BORIS FYODOROV, Russia's young finance minister, is heading off to the Tokyo summit of leading industrial nations with good news. After a year and a half of a depression-level collapse in production and near-hyperinflation, the Russian economy is stabilizing and starting to turn the corner.
Mr. Fyodorov, the unofficial leader of the reformers in the Russian government, proudly displays a list of achievements to prove his claim:
After an agreement with the Central Bank, the flood of cheap credits to subsidize state-run industry has been brought down; the Central Bank has increased interest rates about 40 percent, bringing them close to the market level; import subsidies have been sharply reduced; coal prices have been freed from state control; production levels have been stable since last September after a 20-percent drop; for the first time since reforms began in January 1992, the ruble has held steady against the dollar for ne arly a month; and inflation has dropped from a monthly rate of 25 percent in February to 17.4 percent in June.
"All this is a sign for the international community that our economic policy is gradually beginning to take shape," Fyodorov told reporters July 5.
For Fyodorov and President Boris Yeltsin, these developments strengthen their argument to Western governments that now is the time to deliver on promises of aid and access to Western markets. They seek support for privatization, the centerpiece of the Russian reform effort, as well as a continued flow of funds from the International Monetary Fund (IMF) and the World Bank, including the long-promised but not delivered $6-billion stabilization fund to back the ruble. Most of all, what the Russians are look ing for are long-term loans and foreign private investment in Russian industry to fill the capital gap in the economy.
But some economists here caution that while there is evidence of stability, it is far from assured. Many key reform decisions, all of which have inflationary dangers associated with them, have yet to be made. And economists worry that Western aid could help the Russian government avoid those difficult reform steps.
"Some strange kind of stability is appearing," says Denis Kiselyov, a World Bank economist here. "But it is not a sustainable equilibrium because in the long run the inflationary potential of the economy is still big."
Mr. Kiselyov points to a number of wells of inflation sunk deep into the economy. The cheap rents and utilities enjoyed by Russian citizens during decades of Soviet communism have yet to be liberalized, he notes. The price structure remains distorted by cheap energy - even though coal prices are now freed and oil and gas prices remain a fraction of world levels.
The government also continues to subsidize the losses suffered by most state-owned factories. Even with curbs on credits, it cannot afford to simply cut them off because the typical huge factory supports a vast array of social welfare costs, such as day care, pensions, housing, and even schools, that the Russian government is not prepared to take on itself.
Economist Yevgeny Yasin, an advisor to the government as well as to the League of Industrialists and Entrepreneurs, says that inflation has an "institutional and structural nature and it will continue." He contends that Russia will have to live with inflation of 3 to 5 percent a month for at least five to seven years.
`IT is technically possible to stabilize for six months assuming a huge external inflow of money, assuming Western help," Kiselyov says. But he warns that "success is even more dangerous because it encourages the belief you can have stability without change. If politicians are really committed to reform, they will use the break to do something useful. On the other hand, if politicians are pursuing reform only because there is the threat of chaos, they won't do anything."
How the Russian government will use this opportunity is difficult to predict, simply because it depends on much broader political processes. Much of the progress of recent months, particularly the readiness of the more conservative Central Bank to yield to pressure from the government and the IMF, is the result of Mr. Yeltsin's political victory in the April 25 referendum on his rule and reforms. The reformers have used that to strengthen their hand not only with the conservative, Communist-dominated Par liament, but also with the faction of the cabinet associated with Prime Minister Viktor Chernomyrdin, which tends to favor the interests of state-run industry.
But the momentum of that victory has already begun to slow as Yeltsin becomes more bogged down in the battle to put through a new constitution and force new parliamentary elections. Under these circumstances, the industrialist wing of the government will press its argument that the country cannot afford, either economically or politically, to let the huge factories face real cutbacks in subsidies.
Oleg Soskovets, deputy premier of industry, said last month that the fall in industrial output is growing and called for new incentives and state credits. "Factories in many places are down to four-day weeks," Mr. Soskovets told a meeting of industrial officials June 15. "They are working at only 20-percent capacity but still employ the same number of workers. They are all bankrupt but they keep working."
All factions of the government support privatization, but even that reform is not necessarily a guarantee of change. The large enterprises being transformed into joint-stock companies are still run by the same managers, with the "work collective" holding the majority of shares. And most still depend on cheap government credits because the commercial banks refuse to lend money for any longer than a three-month period due to inflation.
"The directors completely support privatization - any variant in order to grab more for themselves," says Boris Nemtsov, the reformist governor of Nizhny Novgorod, a showpiece of the privatization effort. "Temporarily they've forgotten about the risk of bankruptcy. They resemble people standing at the entrance of a Monte Carlo casino. They don't think about losing but they're not through the doors yet and they haven't begun losing any money yet."
These cautionary notes are not grounds for pessimism, but for realism, observers say. "Pessimism would be a coup, a return to the old system, or a complete economic collapse," Kiselyov says. What is going on here is a "normal reform process" of movements back and forth, not unlike what has happened in Latin America, he says. "Finally you get sustainable growth, but it's not going to take a year or two."