MMM collapse could kill Russia's free market

REFORMERS expressed concern yesterday that the collapse of the MMM investment fund might discredit the whole idea of the free market for many Russians and send them into the arms of those who advocate dictatorship.

Galina Starovoitova, a liberal close to President Boris Yeltsin when he came to power but now out in the political wildnerness, said the fall of MMM had been a disaster for millions of people and could result in 'disillusionment in the market economy and in the possibility of civilised business'. MMM shareholders might opt for 'anti-reform forces' at the next elections.

Financial experts warned that the collapse might have a knock- on effect in the economy. MMM, headed by Sergei Mavrodi, Russia's fifth-richest man, was only the largest and best known of dozens of pyramid schemes doing nothing more than recycling money, and these in turn could fold. Share prices in general are depressed because of the scandal.

Prime Minister Viktor Chernomyrdin admitted over the weekend that the government had been slow in giving Russia's wild capitalism a legal framework but said the state could not compensate MMM's five million investors. Mrs Starovoitova said this was not good enough. The government, as well as state television, which ran nightly adverts for MMM, had been guilty of 'unforgivable inaction when the crash could have been predicted easily', she said, suggesting the state should issue long-term bonds to cover shareholders' losses.

Speaking more generally about the balance needed between economic freedom and social protection, Mrs Starovoitova said: 'The rich must remember that they have to share their wealth with the poor so as to avoid upheavals and revolutions.' Unfortunately this is not a fashionable concept in today's Russia, where a new generation of entrepreneurs have wholeheartedly embraced the money- making aspect of capitalism without learning anything of business morality and responsibility.

Many of the victims in the MMM collapse were innocents such as pensioners who believed they were investing in a genuine savings scheme. Such people are likely to have been put off capitalism for life. But plenty of shareholders were almost as cynical as Mr Mavrodi. They knew they were gambling but it seemed to beat doing a day's work and they thought they could get out with their money before their luck ended.

The gambling types have learnt nothing from the experience. As there is no law against pyramid schemes, MMM has not been closed down and yesterday it issued new shares for which some 5,000 people were queuing outside the company's headquarters.

The government is determined to be stricter in future. The Finance Ministry is likely to audit MMM and this time it will not be fobbed off, as it was previously, by a plea from Mr Mavrodi that a van carrying his accounts had been hijacked and the papers stolen.

Just a few roubles more, page 15