LIBERALIZATION OF THE ECONOMY

The advance registered in this field has been the most markedly pronounced - centralized control over the prices of the overwhelming majority of goods and services has been lifted, and nearly all restrictions on the growth of incomes in production sectors and on commercial-brokerage activities have been lifted. Against the background of the manifold price hike there has been a relative boom on both the consumer market and the market of capital goods. A hallmark of the times has been the activization of private retail trade in city streets.

However, the liberalization of the markets is far from being completed. And this is due not only to the preservation of centralized control over the prices of some goods and services. There are signs which indicate that that the "liberalization of price formation" has degenerated into a decentralization of control over prices and a rationing of commodities.

First, in retail trade the prices are fixed as a rule not by commercial enterprises themselves, but by different "higher organizations". In early April a mere 21 percent of shops became legal entities in Russia, and only 1,200 commercial enterprises were privatized.

Second, the state has kept alive the numerous restrictions on the rights of enterprises to independently choose the consumers of their products and to fix prices. Many of Russia's regions have retained state regulation of the prices of staple consumer goods and the system of their rationing. Local authorities fix the territorial state order at the level of 10-15 percent of the volume of industrial output for inter-regional exchange through barter trade. The "ceiling" on price markups as well as restrictions on middlemen to increase the producer's price have been kept at the republican level.

Some resolutions of the government and decrees of the government have hindered liberalization of the markets of several commodities - cars, paper, etc. Resolution No. 43 of the government of the Russian Federation dated January 24, 1992; Decree No. 164 of the President of the Russian Federation dated February 20, 1992.

Third, the isolated implementation of economic reform in Russia has other republics (new types of licensing and quota setting have arisen), thereby stimulating the emergence of similar restrictions inside Russia itself.

Fourth, little headway has been made in changing the systems for advancing commodities from producers to final consumers. The overwhelming part of "street commodity turnover" consists of goods purchased above the normal price in state trade, not from producers - in this sense street trade is still mainly parasitical, being conducive not to competition and a lowering of prices but conversely, to their rise. The large number of intermediaries results in prices being boosted on the wholesale market as well.

Completing the liberalization of wholesale and retail trade requires persistent efforts at the microlevel, intensified institutional changes and corresponding efforts to guide the local authorities. But some of the measures announced by Russia's government fixing profitability levels on producers and trade, the imposition of a tax on the increment of the wages fund - coupled with enhanced rule by fiat at local level have arrested the liberalization of the economy.

Despite its numerous statements, neither has the government made much headway in liberalizing foreign economic activities. By contrast with Poland, where the indubitable successes of 1990 stabilization were most pronounced precisely in the foreign economic field, in Russia this sphere has perhaps been one of the most obvious failures in 1992.

The foreign debt. The elaboration of mechanisms governing the republic's legal inheritance of USSR foreign economic activities, which commenced in late 1992, has not been complete. Eight republics have signed the treaty on legal succession, but questions about the shares and specific mechanisms of the new states' participation in servicing the foreign debt have not been resolved.

By agreement between the republics and the governments of industrialized nations and the commercial credit banks, payments on the bulk of the debt have been postponed, yet the republics have pledged not to discontinue interest payments on this debt. On the other hand, neither Russia nor the other republics have honoured the commitments they assumed either in common or individually. This has rendered relations with Western partners extremely unstable.

Numerous non-tariff limitations (quotas and licenses) have been preserved in foreign trade. They not only set the stage for corruption among government officials, but also tend to slow down and hinder trade. There was little sense in introducing a bulky system of free circulation of licenses for one quarter (there are plans to more or less cancel non-tariff restrictions in mid-summer) and the formation of their secondary market by analogy with the securities market.

The policy of tariff restrictions on foreign economic activities is being pursued most inconsistently: the understated exchange rate must stimulate exports and restrict imports, yet the abolition of tariffs on imports stimulates the latter and thereby increases the outflow of foreign currency from the country. High export duty also reduces export revenues.

It is not accidental that in January-March a failure was registered in the financial results of foreign economic activities: imports were 15 percent higher than in the corresponding period of last year, whereas exports declined by 20 percent. Russia's foreign trade balance has changed - in the first quarter of 1991 it was 1.5 billion dollars in credit, whereas on the results of the first quarter of this year the negative balance was as high as 2.5 billion US dollars. Whereas in 1991 the favourable trade balance was instrumental in servicing the foreign debt of the former USSR, now in conditions of the almost total lack of currency reserves the negative trade balance (import exceeds export by almost one-third) results in a buildup of the foreign debt and aggravation of the currency in the immediate future.

Still more serious is the scope of the non-receipt by the budget of revenues from foreign economic activities instead of the 228 billion roubles planned from the quarter they will add up to not more than 30 billion roubles. The reasons are simple the practice of granting privileges to separate enterprises and local administrations in respect to paying export duty and the mandatory sale of part of the currency earnings by exporters has been preserved and even considerably extended. On the payment of export duties alone the aggregate sum of these privileges came to 309 billion roubles between November 1991 and March 1992. Moreover, the currency owners' mistrust of our banking system (fuelled by bankruptcy of the Vnesheconombank) and poor currency control on the part of the state have aggravated the problem of the leakage of capitals abroad and the non-receipt of currency revenues in Russia. The two-month delay in their payment to the state which arose during the introduction of new custom duties also had its part to play.

The exchange rate policy. Despite a certain liberalization of the currency market in the past few months access for citizens and enterprises to this market has been eased owing to an extension in the number of exchange offices and the conduct of currency auctions twice a week it has still remained deficient. The main reason is that the multiplicity of exchange rates has been preserved. On centralized import 5.4 roubles per dollar, 55 rubles per dollar - special market rate, the market rate 100 roubles, the free rate 140-160 roubles, although the free ready money rate for the population is somewhat higher. In effect this is a form of concealed subsidizing for enterprises.

Thus the first few months of the new Russian government's activities have produced some advance towards economic liberalization, linked above all to the abolition of centralized state control over prices. However, liberalization as an indispensable stage of economic reform is still far from completion and progresses very unevenly on different markets and in different regions of the country. The government's contradictory decisions in this field imply that its actions are not predicated on any clear ideology.