BUSINESSWEEK ONLINE : MARCH 22, 1999 ISSUE
BOOKS

Russian Riddle


KAPITALIZM
Russia's Struggle to Free Its Economy
By Rose Brady
Yale 289pp $30

Russia is a land of contradictions. Blessed with a wealth of natural resources, it is on the verge of bankruptcy. Last August, it defaulted on $40 billion of domestic debt. Now officials say the government will default on $17.5 billion owed to foreign creditors unless it gets an emergency loan from the International Monetary Fund by the end of March.

What happened? To understand fully, one must examine Russia's seven-year experiment with capitalism. That's the subject of a new book by Rose Brady, BUSINESS WEEK's former Moscow bureau chief and now editor of its European and Latin American editions.

In Kapitalizm, Brady describes the progress achieved--and the pain endured--as the former communist giant zigzagged toward a market economy. Russia's version of capitalism developed out of compromises made by Boris N. Yeltsin and privatization chief Anatoly B. Chubais. To gain support for privatization, the government granted Soviet-era managers rights to acquire control of their state-run plants in 1992. That sabotaged efforts to install new owners who would make Russian industry more competitive. Three years later, when it looked as if the Communists might return to power, Chubais sold off to well-connected banks the remaining gems of Russia's state assets. By 1997, Russia's economy was dominated by a handful of tycoons. Meanwhile, with meager progress toward tax reform, the government got hooked on borrowing. When emerging markets and global oil prices plunged, Russia couldn't pay its bills. Today, Brady concludes, the transition to capitalism will take many more years.

BY BUSINESS WEEK WRITERS

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PHOTO: Cover, ``Kapitalizm''



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