The Ruble Rises From The Rubble

New Bills

For once, history didn't repeat itself for Ludmilla Kumerenka.

The middle-aged housewife, like many Russians, expected chaos, catastrophe, and price rises when this year began with the issuing of new ruble bank notes with three inflationary zeros lopped off.

But when she bought her Christmas chicken for Russia's Jan. 7 observation of the holiday, the fowl placed into her worn leather bag cost the equivalent of $2.50, the same as before. The shopkeeper accepted her old rubles without question.

To the relief of Mrs. Kumerenka and Russian central bankers, the issuing of the new rubles - now worth 6 to the dollar instead of 6,000 - was remarkable for its lack of drama. The first week of the exercise seemed to achieve its main aim - to boost the morale of Russia's struggling citizens.

Unlike past currency revaluations, which wiped out people's life savings in days, careful planning marked this latest stage in six years of post-Soviet economic reforms.

Russia may not have turned the corner yet into a smoothly functioning free market economy, but at least it seems to have taken another step in the right direction.

"The most important task was to overcome the psychological barrier of our people," Prime Minister Viktor Chernomyrdin told reporters earlier this week.

"Ordinary people were punished by past reforms. This won't happen now," Mr. Chernomyrdin said.

So far he has been proved right, although economists note these are early days and the operation was relatively simple in Russia's morass of economic problems. These include the sluggish restructuring of privatized companies, a fragile banking system, and crime syndicates that, according to the government, control two-thirds of the economy.

To minimize confusion, media advertisements for months warned Russia's 150 million people of the change to come. The old notes will be accepted alongside the new ones for another 12 months. The new rubles look only slightly different from the old.

Newspapers have published two hot line numbers that consumers can call to report greedy shopkeepers who have raised prices. Central Bank chief Sergei Dubinin has declared they will be "punished like animals."

This is a far cry from the past, when redenomination spelled debacle. In 1991, Russians were given a mere three days to change their old notes into new. People who missed the boat suddenly found their money converted into useless scraps of paper. Panic accompanied another change two years later, when hyperinflation made the newly issued money practically worthless.

This time, the hitches have been minor. Supermarket checkers tell of a handful of customers who refused to accept change in the new notes. In some provinces outside the capital, new rubles still had not arrived by last Monday, the first working day of the year.

The reform was accompanied by positive nods from the International Monetary Fund, despite the fact that it is withholding millions of dollars in credits due to sluggish tax collection. The IMF lauded the government's readiness to protect the ruble during the recent Asian financial crisis. It also praised Russia's introduction of international accounting standards.

This year, economists expect Russia to post positive growth after seven years of decline. And inflation has dropped to 11 percent from 131 percent two years ago.

That is where the good news stops, however.

Many Muscovites, particularly the elderly, who have known shortages and long food lines for much of their lives, have expressed suspicion that the new rubles would increase prices.

Their fears cannot be discounted, says economist Alexander Frenkel of the Russian Academy of Sciences. He forecast in an editorial in the independent Argumenti i Facti newspaper that the redenomination could help double inflation. Other economists are concerned about the widespread nonpayment of salaries.

Pensioners such as Nina Alexandrova, living on a $58 monthly handout, don't have to read a recent World Bank report about the eroded standard of living. She could afford only a bag of pita bread to celebrate Christmas.

Life expectancy for men has plummeted - partly because of more alcoholism, attributed to stress - to 58 years from 69 in 1990, and infant mortality is rising.

Russia was one of the emerging markets that wary foreign investors ran away from after the Asian market scare. The stock market here quickly lost more than 40 percent of its value. Foreign confidence was hit further late last year when the government's star economic reformer, Anatoly Chubais, became embroiled in a financial scandal.

Mr. Chubais lost his post as finance minister. Many pundits predict he will soon lose the deputy prime minister portfolio as well, which could hurt confidence further.

It will take much to restore the confidence of Maria Morozova, an elderly woman who is avoiding the new ruble. She relies instead on barter and a hoarded pile of dollars.

"As far as I'm concerned, there is no security in the economy," she says.