By Renfrey Clarke
MOSCOW — In late January in Russia, the economic figures from the previous year are released. Supporters of the government have done their best to put a favourable gloss on the latest numbers, but the truth cannot be concealed so easily.
Press reports stressed that inflation was down, from around 130% in 1995 to 22% in 1996. Less widely featured was the news that investment last year continued to collapse, as interest rates remained far above the rate of price increases.
The State Statistics Committee's (SSC) annual report, released on January 28, claimed that average real wages increased last year. However, this meant little when tens of millions of workers were being paid months late or not at all.
Meanwhile, some of the most painful numbers could not be fudged. According to the report, GDP in 1996 fell by 6%. Industrial output was down by 5% and agricultural production by 7%. Output in light manufacturing plunged by 28% and in the construction materials industry by 25%. Chemical and petrochemical production declined by 11% and new housing construction by 10%.
Another grim cloud had appeared on the horizon — the threat of a return to financial chaos. As the newspaper Finansovye Izvestia admitted on February 6, the government's tax base was contracting at a catastrophic rate.
The profits of enterprises in the main sectors of the economy fell during 1996 by almost half. Losses tripled; in industry more than 40% of all enterprises were unprofitable, and in transport it was about 60%.
State Tax Service figures quoted by Finansovye Izvestia showed that outstanding tax debts rose during the year by 130%. Only 16% of firms and organisations were without serious tax infringements, while 34% paid no tax at all.
A strenuous campaign to improve tax collection brought total tax revenues during 1996 to 81% of the planned level, but the government remained dependent for its income on the sale, mainly to Russian banks, of short-term securities at mammoth interest rates. For much of 1996 these securities provided real annual returns of more than 100%.
For the banks (and for the directors of many industrial enterprises), it has made no sense to invest in developing production rather than lending to the government.
As the securities market is opened to foreign capital, real interest rates are declining. But for many Russian firms, the cost of borrowing remains prohibitively high.
Massive debt
Meanwhile, the legacy for the Russian state of its adventures in the securities market is a growing problem with servicing the public debt. Though still modest as a proportion of GDP, the debt is expanding rapidly, and high risks mean that lenders will continue to demand big returns for financing it.
In 1996, the cost of servicing the state debt came to 5.8% of GDP — more than the military, education and public health budgets combined. By the end of 1997, the parliamentary budget committee warns, the debt could increase by a further 60%.
Alongside the ritual optimism, recent statements by high-placed officials have included frank expressions of alarm. At a symposium in Geneva on January 27, the first deputy chairperson of the Central Bank, Sergey Aleksashenko, warned that the 1997 budget deficit could reach 8.5% of GDP, wiping out all the deficit reduction gains since 1994.
Economy minister Yevgeny Yasin predicted on January 31 that Russia was in for an "extended recession" unless a three-year package of government spending cuts was successful. Yasin's plan to cut state outlays by 25-35% includes cuts to subsidies for housing, communal projects and transport.
According to the SSC's report, at the end of 1996 almost 32 million people in Russia were receiving less than the government-defined "subsistence minimum" income of about US$75 a month.
Unemployment currently stands at about 9% of the work force, and for many more people "employment" means going to work but not being paid. An all-Russia survey reported in the newspaper Trud on December 11 revealed that 38.9% of workers interviewed had received no pay at all in October; only 29.5% had received their wages in full and on time.
Some 30 million pensioners had not received their pensions, many of them for months.
In trying to steer its way out of the crisis, the government lacks even the rudder provided by a meaningful budget. The 1997 budget that has now passed through the lower house of parliament assumes that government income will increase over the 1996 projections, even though the latter were nowhere near met.
According to the new budget, the Russian economy will "bottom out" in 1997 and show growth for the year of 2%. This has been greeted with widespread disbelief; the promise that the bottom of the pit will soon be reached has been repeated regularly since the "reforms" were launched in January 1992. Even economy minister Yasin on January 28 confessed that the budget for 1997 was "unrealistic".
How great the cumulative slump has been since the "reforms" were launched is uncertain due to the existence of a huge, untaxed "grey" economy. But the fact that the volume of rail freight has fallen by almost half over the past four years lends weight to estimates that GDP since 1990 has declined by more than 40%, industrial production by about 50% and agricultural output by 35-40%.
In specific areas of the economy the crash has been far more dramatic. The value of the agricultural machinery produced in Russia last year, for example, was one-twelfth that in 1991.
According to the well-regarded economist Stanislav Menshikov, net profits in the economy in 1996 were just 14% of the 1990 level. Investments in basic capital stock last year were down by a further 18%, and Menshikov estimates the real level of capital investment last year was about a quarter of that in 1990. Net investment, he maintains, has probably been negative (less than depreciation) since 1992.
According to Finansovye Izvestia, the proportion of fixed capital that is overdue for the scrap heap is approaching 50%. In October it quoted experts stating that the ageing of Russia's basic fixed capital would not be stopped for another five to seven years.
Until then, a rising incidence of breakdowns — and at times, catastrophes — mean that an end to the decline in industrial output is unlikely.
In sum, Yeltsin and his neo-liberal ministers have created an economy that is not only much smaller than that of the late Soviet period, but also lopsided, backward and dependent.
The new capitalism
It is also instructive to look at how the new capitalism has coped with some of the "Achilles' heels" of the old society. What about agriculture, the area whose chronic shortcomings used to be cited as threatening doom to the Soviet system?
Despite reasonable weather, Russia's 1996 grain harvest was the third smallest in 30 years. Suffering from a vicious revival of the 1920s "scissors crisis", output of many food products has fallen by half since 1990, and the decline is continuing.
The prices obtained by farms for basic foodstuffs changed little during 1996, while according to agriculture and food minister Viktor Khlystun, the cost of agricultural equipment and fertiliser increased by 60%. ITAR-Tass reported on January 20 that 75% of farms ran at a loss last year.
Meanwhile, privatisation and the blast of competition have not solved industry's product quality problems. Surveying Russia's car plants, the English-language Moscow Tribune noted on February 7: "The already notorious quality of their products has been slowly but steadily declining over the past few years".
Workers are no longer forced to "storm" in order to meet state plan targets, but the giant AvtoVAZ car plant at Togliatti has been working at a frenzied pace to try to meet huge tax bills.
Understandably, large numbers of Russians are deciding that capitalism is not for them. An all-Russia survey reported in Segodnya on January 24 found that 48% of respondents agreed or were inclined to agree with the proposition: "Socialism is preferable to capitalism as a system for Russia Only 27% disagreed or were inclined to disagree.
Forty-three per cent agreed or were inclined to agree that Russia's economy should develop mainly on the basis of state rather than private property, while only 19% took the opposite view. In Russia, always a land of paradoxes, the new society is evidently pregnant with the old.