Russian Reformer Defends Austere Policies Amid Calls For `Social' Capitalism

THE architect of Russia's controversial economic reforms yesterday delivered a scathing, and at times sardonic, riposte to his critics in this country's supreme legislature.

Acting Premier Yegor Gaidar, whose continued leadership of the Russian government may be decided in the next couple of days, yielded little to those who have risen at the Congress of People's Deputies to assail his policies as a failure.

The reformers installed a year ago by Russian President Boris Yeltsin inherited an economy already in collapse, Mr. Gaidar said, a product of the inactivity of Soviet and Russian governments that were "paralyzed by the fear of taking responsibility."

This government acted on the principle that if the old system was not functioning, the market should be freed, he said.

"There is no threat of hunger and cold," Gaidar said in describing the results. "We have passed through the period of adaptation to reforms without social upheaval."

If there was a failing, Gaidar told the Congress, it was softening the austerity policies of the early months: the control over government spending, the subsidies to failing state industries, and the tight money supply which were crucial to stabilizing the ruble. But Gaidar turned that admission against his foes, the leadership of the parliament, whom he accused of triggering hyperinflation by their profligate ways.

The main target of Gaidar's speech was parliament Chairman Ruslan Khasbulatov, who delivered his own economic policy pronouncement at the opening of the Congress on Tuesday. The sharp-tongued parliament boss slammed the government for a catastrophic drop in living standards and the destruction of the production base of state-run industrial enterprises.

The choice in Russia is not between reform and anti-reform, Mr. Khasbulatov said, but between two models of a market economy. The government's approach he labeled as the "American model," a laissez-faire strategy that tries to eliminate the role of the state. The parliament stands for a "socially oriented market economy," which Khasbulatov associated with the welfare-state capitalism of Scandinavia and Germany.

Gaidar dismissed this notion of two alternatives as irrelevant to the practical problems Russia faces. "We are not on a spacious square where we can stand and decide what way to take toward a radiant future," he said, mimicking communist rhetoric. "We are on a narrow footpath, and the task is not to step away from it."

"Of course," Gaidar continued, "if we work very hard and very successfully, if we really manage to create a multisector economy, to privatize at least 50 percent of the domestic economy, to put an end to the power of the bureaucracy, to really open a broad path for entrepreneurship, to pave the way for integration into the world market, only then, maybe in three to five years, [can we] seriously discuss what kind of society we want to have, Scandinavian or American."

Gaidar accused his critics of advocating "populist" policies of subsidies for the state sector and massive budget deficits. Such choices will lead, he sternly warned, "to the domestic industrial complex withering away behind a barrier of protectionism, to chronic poverty and as a result to political instability, with populist politicians and authoritarian dictators coming to power alternately as in third world countries."

Observers could not fail to notice that the economic policy outlined in President Yeltsin's speech the previous day was closer in emphasis to Khasbulatov's than to that of his own premier. While the president held to the need to put anti-inflationary controls at the top of the agenda, he spent much of his time outlining measures to provide social compensation for the populace and support for Russian industry. Yeltsin offered several measures, including a more-varied approach to privatization, continued s tate orders from factories, and large-scale state credits.

THE Russian leader called for "reasonable protectionism" against foreign competition, channeling foreign loans to domestic industries and giving them preference for contracts. The Russian government has already put this into practice, recently giving a huge contract for an Arctic gas development project to a Russian consortium instead of foreign competitors.

"Russia will find its proper place in the international economic space if she always remembers her dignity, her entrepreneurs, her citizens, and her national interests," Yeltsin said.

"I don't see a contradiction [between Gaidar and Yeltsin,]" Vladimir Lukin, Russian ambassador to the US and a Congress deputy, told reporters. "President Yeltsin's speech was mostly a political speech." In this view, the president was simply offering the compromises necessary to win the support of the centrist parliamentary bloc, dominated by Arkady Volsky's Union of Industrialists and Entrepreneurs. That bloc holds the balance between the supporters and opponents of the government, Yeltsin aides say.

But it is not hard to discern a growing concern that the government could lose a vote to confirm the premier, placed on the agenda by opponents on Tuesday. "I would be glad if Gaidar is elected as prime minister," Mr. Lukin said, "but frankly I don't know if he will be elected," or even if the president will nominate him, he added.

Yevgeny Ambartsumov, head of the parliament's foreign affairs committee, suggested that the rejection of Gaidar might be followed by a compromise formula of a new premier, such as Mr. Volsky or Yuri Ryzhov, now ambassador to France, with Gaidar as a deputy premier in charge of economic reforms.

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