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Russia: Incomes Off, But Not For Everyone

Washington, 22 December 1997 (RFE/RL) -- World Bank officials say that Russian government statistics which show incomes have fallen overall by 40 percent since the start of economic reforms are vastly overstated.

But the officials acknowledge that some in Russia are worse off economically now than they were five years ago while others are doing far better.

The bank's country director for Russia, Michael Carter, says some groups, such as the elderly and single parents, and those living in some areas of the country, are "significantly worse off relatively" while other groups such as active young people and those living in cities like Moscow, are doing "very well indeed."

While there has been an overall decline in incomes in Russia since the start of economic reforms, he said, it has been nothing like official data indicate.

"What is happening now is very varied," according to geographic location and circumstance of the individual, said Carter. But that also is an "indication of the kind of change that is beginning to occur across the country," he said.

"Anyone who visits Moscow today would be very mystified to be told they were in a depressed city," he said. "Moscow is simply booming." But that is very different from many other parts of the country. The challenge, said Carter, is to spread the success of some areas and some groups to all others.

Carter and the bank's Vice President for Europe and Central Asia, Johannes Linn, talked about Russia's economic slow start with reporters in Washington Friday. Linn acknowledged that the Russian economy has been slow to respond to the loans and assistance it has gotten from the bank and the International Monetary Fund (IMF), but says it's understandable given the depth of the change it has undertaken and the extent of the country's structural problems.

"The scale of the distortions which need to be corrected in the Russian economy are greater than in any other economy in transition," says Carter.

Linn pointed out that Moscow faltered a great deal in the early years and only began to stabilize its economy in 1995. Experience shows, he said, that it takes two years after stability before growth returns. In addition, he said, it has only been clear since this past spring that the government was beginning to pursue "credible and sustained" structural reforms.

With this new commitment to sustained structural reforms, said Linn, the World Bank has significantly stepped up its lending to Russia. In the first five years of Russia's work with the bank, he said, it received loans of about $5 billion.

"Now we're basically doubling that if the government can sustain the reform," he said.

The bank last week approved two new major loans totaling $1.6 billion -- an $800 million structural adjustment loan and an $800 million coal industry restructuring loan.

The structural adjustment loan is the second of three the bank plans to award to Russia over the next couple of years.

Following on the first such loan last year, the new one will be used to deal with the reform of natural monopolies, such as utilities, into a system of greater competition; expansion of the privatization program, especially in real estate; banking reform, including resolving insolvent banks and improving central bank supervision; reforming trade policy, including implementing a market-based system for oil transport; and fiscal management reform in the government's management of the government budget.

The structural loan will be disbursed in two tranches over the next 12 months based on progress in various steps of reforms.

The second coal loan was designed as a direct follow-on to the first coal adjustment loan given several years ago.

Working from the difficulties and controversies which arose in that program, Carter says this loan is designed first to reward the "very courageous and strong" reforms already implemented in the Russian coal industry. There has been, he says, "very impressive progress in restructuring the organization of the coal sector."

The coal loan will be released in three tranches -- the first one, of $400 million, will be released immediately and is designed to complete the liquidation of the national coal company RosUgol, to implement a "bold" program of mine closures, and for the continued reduction of general coal subsidies, particularly those going to inefficient and uneconomic portions of the industry.

The second tranche of the coal loan of $200 million is specifically for the social aspects of the massive downsizing and reorganization of the coal industry. It is to make sure that those who are adversely affected by the closure of mines get adequate protection.

As a part of that, Carter said that from now on those who are made redundant in the coal industry will receive wage arrears as well as severance payments directly from the government. While the miners technically worked for the coal companies, Carter said this was a way to make sure that ordinary people in coal mining communities get the support which they have not had in the past.

The second tranche will be disbursed probably in the autumn while the third $200 million coal tranche is expected to be released in the spring of 1999 as support for the privatization of the coal companies themselves.