RUSSIA IN 2003: A FROZEN LAND

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Resurfacing after Russia’s lengthy sequence of holidays, the media is taking a good look around, trying to figure out the consequences of the weather. This winter has turned out to be Russia’s coldest in twenty years.

The papers are reporting Emergencies Ministry figures: some articles claim that 28,000 people have been left without heating (Nezavisimaya Gazeta), while others say 288,000 (Kommersant). One thing is clear: these are official figures, and in Russia official figures are usually an underestimate. Reports about the battle against the weather bear a striking resemblance to reports from the front in wartime.

The feature article in this year’s first issue of Vremya Novostei was headlined: “The Cold and the Army Are One”.

Defense Minister Sergei Ivanov has reported to the president that the Leningrad and Far East military districts have been ordered to “urgently contact the leaders of regions severely affected by the weather”. The military is promising to help with fuel supplies and clearing accumulations of snow.

Nezavisimaya Gazeta reports that the Novgorod region is mostly relying on the Emergencies Ministry. Although heating systems had broken down in Valday – which has happened twice during the New Year holiday period over the past five years – regional officials permitted themselves to go to a vacation resort to celebrate the birthday of a deputy governor. Three hundred Emergencies Ministry personnel, and health workers brought in from the city of Novgorod, were left to battle the emergency in Valday: one of the buildings without heating was a district hospital.

The Gazeta newspaper says that the damage caused by severe cold weather in Karelia is estimated at 50 million rubles. The federal government has already allocated the money: Karelian leader Sergei Katanandov appealed to President Putin for help. However, it is doubtful that the money will save Karelia: according to Emergencies Minister Sergei Shoigu, the housing and utilities sector Karelia is severely deteriorated, while the local authorities are negligent.

The situation is similar in the Arkhangelsk and Murmansk regions, and Komi and Mordovia, and even in St. Petersburg. According to Nezavisimaya Gazeta, staff at the St. Petersburg Joffe Physics and Engineering Institute have to bring heaters from their homes to ensure that some unique equipment doesn’t get too cold. Academician Zhores Alferov, a Nobel laureate, heads the disaster relief committee. Having studied the problems of the housing and utilities sector, Alferov concluded that the heating system at his institute had not been replaced in thirty years, and is completely useless. Moreover, the damage from the heating system breakdown has already exceeded half of the institute’s annual budget.

However, as St. Petersburg Deputy Governor Alexei Smirnov announced at a meeting of the city interdepartmental commission, the stated goal of the city’s housing and utilities services is not to “ensure comfortable living conditions”: the goal is specified as “survival” during periods of extreme cold. According to Smirnov, municipal services have generally managed to meet this objective. However, some irresponsible citizens have seriously hampered the efforts of the municipal services: they stubbornly tried to make their living conditions comfortable, turning on all the heating devices in their homes. Naturally, the city’s electrical power plants could not handle such pressure, and entire city blocks remain without electricity in St. Petersburg.

As Profil magazine reports, Karelian leader Sergei Katanandov gave an honest response to President Putin’s tough question about how Karelia, where preparations for winter had been going so well, could have found itself in such a disastrous situation. Katanandov said that housing and utilities services are to blame, since they had relaxed too much while celebrating New Year.

As a result, Profil writes, there is once again an impression that winter in Russia is not just a season, “but rather something special and mystical” both for the authorities and the people.

In fact, says Profil, the list of strange, incredible, and unexpected winter events in Russian history is a long one: it includes Napoleon’s retreat in 1812, Hitler’s forces near Moscow in 1941, 1943 in Stalingrad, troops going into Afghanistan in December 1979, and troops going into Chechnya in December 1994, and many others.

On the other hand, Profil notes, the winter calendar in Russia is a chain of holidays – New Year, Christmas, Epiphany – constant attempts to fill in the time free from work.

Alexander Ageev writes in Profil: “There is the suspicion that in winter, there is a strong influx of some dark, uncontrolled psychological energy in Russia. It is quite impossible to predict whether it will be destructive or constructive.” Moreover, this phenomenon clearly comes as a complete surprise every time, for the entire country, from the bottom to the top.

Fortunately, early January was short of political events, and the press mostly made predictions and summed up any results it had not summed up earlier.

Boris Kagarliltsky, an observer for Novaya Gazeta, drew a sad conclusion in his first article for 2003: Russia today is a “country tired of unresolved problems and its own misfortune, and relaxing in the sense of its helplessness.”

In Kagarlitsy’s opinion, the popular comparison of the current regime to Brezhnev-era stagnation is very unfair.

“Under Brezhnev, the government’s slogan was Stability. Only at the very end did this start to be perceived as stagnation.” Of course, the 1960s dreams of liberty didn’t eventuate, and this was the reason behind growing disillusionment across society. But society at the time was stable and organized: “For people who still remembered the war and Stalin’s reign of terror, it was a case of no news is good news. Caught up in day-to-day concerns, the nation preferred small pleasures to heroic breakthroughs – fortunately, the self-sacrifice of the past laid a strong foundation for material prosperity.”

But the stability of Putin’s regime, according to Kagarlitsky, is based on society’s total lack of any expectations that anything can change for the better: “Some of us are already doing very well. For others, things couldn’t get any worse. And most people have managed to adapt to today’s conditions, somehow.”

Tiring of unsuccessful efforts to extricate itself from crisis, Russia has finally accepted it: “Accepted poverty, inequality, the systematic deterioration of the education and health-care systems, the impossibility of either winning or ending the war, the corruption and arrogance of state officials.”

Tiring of chaos, society has made its choice in favor of order; but this order only entrenches the problems: “That is the point of it. With all its repressive might and the propaganda of the approval rating, the regime guarantees that problems will not be solved. Society will no longer attempt to extricate itself from crisis. It will live in crisis conditions and acknowledge this as a normal state of affairs.”

Novaya Gazeta cites figures the National Center for Public Opinion Research (VTsIOM) to confirm this standpoint: only 20% of respondents think that the past year has been bad; only 13% of respondents say it was good. The majority of respondents, 63%, think 2002 was an average year.

Nonetheless, VTsIOM recognized 2002 as a turning point. The worst year in recent years was 1998: 29% of respondents call it average, only 3% of people say it was good, and 65% of people say it was bad for them. In subsequent years, the number of good assessments has increased, and 2001 was described as average by 67%, with 18% of respondents calling it good, and only 14% saying it was bad. But now the trend is negative once again.

Yegor Gaidar, head of the Transition Economy Institute, has a different viewpoint. An interview with Gaidar was published in the first 2003 issue of the Argumenty i Fakty weekly.

When asked about the cost of reforms for the nation, Gaidar said: “Reforms are never carried out for pleasure, or for no reason. All over the world, they are launched when it is no longer possible to live as before. Under Brezhnev oil prices were twice as high as they are now, and there was a brief impression of prosperity. Then the prices collapsed, and it turned out that the Soviet economy was like a drug addict going through withdrawal.”

Gaidar is convinced that by starting reforms in 1992, his government was saving Russia from a civil war: “There had already been some riots. But people tend to forget about that, and… remember the ‘socialist paradise’.”

As for Russia’s “oligarchic capitalism”, Gaidar considers it a “reaction to the laxity of the government.”

“If the state is unable to guarantee fulfillment of contracts, to protect property, and to stop theft, then major property-owners have to build their own state, an ‘internal empire’, which includes very specific relations with the government.”

Apparently, this creates great problems for the Kremlin: “Having set up privileged contacts with the government, these private empires seek to preserve them.” They do not want reforms: “They want everything to remain as it is, preferably forever.”

Gaidar says that the West, which considers Russian tycoons to be thieves and their system a bandit system, ought to re-read the first volume of Karl Marx’s “Das Capital”: “the chapter on initial accumulation of wealth: it describes large-scale looting of property.”

Even Stanford, the great American entrepreneur who founded Stanford University, was “an obvious thief, hardly different from Boris Berezovsky in making money and laundering money.”

Moreover, it took Western capitalists at least three generations to become ethical, to be able to share, and to start founding universities. The Russian business sector will go through the same changes. Gaidar says: “Ten years will be enough for us.”

So Gaidar is expecting no surprises from 2003: “No one will abolish the market, or private property – there will be no nationalization. Even the Communists do not want socialism any longer. They would just like to… redistribute something in their own favor.”

Izvestia observer Maxim Sokolov presents a similar view of the situation.

Sokolov predicts that in this pre-election year, the issue of economic growth will be mega-popular in Russia. Against this backdrop, there is a risk that “people will stop understanding that their complaints about insufficient growth and Russia’s unbecoming place in the global economy are being made from the perspective of what isn’t a very bad life at all.”

Sokolov makes it clear that he is far from being optimistic about the situation in Russia. However, he says: “As a result of eleven years of reforms, the minimal necessary level of a social system has been achieved, and it is now possible to think of distant plans and prospects.”

In order to remain at this modest level, it is necessary to assess the previous period correctly. Maxim Sokolov says it should be remembered that in 1991 Russia had neither its own currency, nor a consumer market, nor a private sector of the economy.

If we consider all this insignificant and take the USSR of the 1980s as a model while talking about the “disaster of the 1990s”, there is a danger that all the calls for further growth will turn into the creation of another state industrialization plan.

Sokolov notes: “That would be an unpleasant surprise for the public. There are very few people who openly demonstrate their readiness to return to long queues and food ration cards in order to overcome the difficult legacy of reforms.” It would be more reasonable to stop complaining about the reforms.

In reality, 2002 was not very bad, says Expert magazine. The GDP grew by 4%. Oil prices have remained stable – so far. However, market participants are still convinced that the situation in 2003 will worsen.

This has already become a bad tradition. “As 2001 began, there was the impression that the benefits of devaluing the ruble had been exhausted. As 2002 began, global oil prices fell. It is happening this year as well.”

Moreover, Expert says, “expectations are at their lowest ebb over the past four years.” Companies are convinced that solvent demand will decline, and consequently do not plan to increase their output. Both figures are the lowest since 1999.

What is the reason for such pessimism? According to Expert, the answer lies in that figure of 4% GDP growth.

This level of economic development is insufficient for Russia to become richer or even to maintain the status quo. Having summed up their costs and profits, taking into account the depreciation necessary for capital renewal, companies have concluded that they are losing money.

Experts considers that the reason is the government’s lack of a conscious industrial policy: “Only by coordinating efforts with the state is it possible to turn business into a goal-oriented activity rather than a roulette wheel.” The government should at least temporarily become a “site for business consultations.” However, at present “the business sector is willing – but the government is silent.”

As the Vremya Novostei newspaper reported, Economic Development and Trade Minister Herman Gref recently said that the Russian economy’s growth potential is 6-10% a year. However, in order to reach this level, it is necessary to change the economy’s structure and to decrease its dependence on world oil prices. According to Gref, all these radical changes are likely to be carried out no earlier than 2007.

Hence, in accordance with old Soviet tradition, a bright future in the form of an “economic upswing” is again discernible on the distant horizon.

The Vedomosti newspaper reports that the recent statements of Herman Gref, based on figures from the Finance Ministry, about an expected decrease of capital flight starting in 2003, have proved unfounded.

According to Vedomosti, total capital flight in 2002 actually fell to $12.5 billion, from $14.5 billion in 2001. However, at the end of the year it grew and exceeded the figures for the fourth quarter of 2001 ($5 billion against $3.5 billion).

Oleg Vyugin, First Deputy Chairman of the Central Bank, explained to Vedomosti that the Russian economy “simply does not need as much money as the nation receives from exports.” There are no investment opportunities in Russia.

This means, as Profil magazine notes, that petro-dollars have not started being converted into investment in industry, not even in the form of consumer demand for domestic goods.

Profil speaks of “reduced domestic demand”, despite all the efforts of the government.

According to Profil, the increases in pensions and wages have only stimulated demand for cheap imports. This year, this trend is likely to grow stronger; and only a “thorough ruble devaluation” – or another reduction in real wages – can change this orientation among Russian consumers.

At the same time, Profil mentions “inadequate growth of current consumption”. According to the results of 2002, retail and wholesale trade grew by 12%. Further on, this growth is expected to continue. “A simple glance at the appearance of networks of malls makes it clear that consumers – particularly the middle class – are on a buying spree, just like in the unforgettable year of 1997, the year Viktor Chernomyrdin’s Cabinet proclaimed the first year of economic growth.”

According to Profil, this is “a feast on the eve of a plague: this is the only definition that fits.”

However, the majority of observers do not believe in doomsday predictions, at least for 2003.

It is generally admitted that the reforms have been frozen almost as much as Russian cities and towns in the grip of winter. The government has announced its priorities: for 2003, servicing foreign debt; for 2004, elections; for 2005, debt repayments again. No more.

And that’s not so bad – at least, not for experienced political consultants such as Pavlovsky himeslf. The vague yearnings of Russian citizens present an excellent opportunity to grow some new party monsters in this soil, in time for the next elections. Whether these are pro-government or oppositional parties will depend on the circumstances.

According to Pavlovsky, 40% of the people consider that none of Russia’s exisiting parties represent their interests: “This is a vast, unconquered political marketplace!”

How very typical of a stagnation period: stagnation for the economy, but a bonanza for politicians.

But no matter how we try, we can’t entirely shake a sense of foreboding: could there possibly be another perestroika period after this latest stagnation era? Oh no, surely that’s impossible…

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