As Russia's economy melts, Yeltsin vows he will stay on.
But to do what?

WHEN THE SOVIET UNION WAS DISINTEGRATING during the late autumn of 1991, a band of disillusioned demonstrators gathered in Red Square. Bobbing along in their midst, under the shelter of the Kremlin's looming brick walls, was a placard that read 70 years on the road to nowhere. The accusation was an angry and poignant truth. But then Russia was reborn under the old tricolor flag and set a new course toward not just reform but total transformation. And now, with the collapse of the economy and the paralysis of the government, that hopeful path has also run into a dead end. For Russians it has been seven more years on a road that has again led nowhere.

In many countries, the pitch of chaos Russia reached last week would have produced panic, fury, demonstrations, even riots. The street value of the ruble halved. Banks are tottering and closing, and the Moscow stock market has all but evaporated. The crash has shaken investors and governments around the world. But in Russia, home of the stolid and the depoliticized, the streets are calm. Russians are nervous and ask one another what is going to happen, but the only visible reaction is at the banks, where the relatively few citizens who trusted other people with their money have formed slow-moving and sometimes unruly lines. For the most part, ordinary people seem not merely restrained but numb.

In fact, the foreign reaction is more appropriate. What is happening in Russia is a disaster, a frightening one that threatens the world with prolonged instability at best, and the rise of an increasingly isolated and hostile state--armed with about 22,000 nuclear warheads--at worst. The Western countries have pumped tens of billions of dollars into the Russian economy to support reforms that were not carried through, and now are unlikely to give more. Russia is on its own.

Moscow has had no functioning government since Aug. 23, when President Boris Yeltsin dismissed his young Prime Minister Sergei Kiriyenko. His successor, acting Prime Minister Viktor Chernomyrdin, is under heavy pressure from the communist-dominated Duma. Parliamentarians are pushing aggressively for a greater say in running the country. Yeltsin had kept them from real power but seemed prepared last weekend to surrender many of his presidential prerogatives. The communists have called for currency controls,
re-nationalization and printing more rubles. On the weekend, however, Chernomyrdin went on TV to reassure Russia--and probably the West as well--that there would be no retreat from market economics. "We have already joined the world economy, and there will be no return to the past," he declared. The future, though, remains deeply uncertain.

It is doubtful whether reform is even listed on the Russian agenda right now; its time may have passed. Yeltsin is a spent force and shows no sign that he understands what the problem is. Chernomyrdin and the people he brings in with him think the problem is too much reform, and they intend to reverse it. When the country was first breaking out of the Soviet system, its initial step was to free prices. Now, with the ruble devalued and inflation inevitable, the communists are calling for price controls, and Chernomyrdin is listening.

Privatization was the next great reform effort--getting the economy out of government direction and into private hands. Those hands proved, however, to belong to well-connected operators who bought state properties at bargain rates and stripped their assets, becoming in the process notorious oligarchs who own the big banks, newspapers, television and more. It wasn't real privatization at all but a set of sweetheart deals that made the bankers partners with their cronies in government, focusing on exports, imports, loans and currency speculation.

Nor was it real capitalism, which is not solely about mergers and acquisitions but about production as well. And the simple fact is that Russia does not produce. The old rust belt--defense-oriented enterprises employing tens of thousands each--are still lurching along, turning out things so costly and so shoddy that no one wants to buy them. In Soviet times, workers joked that they pretended to work and the state pretended to pay them. Now the line could be that the workers pretend to make things and the factories pretend to sell them. The plants can't pay their taxes or their workers, and instead barter some of the stuff coming off the production lines in return for official blindness to their tax delinquency. That's why the streets are lined with people trying to peddle items like pots and pans, towels and toilet paper.

The result is an almost cashless society where business is transacted mostly by trading goods and services. Since most firms and citizens have no money, they can't pay their taxes. That means the government is always short of funds and the deficit keeps growing.

All indications are that Russians have tried communism and don't want to go back to it. But now they feel they have tried reform and have been rewarded with misery. What will they vote for next?

Or will they have a chance to vote? Some experts believe a state of emergency could be the government's last resort if the economy stops functioning. With or without ballots, the outcome could be an increasingly desperate, belligerent Russian state, simmering in its resentment. The only people who can repair Russia, it seems clear, are the Russians--and they don't know how.

Questions

1. What economic problems is Russia facing? How have Russians responded to these problems?

2. What steps did Boris Yeltsin take to reform Russia's economy? Why did these steps fail?

Answers

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