of the Russian people when it comes to Mr Yeltsin's achievements. One recent poll found that about half the population blamed him for the collapse of the Soviet Union and the hardship of the past decade.

The other half, however, said it was Mr Yeltsin who had built the foundation for Russia's prosperous development.


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Mourners pay respects to Boris Yeltsin





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