San Francisco Chronicle, October 8, 1998

Little Panic in Russia's Heartland

By Frank Viviano, Chronicle Staff Writer


Deep in the Red Belt, the enormous swath of provincial cities and regions that never abandoned the Communist Party, Russia's economic collapse bears an unmistakable label.

The crisis reads "Made in Moscow" - and in its wake, a quiet but momentous power shift is building in a hinterland that once accepted the Kremlin's will as divine law.

If Russia is to have a future that works, people here insist, the focus of political attention must turn to places like Orel, and away from the central government's acrimonious backrooms.

"Just take a look around," says Mayor Yefem Vilkowsky, a gruff 61-year-old former truck driver who governs this bustling community of 340,000 on the Oka River. "The shops are empty in Moscow. Ours are still full. OUr local banks are still open, and their clients aren't trying to close their accounts."

Muscovites claim that the Red Belt is run by Communist hacks on Soviet-era principles. Reinstalling such principles, worry capital democrats, is the hidden agenda of new Prime Minister Yevgeny Primakov.

Yet, provincial Russia seems far less marked by Soviet-era anachronisms today than by a calm acceptance of profound change, whatever the party affiliation of local leaders.

In a 1,200-mile circuit of Russia's European heartland - from Red Belt agricultural centers like Orel, not far from the Ukrainian frontier, to reform-minded industrial cities on the upper reaches of the Volga River - a reporter found little sign of the panic that seized the capital when banks collapsed and the central government wobbled to a halt in September.

Vilkowsky's city and its surrounding region, the Oryol Oblast, are not rich. At 600 rubles per month ($100 before the crisis hit) their average salaries are one-fifth those of Moscow. Imported goods have been priced out of reach by the ruble's precipitous decline against the dollar since August. Regional governments are scrambling to assure food and fuel supplies for the winter.

But instead of hysteria, most provincial administrators have reacted to these events with extraordinary patience- and a determination to draw up their own blueprints for the 21 century.

"What you see in Moscow, the chaos and fear, is just Moscow," says Olga Kononenko, Orel's chief press spokeswoman. "We're the pure Russia, the uncontaminated Russia, the real Russia."

To travel that Russia in the precarious autumn of 1998 is to witness a remarkable national quest- the search for a new political center.

"We'll never return to the Soviet past. Psychologically, economically, it is impossible. Nobody would accept it," says Kononenko. "But we have to find our own way forward."


In Orel, that search is written on the urban map. Its visual language is a marriage of old and new symbols, in a landscape that has made room for a Coca-Cola plant and a dozen private banks, without renaming Karl Marx STreet or Lenin Square.

On the main highway into the city center, Al Pacino, Cindy Crawford and Tommy Lee Jones peer down from cinema billboards. In the lobby of the municipal administration building, a bas-relief celebrates the 1944 victory of the Red army over German invaders in the muscle-bound aesthetic of socialist realism.

Seven decades of Russian history haven't been obliterated by a Westernized presence in Orel. In Moscow, by contrast, the frenzy to erase all vestiges of the Soviet legacy has even included removing statues of cosmonaut Yuri Gargarin, as though his pioneering space flight somehow carried guilt-by-association with a totalitarian state.

Progress, as interpreted by the political intelligentsia in Moscow, the U.S. government and international lending institutions, has been an abrupt, no-holds-barred switch to capitalism.

But progress in Orel has mean a painstaking dialogue, a dogged questioning of the relative strengths and weaknesses of socialism and capitalism.

"The mistake we made in the beginning was to think that there was only a 'yes' or 'no' on such issues as a government role in the economy," said Alexei Kontradenko, a senior official of the Oryol Oblast's regional government. "In fact, the answer in most cases is 'neither.'"

In policy terms, that conclusion has led provincial governments to hammer out local compromises between the extremes of discredited Soviet autocracy and a brutal free market.

Since 1997, regional governors have been directly elected by voters, rather than appointed by the Kremlin, a constitutional reform that has sharpened the mood of independence among provincial leaders.

They are confronted with withering challenges, as the Primakov administration is held hostage to bickering between left and right.

According to the Kommersant Daily, a leading business publication, the central government is in arrears by 20 billion rubles on pension payments, 17.5 billion rubles on wages to state employees and the military and 12.5 billion rubles on other domestic obligations in early August - then worth a total of $8 billion.

Russia has all but defaulted on $30 billion in domestic bonds. The Central Bank is believed to hold no more than $7 billion in cash, and the social consequences of its unpaid bills are falling on the hinterland.


The emerging Red Belt approach to government looks very much like the urban landscape of Orel, a symbolic marriage between Lenin and Cindy Crawford.

On the one hand, Orel has aggressively courted U.S. and western European investors, offering tax breaks and management controls that would satisfy the most avid plutocrat.

The crown jewel of its courtship is one of the largest Coca-Cola plants outside the United States, a mammoth facility that will supply beverages to 10 of Russia's 52 regions and employ hundreds of Orel workers.

Just as aggressively, the city and its surrounding region have applied what one businessman calls 'a blue-chip strategy' to its older industries, using a public investment fund to renovate- and then sell off- only the most promising state-owned enterprises. The rest are abandoned.

"If they don't have the potential to survive, they shouldn't be kept alive artificially," said Kontradenko.

Today, more than 95 percent of Orel's commercial enterprises are in private hands, and 85 percent of all industry is either privately held or shareholder-owned.

Compared with Germany, where 43 percent of the GDP is managed by the state after 16 years of ostensibly conservative government, this corner of the Red Belt is a model of free-market rectitude.

On the other hand, "we recognized that everything wasn't bad about our country's past, regardless of what might be said about it in Moscow or Washington today," Mayor Vilkowsky told The Chronicle.

"People who raise 'the red alarm' about a Communism comeback overlook that, just as they overlook the fact that the brand of communism they fear is absolutely finished."

The mayor paused, shaking his head. "But why should that mean that we lose concern for our community's welfare?" he asked.

Vilkowsky and regional governor Yegor Stroyev, both age 60, are still members of the Communist Party that nurtured their earliest political ambitions.

But their generation didn't wield power until the late 1980's, when Mikhail Gorbachev's perestroika was already undermining 75 years of old authoritarianism, and the mayor bridles at suggestions that he wants the clock turned back.

"We can't live in the totalitarian Soviet way. We knew that here in the provinces long before the USSR fell apart in 1991," said Vilkowski, who fought many of his own battles against party orthodoxy as he rose from truck driver to director of one of southern Russia's first joint-share transport firms.


Red Belt notwithstanding, few of Vilkowsky's or Stroyev's personal staff members, most in their 30's, are themselves "reds". As Pianov puts it, "Communist Party membership in our oblast grows older and older. That speaks for itself. But any movement that isn't illegal has a right to exist, of course."

In short, he implied, the party needn't worry anyone since it is likely to fade away- an astonishing statement from someone whose boss is not merely a Communist Party official, but also the president of the Federation Council, the upper house of Russian's nominally Communist-dominated legislature.

Russia's provincial thirty-somethings were teenagers when perestroika pumped its fatal dose of fresh air into the Soviet monolith. But unlike many of their counterparts in Moscow, they have not rejected the Russian past along with the Soviet legacy.

Even in their choice of selected foreign idols, they seldom share the Moscow thirty-something reverence for radical free-marketeers like Margaret Thatcher. "The man I most admire from your country is Franklin D. Roosevelt," says Kontradenko, echoing recent comments by Prime Minister Primakov. "He understood that in difficult circumstances, public officials must act. They cannot be passive."

Roosevelt and his New Deal brain trusters would have felt right at home in crisis-struck Orel.

Against the background of blue-chip privatization and foreign investment courtship, Stroyev and Vilkowsky have acted as Roosevelt did, ensuring that their region would not see the beggars and homeless elderly who roam Moscow in 1998.

The Oryol Oblast enacted a "public nutrition budget" that maintains a low price ceiling on the amount of staple foods -300 tons of sugar, 385 tons of macaroni, 320 tons of corn, 1,100 tons of flour, 200 tons of butter- necessary to feeds its entire population through the harsh Russian winter. Above that level, farmers are allowed to raise the price as they like and the market will bear, a measure that has encouraged greater agricultural output.

Similar steps have been taken to guarantee supplies of coal for home heating, and to keep people employed in public works projects that fill the gap left by declining industries, and beautify the city at the same time.

In a nation where urban drabness and grime are often the norm, Orel is lovely on an autumn day. Families walk arm in arm along flower-bedecked pedestrian malls, with litter nowhere in sight. Streets, public buildings and squares are immaculately maintained.

Thanks in part to Stroyev's powerful post at the Federation Council, and in part to efficient bureaucracy in Orel itself, pension payments are arriving just two to three weeks late, rather than the national average of four to five months.

They also buy immensely more than they would in Moscow. The price gap between the capital and its provinces vividly demonstrates how much of Moscow's pre-crash "prosperity" was based on the sheer circulation of vast sums of money, with no apparent relationship between value and cost.

In the week this story was researched, a meal for two in a second-echelon Moscow restaurant cost 1,837 rubles, about $115 at that day's exchange rate. Less than 24 hours later, dinner for two in Orel's best private restaurant cost 51 rubles.

Most important, the Orel municipal budget is balanced, despite the commitment to public welfare, said one official, because his city differs form the capital in one other very important way.

"In Moscow, less than half the working-age population pays any taxes," he said. "In Orel, the figure is more than 90 percent."



Created 10/8/98.

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