Russian Reformers Press Ahead, But New Obstacles Stand in Way

WHEN President Boris Yeltsin used the military to sweep Russia's parliament aside, he removed a major obstacle to continued market reforms.

The legislature had been a bitter opponent of the government's tight-money policies and was also hindering the privatization process. But parliament's disappearance from the political scene does not necessarily give the Cabinet a free hand to proceed with austerity measures to reduce inflation and stabilize industry.

Indeed, several new barriers now stand in the way of the government's reform plans. One is December elections for a new parliament. ``New elections might bring new, populist [financial] decisions,'' Finance Minister Boris Fyodorov said at a recent news conference. ``These next two months will be very difficult.''

Another impediment is more long-term - the military, whose loyalty to Mr. Yeltsin rescued the president during the October uprising. Utilizing their enhanced influence, Russia's generals apparently are pressing Yeltsin for increased defense spending.

Despite the new obstacles, Russia's market reform architects, Mr. Fyodorov and Economics Minister Yegor Gaidar, are setting ambitious targets. Their stance has changed little since before Army tanks forced parliament to surrender on Oct. 4.

Fyodorov said the government intends to tighten the money supply in hopes of reducing monthly inflation to about 15 percent by the end of the year. Inflation was 29 percent in August, 21 percent in September. (Regions gear for elections, Page 6.) Cabinet to limit credits

The Cabinet also intends to limit state credits for struggling industries - amounting to no more than 6.6 trillion rubles (about $5 billion) in the fourth quarter. That figure includes about 4.6 trillion ($3.8 billion) to service Russia's budget deficit.

In a new initiative, Fyodorov unveiled a plan to force inefficient enterprises to become more fiscally responsible.

The Fyodorov scheme would involve selling factories' bank debts at discounts to individuals and groups. Those holding debt notes would then become de facto chief financial officers, in a position to force factories to make long-overdue changes.

Denis Kiselyov, a Moscow-based financial analyst for the World Bank, says the plan will work for those industrial enterprises that have profit potential, such as Moscow's Zil auto plant. But he adds that such a plan would not pertain to more than half of Russia's struggling factories, which lack customers and thus would not likely survive in a free market.

Other economic observers say the plan could aggravate the already serious problem of non-payment among enterprises for goods and services. Currently, industries owe each other about 12 trillion rubles (about $10 billion). Enterprises would undoubtedly go further into debt as they either retooled or went under.

It ``could create a deadlock, turning the government's anti-inflation measures into a struggle with the windmills,'' economic analysts Alexander Bekker and Mikhail Leontiev wrote in the Segodnya newspaper, referring to literature's Don Quixote. Plan won't fix all problems

Fyodorov said the plan would not completely solve the problem of transforming inefficient industries, but added it would be a success even if it compelled 30 percent to 40 percent of industry to overhaul their operations.

Several preconditions are needed, Fyodorov says, for his vision of reforms to take root, particularly government unity.

However, differences are already appearing within Prime Minister Viktor Chernomyrdin's Cabinet. First Deputy Prime Minister Oleg Soskovets, Mr. Chernomyrdin's most-trusted deputy, expressed opposition to ``abrupt shifts'' in policy.

``Friction does exist,'' Deputy Prime Minister Sergei Shakhrai told the Obshchaya weekly. ``It's a government of professionals brought in a haphazard way. In such a situation the likelihood of internal conflicts is high.''

Mr. Shakhrai himself has been embroiled in intra-Cabinet squabbling over Yeltsin's policy toward Russia's regions. Yeltsin has put pressure on the regions to conform to Moscow's reform plans. Fyodorov, at the same time, threatened sanctions against those regions that did not contribute their fare share of tax revenue to federal coffers. Shakhrai opposes such a tough approach.

Several regions are resisting Yeltsin's political overhaul attempt. The Komi Autonomous Republic, one of 22 nominal ethnic homelands in Russia, is refusing to implement Yeltsin's decree to abolish local councils.

Russian reforms also will require foreign aid. Fyodorov said he hoped to receive soon a much-needed, second aid installment from the International Monetary Fund of $1.5 billion.

The IMF had set stringent requirements - including a monthly inflation rate of 10 percent or less - that Russia must meet before it receives the aid. Some experts say the IMF may now modify conditions because of the new political environment in Moscow.

of 5 stories this month > Get unlimited stories
You've read 5 of 5 free stories

Only $1 for your first month.

Get unlimited Monitor journalism.