Boris Yeltsin knows that miners’ strikes in 1989 and 1991 loosened Mikhail Gorbachev’s grip on the presidency. So when half a million miners staged a one-day walkout last week to protest nonpayment of wages, Yeltsin scrambled to pledge $500 million for the industry.
That, however, can only exacerbate Moscow’s budget problems. Russia is finding it increasingly difficult to pay its bills and as a result faces growing instability. Last week its troubles multiplied when an International Monetary Fund team left Moscow without agreeing to a $12 billion emergency package to help cover its budget deficit and stabilize the ruble. The IMF money is still in the pipeline, but market jitters drove the ruble to a new record low against the dollar, ratcheting Russia’s 18%-a-month inflation rate still higher.
The war in Chechnya is the latest burden for the besieged economy. By even the most conservative government estimates, the cost of the campaign thus far has topped $1.2 billion and will grow as a protracted guerrilla war looms. Compounding purely monetary woes is a breakdown in confidence that Russia can succeed in becoming a member of the family of democratic, market-oriented countries. Western governments are increasingly hesitant to aid an administration that makes war on its own citizens. “If things continue in Chechnya, then investment–and of course economic support as well–will be automatically withheld,” warned German Foreign Minister Klaus Kinkel earlier this year.
The Chechen debacle aside, things are not going well in the economy. Foreign investors are spooked by signs that the government is backsliding on economic reform. First there was Vladimir Polevanov, the ex-apparatchik named by Yeltsin to manage privatization, who instead announced a return to state ownership. Yeltsin fired him, but Polevanov’s views are held by others. “He wasn’t a lonely voice out there,” cautions a Western official.
Little surprise then that the IMF is still hesitating. The Duma’s preliminary approval of a budget with a deficit of $18 billion–7.7% of GDP–exceeds the maximum acceptable to the IMF as a condition for its loans. The imf also wants changes in oil policy to bring about more realistic domestic-energy pricing, but continues to be thwarted by a government leery of any moves that will burden industry and force unemployment to rise. Even the central bank is failing to toe the line. It had promised to stop fueling inflation by lending indiscriminately to the government. But of late it has circumvented that pledge by wholesale funding of treasury borrowing.
Bad as things are, there are those who retain faith that Yeltsin and the reformers will muddle through. “Remember when there were no private companies here?” says Boris Jordan, the American co-director of the Moscow office of the investment bank CS First Boston, “when there were no private markets? That was less than two years ago.” Both personal consumption and personal savings are increasing, industrial production went up in the fourth quarter of 1994, and exports rose to $50 billion last year. The worst predictions of the doomsayers have not come true: there has been no military takeover, no economic collapse, no mass emigration. The imf knows that too, and a team returns later this month to continue negotiations. But it will be looking for hard evidence that Russia is prepared to take its medicine. By James O. Jackson. Reported by Sally B. Donnelly/Moscow
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