A Few Miles From Prosperity

CBS News Producer Ivan Watson travelled out of Moscow for a firsthand look at the way Russia's economic turmoil is affecting the countryside. He filed this report exclusively for CBS.com:

Germans tourists still call the city of Kaliningrad "Konigsberg," as it was known when it was the capital of East Prussia. Prewar museum photographs show a bustling riverside port of quaint German townhouses overlooked by the Prussian Royal Castle.

Bill Gasperini / CBS
Pre-war German Konigsberg as it appears in a museum exhibit.

During World War II, English bombing raids and an ultimately successful Soviet siege managed to dislodge the city's Nazi defenders and destroy most of its historical architecture. Fifty years of Soviet mismanagement followed by seven years of Russian economic depression have not treated what some call the former breadbasket of the German empire well.

Tree-lined roads still lead through a picturesque agrarian landscape, but the once-rich fields are now noticeably barren and many of the remaining German farm houses are in an obvious state of disrepair.

Local officials estimate that until the August 17 crash of the Russian Ruble, Kaliningrad imported 80% to 90% of its food. Today, it stands as one of 15 Russian regions singled out by the Red Cross to receive emergency humanitarian aid.

A Changed Landscape
Gisella Reuter-Jungermann was born days after her mother made a harrowing escape across Baltic Sea ice from a nearby fishing village now known as Ribachy. Though her grandparents visited their old village five years ago, Reuter-Jungermann was scared of making the same pilgrimage.

Bill Gasperini / CBS
A run-down mansion hints at its former glory.

"At first I didn't want to come here because I heard the things were all badly kept, not looked after," she said.

The final sight of her family's old home left her feeling angry.
"What we think is very sad is that it s not in good condition... You see these large fields: No ariculture, nothing, all falling to pieces," she said. "But you know it's not their [the Russians ] fault. We must confess of course that it's the fault of the Germans, our ancestors."

Russian residents recognize that their new homeland has seen better days. Alexandr, a pensioner who would only give his first name, said the area was filled with mansions when he arrived in 1953.

He says a Soviet military base was built from the houses. The builders took bricks, walls, even cobblestones from the streets. But even the rigors of the Cold War couldn't prepare him for life in Russia today.

"Before, there were 1,500 cows here," Alexandr said as he surveyed the deserted collective farm where he worked ten years ago. "Now, there's nothing."

The Trouble With Moscow
The Russian federal government's tight control over Kaliningrad has been assailed as a source of problems.

In the eyes of many Westerners, the region should be Russia's greatest economic success story. The area boasts the largest amber deposits in the world, oil, an ice-free port, a temperate climate, and, most importantly, a key geographic location for trade in Europe.

Bill Gasperini / CBS
A still un-finished House of Soviets nicknamed "Wrath of God" by locals sits where the Prussian Royal Castle was razed.

"It appears that Moscow is the problem," said American banker Richard Ruemmele. "The influence of the federal government and the onerous taxes that they have to pay just takes the life out of any kind of operating statement or cash flow plan."

In fact, in the immediate post-Soviet years, there were hopes for a "Hong Kong" scenario, where Kaliningrad would be a duty-free European gateway to Russia.

In 1996, Kaliningrad was declared a Special Economic Zone -- promising reduced customs tariffs for trade. However, hefty federal taxes, an uncompromising Soviet-style bureaucracy and opposition in the Russian parliamenant did little to help the region's risky investment climate.

The onset of Russia's perilous financial crisis only made matters worse. Today, German businesses -- which once accounted for up to 80% of Kaliningrad's foreign imports -- are at a standstill.

Vyachislav Bogdanov, the speaker of Kaliningrad's parliament, recognizes that the region needs autonomy to develop economically.

"But the thing is," said Bogdanov in a recent interview, "we live in Russia...and those laws that apply to other regions' customs departments pply to us too. Unfortunately, for a free economic zone they are rather strict..."

But debates over customs regulations mean little to Yuri Ushakov. At 26 years of age, Ushakov and his wife -- both computer engineers -- live with his parents and earn just enough money for food.

A 25-minute car ride across the border gives Ushakov a first-hand look at the relative prosperity Lithuania has enjoyed since the Soviet Union collapsed.

When he sees children beg for Deutschmarks on Kaliningrad's main street, he wonders: "If they can do it, why can't we?"

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