Tunnel is longer, but light still on

One year after the bottom dropped out of its economy and the ruble nearly evaporated, Russia is still mired in crisis but - surprise - doing far better than anyone predicted.

The dire fallout from the Russian government's sudden decision to default on its domestic debts on Aug. 17, 1998, triggering the collapse of the country's infant banking sector and 70 percent ruble devaluation, still dominates the lives of the majority of Russia's citizens.

The popular mood remains grim. "Due to the crisis, the light at the end of the tunnel has been switched off," runs a current joke.

But it may be that the tunnel only got a bit longer. Russians, though battered, have survived the crash, and a few industries are rebounding smartly.

If the country can get through the next year and elect a forward-looking new parliament and president, the outlook may even turn bright.

Many analysts say the worst thing about the crisis is not the economic hardship, but the ongoing turmoil and uncertainty caused by President Boris Yeltsin's repeated government shake-ups. He has fired three prime ministers since the crisis began. The fourth, Vladimir Putin, was confirmed yesterday by the Duma, the lower house of parliament.

"Nothing has done as much harm to Russia's ability to deal with its problems, and its reputation in the world, as the constant disruptions at the top," says Mikhail Dimitriev, an analyst with the Carnegie Endowment in Moscow.

"Ultimately, I think we must await a change of power in the Kremlin before we get a real strategy for reviving the Russian economy," he says.

Following Monday's confirmation vote, Mr. Putin pledged to stick with the previous government's economic policies and to strengthen social policies to aid the poor.

"We will continue reforms started by previous Cabinets," Putin said. "But the reforms aren't a goal by themselves, they must improve peoples condition."

It's not hard to see how Russians are still struggling with the crisis. Everyone has a story.

"I lost my savings, my job, my car, just about everything I'd gained in the previous five years," says teacher Katya Milyukina. Her bank, one of Russia's biggest, closed its doors after the crash, taking her $3,000 nest egg with it.

The private school where she taught English shut down when most of its young professional clients stopped coming. She sold her car to make ends meet.

"I'd like to say I've gotten over it, but I can't," she says. "I can only say I'm surviving."

Most Russians today are in that category, and some just barely.

Ruble devaluation cut deeply and immediately into living standards in Russia's heavily import-dependent consumer economy. According to official statistics, the number of people living below the subsistence line leapt from 22 percent of the population in July 1998 to 35 percent - 55 million people - in June 1999.

"The government defaulted on its debts, but really it just transferred the burden to the population in the form of lost savings, price inflation, and unpaid wages," says Boris Grinchel, an analyst with the Institute of Social and Economic Research in St. Petersburg.

Decimated middle class

The hardest blow fell on the new middle class - young professionals, entrepreneurs, and skilled workers who are Russia's best hope for building a modern society. In a matter of weeks, hundreds of thousands of them lost their jobs, their dreams, and their faith.

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