Yeltsin's New Adviser Pushes Reforms Forward

REAGANOMICS IN RUSSIA

IN the mid 1980s, when five-year-plans were still an integral part of the Soviet Union's command economy, Russian graduate student Alexander Livshits was reading free-market theorist Milton Friedman and writing his doctoral dissertation on Reaganomics.

Today, Mr. Livshits, who likes to think of himself as a black sheep who was forced into joining the Communist Party to further his academic career, is Boris Yeltsin's hand-picked adviser on the economy, leading a ``group of experts'' who advise the Russian president on planning the future of the country's economic reforms.

The presence of Livshits at one of the top levels of the government is seen by some as evidence that contradicts widespread impressions in the West that Russian reforms have slowed down. ``I don't care about how the state fulfills its functions,'' he says. ``I only care that the functions guarantee free-market policies.''

Although he was appointed to the post March 2, Livshits, a former professor, says he already feels at home in his new office in the Kremlin, where he counts Presidential Adviser Georgy Satarov and National Security Adviser Yuri Baturin among his closest friends. But despite his extensive background in Western economic theories, he is reluctant to apply them to Russia, and offers no instant recipes for turning the economy around.

``We have many of the problems that America is facing: inflation, poverty, unemployment, and social stratification,'' says Livshits, whose unstylish suit could mistakenly mark him a Soviet-era bureaucrat. ``But our biggest problem is the non-payment of enterprise debts. That's something you don't have in the United States.''

Mounting indebtedness among Russian enterprises is one of the most pressing problems facing this vast nation as it struggles through year three of free market reforms. Many state-owned enterprises and factories have been forced to close because they cannot afford to keep in operation while they wait for customers to pay their bills.

The problem has become so acute that Prime Minister Viktor Chernomyrdin made it a primary focus during a Thursday address to the Federation Council, or upper house of parliament. Russian enterprises have debts totaling about 32 trillion rubles ($18.6 billion), he said, while they are owed about 24 trillion rubles ($14.5 billion).

Inefficient enterprises ``cannot be kept afloat by the government at the expense of those that can still stand on their feet,'' and must be allowed to go bankrupt, said Mr. Chernomyrdin, speaking Thursday, the day before representatives of the International Monetary Fund were due to arrive in Moscow for talks on approving $1.5 billion in new loans to Russia.

Agreeing with Chernomyrdin, Livshits says only new legislation can get Russia out of the debt quagmire. ``Russia needs to understand that bankruptcy isn't death, just like it finally understood that free prices weren't death,'' he told the Monitor.

He adds that debt non-payment had pushed industrial decline to a ``catastrophic level that is cause for great alarm.'' The State Statistics Committee estimates production fell a record 24.1 percent in February from the previous year. That could mean trouble for the proposed 1994 budget, which allows for a budget deficit of 9 percent of gross domestic product, lower than the 10.2 percent of GDP envisaged previously. A write-off of inter-enterprise debt in 1992 was largely responsible for a major surge of inflation that undermined the radical reforms begun that year.

A stickler for accuracy, Livshits is quick to point out that while those statistics show that combined inter-company debt is actually less now than in 1992, the economic psychology of enterprises used to relying on cheap government handouts has changed drastically, making the situation more acute.

``Enterprises used to say, `It's our job to produce, and it's the government's job to pay us.' They didn't care if they sold the products or not,'' he says. ``If they didn't get money, they'd just ask the government and it would bail them out. But now they understand they can't count on anything for the state.''

The problem is compounded by the reluctance of most enterprises to use hard currency reserves to pay off debts, he says. While the amount of reserves was estimated at between $15 billion and $18 billion in 1993, no contract or civil legislation yet exists to push companies with money into making good on their debts.

Staying behind the scenes has been de rigeur for Livshits. He happily left the Communist Party in August, 1991, just a few weeks before the abortive hardline coup. His defection preceded what he terms a ``mass exodus'' of others who were just following the pack.

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