Russia Toughens Reform Plan

Move seen as bid to win support and credits from Western governments and the IMF

DESPITE rising criticism of the harsh cost of its economic reform policies, the Russian government has prepared a new plan that sets even more stringent reform targets.

The 1992 economic program, approved at a government meeting last week and due to be publicly unveiled today, is aimed at gaining the approval of the leading industrial nations and the International Monetary Fund (IMF). Government officials are hopeful that the IMF stamp of approval, along with membership, will bring a rapid flow of new credits.

Russia and other former Soviet republics are expected to gain membership in the IMF in late April. Russian officials believe it could lead as early as May to several billion dollars in IMF standby credits, those normally made available to members, as well as formation of a $4-billion to $6-billion fund to stabilize the value of the ruble.

Western economic observers here doubt that events will move that fast, suggesting that Russia may not see any real money till late July.

The team of young, radical reformers led by Finance Minister Yegor Gaidar is confident that they can reach the IMF targets, based on the performance of the economy during the first two months of their reform program. The austerity which has dug deep into the living standards of the Russian people includes tightening the supply of money and credit and drastically cutting Russia's huge budget deficit.

"IMF approval of the [Russian government economic] program is the key to the process," the Russian government's economic spokesman Alexey Ulykaev told the Monitor. The senior Russian official provided an advance look at the key goals of the plan. Among them are:

* Inflation: to reduce the inflation rate, which hit 350 percent after state-set prices were freed in January, to 1-3 percent a month by the last quarter of the year.

* Wages: to hold wage increases to not more than 70 percent of price increases. The government estimates a 600 percent rise in prices for 1992 with wages kept to a 400 percent increase.

* Budget: to achieve a balanced budget by December.

* Money supply: to continue the tight credit policy so as to keep increases in money supply equal to the inflation rate.

* Prices: to speed up price liberalization freeing all retail prices by the end of the year, except for rent and municipal services; to free energy prices, now set by the state, by mid-April.

* Trade: to fully liberalize trade from the existing system of licenses and quotas with the exception of oil and gas, arms, and a few other selected commodities.

* Currency: to make the ruble fully convertible within the country, based on a fixed rate determined by the market and with the backing of the international stabilization fund.

The Russian government claims that its policies are already working, as shown by slowing inflation and the strengthening of the ruble's value against the dollar in recent weeks in the limited currency market now permitted to operate. With backing from the IMF, the reformers hope to bring the ruble up to a level of 35-40 to the dollar. (Current market rates are about 90 to the dollar.)

Western economic observers give the government high marks for consistency and for resisting pressure to loosen their tough controls on spending and credit. "We see signs that things are not deteriorating too much," says one Western observer with close contacts with senior Russian officials. "But," he cautions, "there are no signs yet that the reforms are working in the macroeconomic sense.... The one thing I'm looking for is an increase in production, and I see none."

Indeed Russian officials acknowledge that the current production slump of 12-13 percent is likely to persist, if not grow, into next year.

The Russian government hopes that curbing inflation, combined with restoring interrepublican ties and IMF and World Bank credits to finance imports, will bring a turnabout. The officials hope enterprises will then respond to the stimulation of free prices and trade.

You've read  of  free articles. Subscribe to continue.
QR Code to Russia Toughens Reform Plan
Read this article in
QR Code to Subscription page
Start your subscription today