Death of the empire. Part V.

8 On the road to the state bankruptcy

8.1 Currency crisis. 1991

Since the second half of 1990 the volume of import is sharply decreased. The laws of the republics give their central banks the right to emit currency. The chairman of the State bank of the USSR Gerashchenko wrote to Gorbachev: "The laws and actions of some republics block the transfer of money to the union's budget. Ministry of finances of the USSR has to borrow money from the State bank... This will lead to the situation when we won't have resources to pay to the army and the navy, to the state officials... All this will finally end with an uncontrolled credit and monetary emission and hyperinflation."

Export of oil decreases from 124 mln tons in 1990 to 61 mln tons in 1991. Supplies to the Eastern Europe drop from 60 to 19 mln tons. The credits issued to the socialist countries turn into debts to the Eastern European countries and they demand to pay immediately at least a part of this debt.

8.2 Grain problem

In 1990 Gosplan (the central planning agency) proposed to raise the retail prices for bread by 3 times. Due to political reasons the plan was rejected. In 1990 the harvest was large, 237 mln tons, but the state received only 66.8 mln tons, 28 mln tons less than in 1978, when an equal amount of grain was collected. Obviously, a large part of the grain was kept by the producers. USSR decides to pass agricultural machines to the producers in exchange for the grain.

On March 18 the grain reserves were only enough till the end of month (except for Kazakhstan). In Moscow city, in Ivanovo, Tula, Nizhny Novgorod, Tyumen and some other regions the reserves could last less than 10 days. In January-March only 3.7 mln tons were imported instead of the planned 12.4 mln tons.

In February 1991 Ukraine demands the USSR to return from the union's grain fund 1.2 mln tons of wheat. Flour is not available in retail in RSFSR (except for Moscow) and Ukraine. In other republics flour is rationed. Milk production dropped in the four months of 1991: in Russia and Belorussia by 10%, in Lithuania, Azerbaijan and Moldavia -- by 11-13%, in Latvia and Estonia -- by 15%, in Georgia and Armenia -- by 21-24%.

In Mat 21 the flour reserves were 1.5 mln tons (enough for 15 days).

The communists seem to be unaware of these problems. The Central Committee of the CPSU demands 81.5 mln rubles for the purchase of materials for the party typographies, 2,500 cars for the party officials and a compensation for the party officials for the growth of prices.

Gorbachev's aide Chernyaev: " The bread lines in Moscow are as long as the meat lines two years ago. That there was bread in the country turned out to be a myth. Nobody gives credits. I went all around Moscow and the bakers are either closed or absolutely empty. Moscow has never saw anything like this, I think, even in the years of the worst hunger."

8.3 Prices fly upwards

On March 19 1991 the government finally dares to raise the retail prices by 60%. The real growth, however, exceeds 90%: meat became 2.6 times more expensive, sausage -- 3.1 times, bread -- 3 times. Contrary to the fears of the officials, no unrest followed.

This step does not enhance the situation due to the attempts to reimburse the losses of the people by issuing compensations. The compensations are payed from the union's budget, but the taxes go to the republican budgets.

In December 1991 two thirds of the Soviet people think that the life level will drop even lower before the crisis ends.

The prices of the kolkhoz markets (relatively free) were almost 6 times higher than in the state-owned shops. The share of the black market is: consumer goods -- 30.9%, food -- 10.9%, services -- 25.7%.

8.4 Money and the fate of the empire

Growth of monetary emission, in billions of rubles:

	1988	1989	1990	1991
April	4.13	3.63	2.60	4.77
May	-0.93	-1.55	0.22	5.50
June	3.40	3.48	2.62	18.74
July	3.76	2.18	2.93	19.87
August	-2.06	-0.20	5.76	17.13

The chances to receive foreign credits are disappearing. Greece, who offered credits in 1990, in 1991 is reluctant to even discuss the matter. $500 mln were received from Southern Korea as a gratitude for the restored diplomatic relations. $200 mln were received from Kuwait for the support during the conflict with Iraq. The government confiscates $6 billion of Soviet citizens and organizations from the Vnesheconombank (including the royalties of Gorbachev himself for his books published abroad).

Contracts are not payed in time, Soviet ships are arrested in foreign ports. The government doesn't know what to do with the Soviet specialists working abroad -- there are no money to pay salaries or buy for them tickets home. The financial assistance to the foreign communist parties is cut. Gorbachev asks G7 to invite him and plans to discuss the credits. He receives the invitation, but not the credits.

In the Baltic republics the independence proponents win the elections. On the referenda the support of the independence is overwhelming: 90% in Lithuania, 77% in Latvia, 90% in Estonia.

The specific feature of the pro-independence movements in the Soviet republics compared to the movements in other empires, was the support of a significant part of the people belonging to the imperial nation, Russians in this case. In spring of 1990 Lithuania, Latvia and Estonia proclaim independence. Moldavia, Ukraine, Belorussia and Russia follow them.

In April 1990 USSR begins partial economic blockade of Lithuania, which forces Lithuania to postpone the practical steps towards independence.

In summer of 1990 Gorbachev forms an alliance with Yeltsin. They agree on the radical broadening of the rights of the republics and transformation of the Union into a confederation. They also agree on the principles of an anti-crisis economic program: cut of defense spendings, capital expenditures and economic assistance to other countries. These measures are insufficient, but what's more important is that the army and KGB oppose them. Gorbachev backs off and gives them a chance to restore control by force (murders of the Latvian customs officers). On January 7, 1991 paratroopers are sent to Lithuania. They seize the House of Press and some other objects in Vilnius and Kaunas. Planes and trains to Lithuania are cancelled. On January 11, Gosteleradio (the state TV and radio committee, whose head was Kravchenko) switches off the communication lines of an independent news agency Interfax. The Communist party of Lithuania (the general secretary Ermolavičius) announces that formation of the Committee of the national rescue and attempts to take power. Chernyaev (Gorbachev's aide) said later that the decision to send the troops was taken by the army commander Varennikov without Gorbachev's confirmation.

The parliaments of Russia, Ukraine, Belorussia, Kazakhstan, the Moscow and Leningrad Councils condemn the usage of violence in Lithuania. The miners' strike committees in Kuznetsk region demand for Gorbachev's resignation. The West threats to cancel credits. USSR backs off. On July 30, on the meeting in Novo-Ogarevo Gorbachev agrees that all taxes will be collected by the republics, and the Union's government will depend on the finances transferred by the republics. Basically, this was the dissolution of the empire.