GROZNY, Chechnya -- Three years after it broke away from rule by Moscow, Chechnya is an economic riddle.


On paper the North Caucasus republic, which declared independence in 1991, is desperately poor. The official economy is stagnant and revenues from oil, once its main resource, have dropped away. And yet the republic is buoyed by a spectacularly successful shadow economy which brings in millions of dollars every year.


"The economy is flourishing," said Salaudi Tatarashvili, a government economist, adding in almost in the same breath: "No one is giving us anything. There is no investment here yet. We buy everything with our own money."


Chechnya once accounted for more than 90 percent of Soviet production of special aviation oils and processed more than 20 million tons of oil from all over the Soviet Union. But Tatarashvili said the republic was now only processing 30 percent of its former volume of oil, and local oil yields had dropped dramatically.


The shift in the economy is best seen at the bazaar in the Chechen capital, Grozny.


On one edge of the huge open-air market, Ruslan, a young Chechen with a Hawaiian shirt, reflecting sunglasses and four gold teeth, reached into his top pocket and pulled out a Polaroid photograph of a pistol with a gold-inlaid handle.


"It's a Mauser we worked on specially," he said proudly. "Sorry about the picture quality. The price is $6,000."


Asked where he bought the gun from Ruslan answered: "You don't have to leave the former U.S.S.R. to get hold of this stuff." He also said he could supply a Makarov pistol for $600 or a Kalashnikov machine gun for $500.


The bazaar, famed as the best-stocked in the North Caucasus and packed with buyers from all over the region, is as regimented as a big Western department store.


A line of silk dresses runs parallel to stalls selling fake crystal chandeliers. Another part of the bazaar is full of Japanese television sets in cardboard boxes.


The gun dealers, who are not molested by the authorities, stand in a tight knot just down from the money-changers, who hold thick wads of dollars and offer up-to-the-minute rates.


Dollars are essential for the most lucrative part of Chechnya's shadow economy: the hundreds of "shop tours" that Chechens make to countries round the world. The "tourists" buy up consumer goods that are flown directly into Grozny, dodging Russians customs tariffs and air traffic regulations.


Russian Deputy Prime Minister Sergei Shakhrai has called the business a scandal and said as many as 150 illicit flights a month go through Russian airspace.


Khalik, 26, and Malika, 24, a brother and sister who declined to give their last name, said they were both trained oil mechanics but had been forced into trading by the slump in the oil industry. They bought and resold electronic goods, mainly from the United Arab Emirates, in a kiosk next to the market.


Khalik said he could buy a Shivaki television set for around $230 and resell it for $300.


"Some of them are probably not the best quality," he said with a laugh. "Not all our buyers know about that, of course."


Khalik said he could make a profit of $2,000-$3,000 a year, but added that many traders were earning in excess of $100,000.


In Grozny, fabulous wealth lives side-by-side with grinding poverty. Mercedes and BMWs are a common sight on the rutted streets, interspersed with the occasional Lincoln or Cadillac.


The "shop tour" business has become an established part of the economy, involving as much as 60 percent of the adult Chechen population, according to the traders.


An advertisement in the government newspaper Ichkeria offered trips to Dubai, Iran and Syria by a firm calling itself Mona Lisa.


"In the Emirates you will be met and seen off by our representatives. They will help you buy the goods you need, make business contacts," the advertisement said. The cost of a week-long trip was $400 plus 150,000 rubles, with the first 50 kilograms of luggage transported free.


Tatarashvili acknowledged the importance of the tours, saying they made a "big input" into the economy.


They also protect the government from the wrath of a population, many of whom have not been paid their official salaries or pensions for over a year.


The opposition Provisional Council, using Russian money, has started to pay pensions and teachers' salaries in its home base the Nadterechny region in an attempt to undermine the government of President Dzhokar Dudayev.


"We have a strange economy," observed Aslan Dukayev, who teaches English at Grozny University and supplements his occasional salary by doing commercial translation work. "No one asks for any credit, so that makes it a more or less healthy economy. But this health is obtained by enormous deprivations of people who don't get paid."