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Books by Grigory Yavlinsky
Economics and Politics in Russia
The Center for Economic and Political Research (EPIcenter)
Nizhni Novgorod-Moscow, 1992

3.2. Prognosis and Strategy

Priority Problems

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The situation in Nizhni Novgorod Oblast is defined by a general crisis in certain aspects, including:

- the problem of food supplies;

- the oblast's dependence on inter-regional ties;

- the high proportion of defence plants;

- the large size of enterprises; and

- the high proportion of urban residents.

According to rational consumption criteria, the oblast provides only half of the regions meat and dairy product requirements with its own resources, and less than half of its grain requirements. The high share of defence plants in the oblast's industry, and the concomittent sharp decline in military contracts and related instability, has engendered a major problem: the need to radically change an enterprise's production profile and the lack of requisite resources to finance the technical overhaul. The large size of the enterprises constitutes another problem for investment and conversion to joint stock companies.

The oblast is one of the most urbanised in Russia, and consequently has the highest proportion of pensioners among the oblasts and republics in the region. The situation in the countryside is particularly tragic. Like the rest of Russia, Nizhni Novgorod Oblast is also characterized by growing crises in all social aspects. The first signs were noted several years ago. The decline in industry's scientific and technical level and equipment obsolescence were observed throughout the 1980s; falling agricultural production, from 1987-1988; and the decline in population rates, since 1989. Even before the start of the reforms, the oblast was one of the depressed regions, similar to the Central Urals. Increased fuel and energy prices, the lack of a defence concept, a conversion programme and the requisite investment conditions prevented any potential restructuring of the oblast.

The region, a net consumer of energy, is largely oriented toward military production. Its industrial base is rapidly becoming technically obsolete. Enterprises attempted to survive in an unregulated market and in the face of runaway inflation. Unfortunately, it transpired that the oblast's industry was poorly prepared for the transition to a market economy. Attempts to survive and function in a market environment were hampered by the imbalanced structural base (only 16% of industrial output consists of consumer products), the overabundance of giant state enterprises, the overloaded social infrastructure and the high degree of dependence on strictly assigned suppliers. Assessments of a dynamic model for Nizhni Novgorod oblast's economy also affirm the extreme vulnerability of its industry in the new conditions (see below). Prior to the rouble's stabilisation, economic relations will depend on a consolidation of financial settlements via direct commodity exchanges (barter). Stabilisation articles in Nizhni Novgorod oblast, including petroleum products and automobiles, play a primary role. Such output is the mainstay for overcoming the crisis.

On the whole, the oblast is enduring with great difficulty a period of critical importance for Russia. Although the money supply issue has been resolved for the short term (with the preparation of a consumer loan for the oblast), and manufacturing output has decreased by only 8.5% (against 13.5% for the country as a whole), negative phenomena in the production, consumer, and social spheres have been observed. In January-May, profits for all types of economic activity rose by only 5.3 times, in contrast to 8.5 times in the rest of Russia. This reflects yet again the irrational structure of the oblast's industrial base in market conditions, given the current price system. The ratio between the growth in the population's monetary incomes and the consolidated price index was 0.63 over six months (and 0.67 for the entire country), i.e., the oblast population's real incomes are dropping more quickly. Unemployment is rising steadily. The potential worsening of the economic crisis and the population's lack of confidence in the future remains. The most critical situation has arisen in the agricultural sector, which is failing to fulfil the needs of the oblast's population. The situation has deteriorated considerably owing to the disintegration of the mechanism for obligatory centralised supplies, and the bans on exports of agricultural produce to separate oblasts and republics. In the given situation, the region's authorities are doing their best to create an economic stabilization buffer by developing bilateral and multilateral horizontal ties with other regions of Russia and CIS Republics, and new economic forms (privatization, land reform, conversion of enterprises into joint stock companies, stimulation of entrepreneurship, support for small businesses, monthly free-trade actions, etc.).

At the same time they are preparing radical restructuring measures and creating a self-sufficient market economy. The latter group of measures includes the transformation of the social infrastructure and the attraction of foreign investment to Nizhni Novgorod oblast.


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