Reality in Russia: ' . . . a poor society of poor people' Unhappiness grows with rising prices

February 04, 1992|By Will Englund | Will Englund,Moscow Bureau of The Sun

MOSCOW -- There's nothing like high prices, heading ever higher, to make people come face to face with their own terrible poverty.

A shopper walked into a large toy store here two weeks ago and stomped out when she saw a sled that used to be three rubles selling for 50. She refused to buy it on principle. Last week she came back and the same sled was selling for 175. She simply couldn't afford to buy it at all.

It has been a month now since the government of Boris N. Yeltsin said no to state subsidies and lifted price controls on most goods.

"It has been a most unpleasant, painful shock," Yegor Gaidar, the deputy premier who is leading the economic reforms, said yesterday.

But a necessary one, he added. Russians were loaded with rubles. It gave them comfortable delusions. They wouldn't face reality.

"At the end of last year, we were a poor society of rich people," Mr. Gaidar said. "But there is no such thing. This was illusionary wealth. You couldn't buy anything with these rubles.

"So now in January we became a poor society of poor people."

The honesty is almost too much to bear. The high prices have started to soak up the rubles. That means people are running out of money.

Kommersant, a financial newspaper, said yesterday that families with average income (2,410 rubles a month) have seen their purchasing power fall below the subsistence level set by the government last year.

Food prices in state stores are 7.7 times higher than they were four weeks ago, the newspaper said. Appliances are 10 to 17 TC times more expensive. Prices in farmers' markets are up by about half; in private stores they're up about 20 percent.

Mr. Gaidar said he believes that, overall, prices are up about threefold.

He also said he expects inflation to slow down in February and March.

But people don't lose their cherished illusions happily. "Neocommunists" are trying to capitalize on that by organizing what they hope will be a big rally this weekend to call for the downfall of Mr. Yeltsin's government and a rollback of prices.

The labor unions, which are unhappy with the reforms, are reportedly planning to stay away, however, fearing they might provoke the Yeltsin government into a sharper clampdown on their political activity.

The newspaper Kuranty, which supports the move toward a market economy, observed on Saturday, "The Russian leadership clearly overestimated its credit of popular confidence. That is perhaps the biggest mistake of the president and Cabinet."

Yet Mr. Gaidar, who was talking to reporters yesterday in a summing up of the first month of reform, was in no mood to hold out new illusions for unhappy Russians.

The shock of high prices has been absorbed, he said, but "this doesn't mean the problems are behind us." It would be too optimistic, he said, to pretend that the toughest period has passed.

A tremendous amount of unemployment, for instance, still lies ahead.

Between 7 million and 8 million people will join the ranks of the unemployed this year, Fyodor Prokopov, the first deputy minister of labor and employment, had said earlier.

"The unhappy, but realistic forecast, is that every family in Russia will soon be affected by unemployment," he said.

The most optimistic scenario, Mr. Gaidar said, would show economic improvement beginning to set in after 10 months. But even then it would be a small ember struggling to stay lit in the drenching downpour of bad economic news.

His government has freed prices and lifted import duties, hoping to expose Russian producers to foreign competition. But the task of breaking up the monopolies here is a daunting one, sure to be the source of bitter contention.

"Any privatization is a conflict of property rights," Mr. Gaidar said, "because somebody will be receiving property and somebody will not."

The task is complicated by another discouraging statistic -- up to 33 percent of Russian factories may be "value subtractors," according to Graham Allison, a Harvard economist who last year helped design one now-discarded scheme of foreign aid to what was then the Soviet Union.

Value subtractors are factories that produce goods worth less than the sum of their parts -- and they were a plague throughout the formerly communist world.

Was there good news yesterday? Yes.

"In our shops, meat products and dairy products are beginning to appear," Mr. Gaidar said, truthfully enough. "Of course, there are some bottlenecks. Of course, market mechanisms are not at work everywhere."

And there are some "limitations" of supply: All grain is being used in bread, which means there is almost no fodder, which means livestock are being slaughtered for meat. Russia has cut back on its huge subsidy of Cuba, which means there isn't enough sugar to go around anymore.

But anyone in search of a silver lining can ponder this: The government printing presses have finally caught up with the demand for rubles, after falling behind in the latter half of 1991.

How? They've been replated, and now they're cranking out larger bills -- 500s instead of 10s.

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