DURING the years of Soviet power this ancient Russian city on
the Volga River was shrouded in secrecy, sealed off from the
outside world because of its high concentration of defense-related
Now, this city of 1.4 million inhabitants finds itself under a
microscope, receiving attention from all over Russia, as well as
the world, because of a radical privatization program that aims to
auction off 2,000 small, state-run stores in just six months.
Hundreds of potential buyers and interested observers attended a
weekend auction, the third sale of its kind, during which 21 stores
were sold for a total of 46.5 million rubles (about $465,000 at the
Russian Central Bank's exchange rate).
Bidding was brisk, as the entire slate of stores was auctioned
off in only an hour and a half. A slick-talking auctioneer wearing
a red bow tie kept the event running smoothly.
The Nizhny Novgorod privatization scheme, worked out by Western
experts from the International Finance Corporation (IFC), is one of
the few bright spots so far in Russia's effort to transform its
economy into a market system after more than 70 years of communism.
Privatization in other cities, particularly Moscow, is not going as
well as hoped. And Deputy Prime Minister Yegor Gaidar, who is in
charge of the government's crash marketization program, is
hard-pressed to keep reforms on track.
"I consider what has been done here to be wonderful work, a
model which could be repeated throughout Russia," said Mr. Gaidar,
who attended the weekend auction.
The IFC, an organization similar to the International Monetary
Fund and the World Bank, targeted Nizhny Novgorod for its
privatization project in late January, says Anthony Doran, IFC
chief for Commonwealth of Independent States operations. The city
was chosen because the IFC felt it had the strong, reform-minded
leaders needed to make privatization work.
IFC experts also viewed it as a typical Russian city that
officials in other cities could easily identify with, hopefully
fostering a "mushroom effect" of privatization throughout Russia.
"In Nizhny we have something that will put some body and soul to
all the talk about reform," IFC Vice President Wilfried
Drawing on experience gained in Eastern European privatization
efforts, the IFC came up with the Nizhny Novgorod blueprint in just
six weeks. In the end it was decided auctioning off state-owned
shops was the best method of privatization, Mr. Doran says. Anyone
is able to bid on shops, although the auction system is weighted
slightly to favor employees seeking to buy out the state. There is
a limit of five stores per buyer to prevent monopolization, and for
now foreigners are excluded from participating. At the weekend
auction nine of the 21 properties were bought by employee groups. …