Russian Economy Remains in Turmoil

Opponents say President Yeltsin's efforts to stabilize the transition to a market economy will instead rile the nation's economic chaos

ECONOMIC necessity may have pushed Russian President Boris Yeltsin into taking the politically risky step of circumventing Russia's constitution and disbanding Parliament.

Mr. Yeltsin's market reforms were paralyzed because of the Parliament's staunch advocacy of hyperinflationary policies. In justifying his move against the legislature, Yeltsin said popular will was in favor of deeper democratic and market reforms. He pointed to April referendum results that endorsed his political and economic program. Economic control

In the week since the political turmoil in Moscow began, the Yeltsin administration has moved to strengthen its control over the economy. But detractors say Yeltsin's political ploy stands a better chance of aggravating economic chaos in Russia than stabilizing the tumultuous transition to a market economy.

``Economic development is not under control right now,'' economist Grigory Yavlinsky told reporters. ``The situation is like a tightly coiled spring. We have conditions for further inflation and in October and November it will start to unwind.''

Since disbanding Parliament, Yeltsin has issued a bevy of decrees aimed at controlling inflation, which reached 29 percent in August, and at attracting foreign investment. One of his first acts was to claim control of the unruly Central Bank, which before answered to the legislature. Central Bank action

In the past, Viktor Gerashchenko, the bank's chairman, pursued monetary policies, including granting large credits on easy terms to industry, that often contradicted cabinet efforts to control the money supply. In the last week, Mr. Gerashchenko seems to have accepted, perhaps reluctantly, Yeltsin's authority.

The bank intervened to bolster the Russian ruble after its value plunged nearly 30 percent - falling to a low of 1,299 to the dollar - amid the political turmoil. The Russian ruble stood at 1,179 to $1 Wednesday, after the bank spent more than $250 million of its approximately $2 billion in hard currency reserves on stabilizing the ruble.

In addition, the bank has raised its prime lending rate from 170 percent to 180 percent to discourage commercial bank ruble speculation, and it has stopped issuing easy-term credits. Those highly state-subsidized credits comprised up to 85 percent of all bank credits.

In spite of these moves, some government officials are accusing the bank of dragging its feet. Andrei Illarionov, an adviser to Prime Minister Viktor Chernomyrdin, said the bank was slow to intervene to uphold the ruble and is reluctant to raise the prime rate to the government-desired 200 percent level.

Future Central Bank action will be key to the Yeltsin reform team's efforts to control inflation through restricting the money supply and cutting government spending. With the antireform Parliament now out of the way, the government stands a far better chance of controlling the bank and realizing its plan, Yeltsin supporters say.

``I'm a lot more optimistic now about the economy than I was two weeks ago,'' said Vadim Ivanov, an economist at the Institute on Market Economic Transition, formerly headed by current Economics Minister Yegor Gaidar. ``Strong executive power allows the cabinet to take necessary economic decisions.'' Inflationary pressure

The reform team, led by newly reappointed Mr. Gaidar and Finance Minister Boris Fyodorov, says it is determined to resist pressure ``to indulge in populism and give out money left and right in the run-up to [planned parliamentary] elections'' in December. Gaidar raised the possibility of imposing measures such as banning the circulation of the highly popular US dollar.

A host of economists and industrialists doubt that the Fyodorov-Gaidar team, despite its best intentions, will be able to withstand the growing, pre-election inflation pressure. Mr. Yavlinsky says inflation was running at about 1 percent a day and is likely to rise because of government credits concerning the autumn harvest. Others cite recent inflationary moves by Yeltsin himself, particularly his decision to double the salaries of the military and security forces in a bid to retain their loyalty.

Alexander Vladislavlev, a leader of the Russian Industrialists' and Entrepreneurs' Union, tells the Monitor that Yeltsin's political actions would result in economic disaster. ``They [Yeltsin and his supporters] are spoiling everything,'' says Mr. Vladislavlev, leader of an industrialist effort to achieve a political compromise between president and Parliament. ``It [Yeltsin's action] has been a blow to democracy, and a blow to the economy. So why did he do it?''

Other economic indicators suggest that the government may lose control of the situation. An analysis prepared by the Russian State Statistic Committee, for example, said fuel supplies were insufficient to meet the populations' needs this winter.

An threat comes from several of Russia's 88 regions that they may withhold tax payments to the federal budget as a political protest.

So far, workers have ignored calls for strikes made by parliamentary leaders. But many sectors of industry and agriculture are upset with what they call unfulfilled promises of government support. Agro-industrial trade union leaders, representing 16 million farm workers, voted Monday to call a general strike for November, the Interfax news agency reported. The farmers want the government to settle its 1.3 trillion ruble (about $1.6 billion) debt to the agricultural sector. If the government fails to comply, the farmers are threatening to withhold food deliveries.

A Yeltsin decree ensures the protection of foreign investment, considered essential to Russia's revival. But given the ongoing turmoil, many foreign businesses may remain reluctant to invest.

If parliamentary elections are held in December, as now scheduled, Yeltsin could well find himself saddled with a new Parliament that is as hostile to his plans as the legislature he just disbanded, says Nikolai Ryzhkov, a former Soviet prime minister.

``Everything regarding elections will depend on the economic situation in the country.''

You've read  of  free articles. Subscribe to continue.
QR Code to Russian Economy Remains in Turmoil
Read this article in
QR Code to Subscription page
Start your subscription today