Russian economy -- what went wrong?

For more information, click the dates on the timeline below

By Steve Nettleton
Special to Interactive

In this story:

• Savings wiped out
• 'A house of cards'
• Leaders making it worse?
• Danger of revolt

(CNN) -- Some Russians wait for months to be paid. Workers, and even state enterprises, resort to bartering to survive. Discontent is widespread, and revolt is a possibility. The troubles in Russia already have sent ripples through the world economy, and could trigger much worse.

One in two Russian workers receives no check on payday. Most wait for months. The Russian government owes 77 billion rubles to its employees, a third of all rubles in circulation. The private sector owes another 70 billion.

Coal miners frequently vent their frustration by blocking the Trans-Siberian railroad. Unpaid soldiers reportedly sell their weapons and uniforms.

The free-fall of the ruble has forced shopkeepers to raise prices daily, sometimes hourly. Some customers are shocked that flour, water, even vodka cost twice as much as they did a week before. Others simply shrug their shoulders -- they had no money, anyway.

"For those who had savings, savings have been wiped out," David Kramer, associate director of the Russian and Eurasian Program at the Carnegie Endowment for Peace, told CNN Interactive. "For those who bought their goods at stores that imported food, the prices have shot up," and in many cases the stores have run out of supplies.

A U D I O David Kramer, Carnegie Endowment for Peace On the impact 391K/39 sec. AIFF or WAV sound What led to the crisis 640K/60 sec. AIFF or WAV sound Why Russia is different from other former Communist states 275K/25 sec. AIFF or WAV sound On the Russian middle class 250K/22 sec. AIFF or WAV sound

Forced to live without a salary, many Russians survive by bartering. They trade for goods and services, and they grow their own food in small gardens outside of town.

Major companies are also bartering their way through hard times. A survey of more than 200 enterprises revealed that barter, debt-swaps and other non-monetary deals accounted for 73 percent of all transactions in 1996 and 1997.

What is traded reflects the desperation of the times. A textile machinery plant in Kostroma, 200 miles northeast of Moscow, reportedly gave 6,000 pairs of socks to the local police. In return, the police will give the textile plant a break for not paying its taxes.

The dismal economic situation has many Russians wondering, "What went wrong?"

After all, international banks had dumped billions of dollars of aid into the economy. More was promised. Russian leaders had pledged that tough economic reform would improve their lives. Instead, Russians have seen their quality of life rapidly erode. Analysts say corruption, watered-down reform measures and the lack of an economic safety net are to blame.

"The ruble was stabilized largely because people didnt use it very much," Kramer said. "Inflation was brought down because the government and enterprises didnt pay wages or pensions. All that suggests that what was built was, to some extent, a house of cards that has come crashing down."

The economic crisis in Asia struck Russia hard, weakening its exports and damaging investors confidence. A drop in oil and natural gas prices only made matters worse. Russia owns a third of the world's natural gas reserves, and 5 percent of the oil reserves. When oil and gas prices go down, so does Russias primary source of hard currency earnings.

Some analysts believe the culprits of Russia's economic downslide are the very leaders that the international lenders hoped would stop it.

Russian President Boris Yeltsin has sacked his prime minister twice this year, both times shaking investors faith in Russia's stability.

"Yeltsin's done two important things this year," said Kramer. "He's dismissed two governments. That's significant power that he wields, but he basically hasn't done much else."

Both Yeltsin and his on-again, off-again heir apparent, Viktor Chernomyrdin, have close ties to Russia's banking and media barons. The bankers funded Yeltsins 1996 re-election campaign, while Chernomyrdin was once head of Russia's natural gas monopoly, Gazprom.

Critics have accused the tycoons of using their influence to protect, and grow their businesses. Unless Chernomyrdin and Yeltsin can somehow get their powerful friends to swallow difficult reforms, analysts say, their policies will do little to fix the economy.

The stakes of the crisis in Russia are high. At best, Kramer said, the government will patch up the economy well enough to limp into the next presidential elections, scheduled for 2000. At worst, an unhappy populace could rise up in revolt, perhaps fragmenting Russia into smaller provinces and throwing into question the control of some 22,000 nuclear warheads in Russia's arsenal.

Externally, Russia's problems could drive world markets further downward. They already helped send the Dow Jones Industrial Average to its second biggest single-day drop ever, 512 points, on August 31. Kramer said Russia's troubles could also create political instability in Russia's neighbors, such as Ukraine, Belarus and Kazakhstan, and damage markets as far away as Latin America.

Whatever does happen, most Russians doubt it will be Yeltsin paving the way to recovery. A recent poll showed two-thirds of the people want him to resign. Many fear that all Yeltsin, or any government he forms, can do is pick up the scattered cards of the economy, and build a new house, doomed to fail.