Russian Economic Plan Falters

Yeltsin's referendum victory fails to aid anti-inflation fight and other reforms

IN the first heady days of victory after the April 25 referendum, Russia's young reformers were eagerly anticipating a rapid acceleration of the shift to a market economy.

In the halls of power, there was talk of sweeping out conservatives from the government, and even the return of the reform architect Yegor Gaidar who was ousted as prime minister by antireform forces last December. The reformers' main target was the removal of their nemesis, Central Bank chairman Vik-tor Gerashchenko, whom they blame for triggering massive inflation by pumping money into loss-making state-owned factories.

But instead of a boost to reform, the referendum has produced, at best, a new version of the stalemate of past months. Although a couple of conservatives have left, new ones have arrived, taking control of key areas of industrial policy and strengthening the wing of the government that favors continued subsidization of state-run industry and partial restoration of centralized management. Neither the government nor the central bank seem ready to pull tightly on the reins of spending and credit.

"Our failure to adopt resolute and complex measures in recent weeks endangers our feeble stability," Finance Minister Boris Fyodorov, the top reform figure in the Cabinet, wrote May 8 in Izvestia. "Actually we have already lost two weeks."

Mr. Fyodorov and his allies advocate a tough anti-inflation policy, including curbs on budget spending, ceilings on cheap credits handed out to industries and to former Soviet republics, and removing subsidized prices for coal, oil, and gas. Together, this would lead to a strengthening of the ruble's value, which continues to plummet. Finally they want an acceleration of privatization, moving beyond the successful sell-off of retail stores and small and medium-sized industries to the giant factories that

are the core of the economy built in the Soviet era.

This is also the view of the International Monetary Fund (IMF) and other international aid agencies that are in charge of distributing the Western aid package agreed to this spring.

The IMF wants Russia to bring inflation, which was running at a monthly rate of 21 percent in March, down to 5 percent a month. An IMF team is presently in Moscow negotiating the terms for dispersal of the first half of a special $3 billion fund recently created, which offers somewhat easier terms than usual.

Officially these aims are shared by the industrialist wing of the government, which is led by Prime Minister Viktor Chernomyrdin, a veteran manager of the Soviet gas industry who replaced Mr. Gaidar.

"A tough anti-inflationary policy is our urgent task," Mr. Chernomyrdin told a meeting of regional legislators May 12. He pointed to recent figures showing some slowing of inflation and vowed to stand by an agreement reached earlier this year with the central bank to limit the growth of centralized credits to 30 percent in the second quarter of the year, 20 percent in the third quarter, and 15 percent in the fourth.

But even this less-than-stringent position is treated with skepticism by some observers here. "I don't think there is any chance they will keep inside those limits," says a well-informed Western economic adviser.

The level of state subsidization of the economy is beyond the scale of even third-world economies. According to estimates for 1992 prepared by the World Bank office here, budget-financed subsidies accounted for 22 percent of the country's entire gross domestic product. Half of those subsidies go to agriculture. Additional subsidies come from credits provided by the central bank, bringing the total to around a third of GDP.

Fyodorov cites the example of the coal industry, which he says received subsidies of at least 2 trillion rubles (around $25 billion), amounting to 20 percent of total budget revenues. Coal prices, like those of oil and gas, remain controlled at low levels, making the huge subsidies necessary.

Premier Chernomyrdin acknowledges the need to free coal prices and to raise the prices of other fuel and energy resources.

But Oleg Soskovets, the newly appointed deputy premier with responsibility for major industry including energy, argues that the metals industry and other coal consumers cannot afford to pay higher prices.

For Chernomyrdin and his supporters, the approximately 20-percent drop in production that has occurred during the last year, and half since radical market reforms were introduced, is a catastrophe. "Reform won't work unless we start producing," Chernomyrdin said in a recent speech. "Not even the harshest monetary and credit policy will stop inflation unless we fill the market with goods."

"They have a different vision of a reform economy and the reform process," says the Western adviser of the industrialist wing of the government.

Under the direction of newly appointed Deputy Premier Oleg Lobov, a long-time Yeltsin aide from the days when the Russian leader was head of the Communist Party in the Urals industrial city of Sverdlovsk, the Ministry of Economy is attempting a partial return to its old role as Gosplan, the State Planning Committee.

The Economics Ministry has drawn up a comprehensive plan, through the year 1995, which seeks to set priorities for the distribution of credits to selected enterprises. The plan drew heavy fire from reformers when it was discussed at a Cabinet meeting last Thursday and has been sent back for amendment.

Chernomyrdin also favors a privatization process that would transform the existing system of giant enterprises into vertically integrated combines organized as joint stock companies. The oil industry, for example, is being organized into three huge state-owned firms, controlling everything from wells to refineries and distribution.

"There are clear signals that the ministries are striving for control over the process of privatization and especially ... the controlling interest in shares in order to try to restore the traditional mechanisms of industrial management," Gaidar wrote on Wednesday in Rossiski Vesti.

Gaidar insists that he was never offered a new job in the government, though informed sources say he in fact turned down a position as deputy premier. Perhaps tellingly, Gaidar told the daily Izvestia recently, "If I am needed only as a cover to persuade somebody that reforms are going on, it doesn't suit me."

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