After Yeltsin's Strong Medicine, A Few Twitches Of Life

At a busy state food store in the ancient Russian city of Yaroslavl, shelves that were bare just six weeks ago now are lined with beef, butter, sausage, and wine. At sidewalk sales outside former KGB headquarters in downtown Moscow, thousands earn extra cash hawking everything from Bic pens to brassieres. And in St. Petersburg, black marketeers are getting unusually stingy in their back-alley currency deals. They now offer only 80 rubles to a dollar--down from 135 a few weeks ago.

Six weeks after Russian President Boris Yeltsin subjected Russia's moribund economy to shock therapy, some surprising signs of life are appearing. Prices, which soared as much as 20 times after the Yeltsin move, now appear to be leveling off. For some goods, such as flour, eggs, and cream, they are even dropping. And instead of rioting, as some feared, Russian citizens have turned to trading en masse to ease their financial woes, thanks in part to a Feb. 1 Yeltsin decree that encourages open sales of almost everything.

Although it's too soon to pronounce Yeltsin's plan a success, one important sign of confidence is the strengthening of the ruble. After plummeting dramatically against the dollar in December, the ruble has strengthened sharply since Jan. 1. At the weekly Moscow currency exchange, the ruble has firmed from 230 to a dollar--or half a cent--to 170 on Feb. 18.

GETTING TOUGH. Entrepreneurs are snapping up rubles that just a few weeks ago were considered all but worthless. They want to build up ruble reserves to invest in the state-owned properties, including 42,000 retail outlets due on the market by yearend. Notes Levan Zoloterov, a dealer on the Moscow exchange: "People can't get enough rubles."

Another reason for the firming ruble is the get-tough Central Bank of Russia. Authorities have squeezed the money supply 30% and are soaking up rubles with weekly sales of up to $3 million in hard currency. Over the next two months, the Moscow Interbank Currency Exchange will increase such sales to a total of $100 million. That could strengthen the ruble rate to 50 to the dollar. "We had doubts in December, but now we are sure we can save the ruble," says Alexei Ulukayev, a Yeltsin adviser.

At the same time, goods are showing up in stores and markets around Russia. Take Store No. 2, at a busy intersection near Moscow University. Here, fresh French-style bread, sour cream, cheese, beer, and sausages are for sale--a giant improvement from last December, before the price reform took effect. "Suppliers come to me now, they don't just ring me on the phone," says store manager Valentin A. Kucherov. Shunning state agency wholesalers, he buys wine directly from Georgia and Armenia and fish from towns near the Black Sea.

Such diversity of sourcing is even lowering prices and shortening lines. Eggs, for example, have dropped from 20 to 15 rubles at Store No. 2. And flour, which zoomed from 46 kopeks to 10 rubles, has now slipped back to 5 rubles a kilo. But a few blocks away, where the manager of Store No. 64 still buys from the state wholesaler, prices are about 10% higher.

Price competition could be greatly expanded if Yeltsin delivers on his plan to sell off state-owned stores and distribution outlets. But despite a year of talk, very few stores in Moscow have been privatized. One reason is that local governments overrun with yesterday's bureaucrats still oversee sell-offs. "You fill out a pack of documents and then they ask for more," says Anatoli Tatarintsev, director of a Moscow store.

Russia could learn from Yaroslavl, a historic city of 660,000 some 250 miles north of Moscow. For years, it was poorly supplied with food, since Moscow siphoned off supplies. But now its stocks, from sausage to sugar, have picked up significantly thanks to the barter deals with Ukraine and other regions.

PENSION RELIEF. Since prices were freed, competition has broken out between state stores and private farmers' markets. "We had meat at 90 rubles a kilo at the state stores while it was 75 rubles at the market," says vice-mayor Lyudmila I. Sorotova. Since then, Yaroslavl store managers have learned they must cut prices to get customers to buy. To spur them to be competitive, the city government has banned state-owned wholesale outlets, forcing stores to find cheaper sources of supply.

Still, cities such as Yaroslavl are battling some perverse side effects of the price reforms. High prices are driving away restaurant customers, threatening thousands of jobs. Across Russia, lost employment and big production drops may yet undo the Yeltsin reforms. Already, he has made limited concessions such as cutting some taxes and beefing up pensions to appease critics.

But in general, Yeltsin is staying the tough course. He is desperate to prove to his own people and the West that he is committed to market reforms and has the will to control both spending and the money presses. Indeed, Yeltsin has little choice if he hopes to get the West to back a $6 billion fund to stabilize the ruble.

With such help, Yeltsin and his advisers believe the ruble could be made convertible as early as this summer, opening the door for foreign investment. That, they say, could push their reforms over the top. Until then, all Russians can do is hope they're seeing the start of a recovery.