eak-up of the USSR into 15 successor states in late 1991 destroyed
major economic links that have been only partially replaced. As a
result of these dislocations and the failure of the government to
implement a rigorous and consistent reform program, output in Russia
has dropped by one-third since 1990 (instead of the one-half
previously estimated). On the one hand, President YEL'TSIN's
government has made substantial strides in converting to a market
economy since launching its economic reform program in January 1992
by freeing nearly all prices, slashing defense spending, eliminating
the old centralized distribution system, completing an ambitious
voucher privatization program in 1994, establishing private
financial institutions, and decentralizing foreign trade. On the
other hand, Russia has made little progress in a number of key areas
that are needed to provide a solid foundation for the transition to
a market economy; and the strong showing of the communists and
nationalists in the Duma elections in December 1995 casts a shadow
over prospects for further reforms. In 1995, the new cash
privatization program went slower than planned. The state claims
that the nonstate sector produced approximately 70% of GDP in 1995,
up from 62% in 1994, although these figures apparently include many
enterprises that have only nominally moved out of state control.
Moscow has been slow to develop the legal framework necessary to
fully support a market economy and to encourage foreign investment.
Stockholder rights remain ill-defined and the Duma has yet to adopt
a land code that would allow development of land markets as sources
of needed capital. Russia's securities market remains largely
unregulated and suffers from the lack of a comprehensive securities
law. In addition, Moscow has yet to develop a social safety net that
would allow faster restructuring by relieving enterprises of the
burden of providing social benefits for their workers. Most
rank-and-file Russians perceive they are worse off because of
growing crime and health problems, the drop in real wages, the great
rise in wage arrears, and the widespread threat of unemployment. The
number of Russians living below the official poverty level rose by
10% to 36.6 million people, or 25% of the population. The decline in
output slowed during 1995, and some sectors showed signs of a
turnaround; analysts foreca