Tunnel is longer, but light still on

"Until confidence and purchasing power return to the middle strata of our society, there will be no speaking of recovery," says Mr. Grinchel.

Russia still has no functioning banking system, and the national savings rate is just one-third of what it was a year ago.

Strikes by disgruntled workers are sharply on the upswing. Some regions of the far-flung Russian Federation are visibly teetering on the verge of anarchy - notably the southern republic of Dagestan, where Islamic militants are waging war against the Russian Army.

But contrary to many harsh forecasts of a year ago, Russia has not disintegrated, suffered mass starvation, or drifted into dictatorship. At least not yet.

"It's a big accomplishment that we've held things together," says Mr. Dimitriev. "We're not out of the woods, but we're not dead either."

Positive signs

And there are at least a few unexpected rays of light.

Domestically produced consumer goods, from household appliances to clothes to shampoo, have become far cheaper in relative terms than the imports that formerly dominated the local market. A Russian-made Volga automobile that cost the equivalent of $12,000 a year ago can now be had for $5,000.

"Now is the time to build a house," says Maxim Sukharov, a lawyer. "Life is hard these days, but we'll never again see such low materials and labor costs." Mr. Sukharov says he is constructing a four-bedroom bungalow in a village 50 miles from Moscow for an estimated $7,000.

Russian industrial output rose 5 percent in the second quarter of 1999, according to the International Monetary Fund (IMF). The Russian government is even more upbeat, saying that production in July this year was 11 percent higher than the same month in 1998.

Exports have grown modestly, but imports have shrunk by a whopping 46 percent, giving Russia a trade surplus of $14.8 billion for the first half of this year - 15 times greater than the same period last year.

The global price of oil, Russia's biggest hard-currency export, has surged from less than $10 per barrel in February to above $20 today. That's a windfall not only for Russian oil companies, but also for the cash-strapped government, which will rake in an additional $1.5 billion in oil export duties this year. Tax collection, a perennial problem for the government, also appears to be improving, though it remains well below targets.

Major reforms still needed

But analysts warn the mini-recovery will run out of steam unless it is soon coupled with major structural reforms.

"Most Russians are not paying the full cost of their housing or the energy they use, and this remains a huge burden on the economy," says Grinchel, pointing to the fact that more than half of all Russian regions regularly default on their gas and electricity bills.

"Many industries are not positioned to take advantage of the ruble devaluation because they are crippled with debt and failed over the past several years to reorganize and retool for market conditions. There will probably have to be a wave of bankruptcies," Grinchel says.

"It may get worse before it gets better."

(c) Copyright 1999. The Christian Science Publishing Society

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