Quiet Start for Russia's Privatization

RUSSIA'S massive privatization effort began yesterday, but what the government considers a watershed event for market reform appeared to generate little enthusiasm.

Large crowds failed to materialize at distribution centers in Moscow, where citizens could receive privatization vouchers. "We thought there would be horrible lines, but that has not been the case," says Irina Lvova, the head of one distribution center.

Under the plan, a privatization voucher worth 10,000 rubles (about $40) will be distributed to each of Russia's 150 million citizens over the next three months. As of next year, people can use the vouchers to purchase shares in large state enterprises undergoing privatization, or to pool them in an investment fund. Those who do not want to participate can sell their vouchers.

Thirty-five percent of state enterprise shares have been set aside for purchase through the voucher system. The remaining shares can be sold, or given by factories to employees, either for free or at a discount.

Russian officials are counting on the program to spur the growth of a middle class, generally considered the driving force of a healthy market economy. At the very least, Privatization Minister Anatoly Chubais says, the program will make radical reforms irreversible by causing "the death of the command-administrative system" created by former Communist leaders.

The program cleared a big hurdle last week when hard-line members of parliament failed to win legislative approval to delay privatization's start. Parliamentary opponents contend the plan violates existing legislation, an allegation denied by Mr. Chubais and other supporters.

"They'll say anything," Chubais says, referring to hard-liners in parliament. "But behind their statements is the fear that the totalitarian system will crumble."

With the defeat of the conservatives in the legislature, there is nothing left to stop the program from moving forward, Chubais insists. But opponents, who include former Soviet President Mikhail Gorbachev, say the largest obstacle to the program's success has yet to be overcome: the skepticism of the people.

"A lot of my neighbors don't believe in [privatization]. They say, `who needs it,' " says Tatyana Glebova, a housewife who was one of the few to show up at a distribution point not far from the Kremlin.

To many Russians who grew up under communism, the concept of private property is alien. Convincing the wary of privatization's merits is almost impossible, says Yuri Leonov, head of the 20,000-member Zashchita Trade Union and an outspoken opponent of the program.

WHEN the government announced the privatization program last summer, officials said a large-scale information campaign to generate interest would be conducted during the run-up to the Oct. 1 launch date.

Chubais admits the government has not done as much as it could, but adds that the information campaign will increase in October. Mr. Leonov, however, says it was too little to late. "Information hasn't really filtered down from the top to the person on the street," he says. "No one really knows what a voucher is and where to invest it."

Opponents say the only people who will benefit from privatization will be the increasingly powerful mafia and former Communist Party apparatchiks.

"It will give the mafia a great opportunity to launder money. It will also benefit the apparatchiks because they are the people still in charge of many factories," Leonov said. "The workers are the ones who will be the losers."

Acting Prime Minister Yegor Gaidar has said privatization is expected to put inflationary pressure on the economy because many people are expected to sell their vouchers immediately. That would strain the government's overall market reform program, already hit hard by plummeting industrial production in Russia. Similar economic woes in Ukraine caused Ukrainian Prime Minister Vitold Fokin to tender his resignation on Tuesday.

Leonov, for one, predicts that privatization will fail, possibly bringing the Russian government down with it. "It will be the last straw that causes people to lose patience with market reforms," he says. "[The government is] taking one step forward to take two steps backward."