New Slav Commonwealth Presses Economic Reform
Russia postpones liberalization of prices to allow coordination of policies among the three states. BREAKAWAY SLAVIC REPUBLICS
THE formation of a new commonwealth by the three Slavic republics of the former Soviet Union has added a new element of uncertainty to an already highly unstable economic crisis.The Russian government of Boris Yeltsin is on the verge of implementing sweeping radical reforms, originally set to begin Dec. 16 with a liberalization of almost all prices from state control. Until now, the Russian government has resisted all entreaties from other republics to delay or even indefinitely postpone this move, which will affect all of them. But the agreement reached Dec. 8 in a dacha near the Byelorussian border with Poland commits Russia to coordinating its economic policies with the other members of the new Commonwealth of Independent States. That means postponing the price liberalization until Jan. 2, Russian Deputy Premier Yegor Gaidar told Russian television Dec. 9. "It was a very difficult decision to make," Mr. Gaidar said, "but it will be compensated for by coordinated actions. That means we will be able to avoid conflicts that would arise if Russia alone had liberalized prices." But Byelorussian leader Stanislav Shushkevich said on republican television that his republic would carry out price liberalization "step by step" and not necessarily at the same time as Russia, according to a Nega news agency report.
'Danger of public unrest' Some observers worry that delays could endanger the success of price liberalization and other radical steps. "Yeltsin sacrificed his reform to preserve the political union," comments Russian Information Agency editor in chief Igor Sedykh. "This two-weeks' delay in liberalization of prices strengthens the danger of public unrest because prices are going up already, but it is not organized; it is wild liberalization." Gaidar argues that the statement of Byelorussia, Russia, and the Ukraine on coordinating their economic policies contains some positive elements of compromise on a number of issues. It commits the three founding members of the commonwealth to pursue "coordinated radical economic reforms aimed at creating effective market mechanisms, transforming ownership relations, and ensuring free enterprises." Most importantly, the ruble will continue to function as the common currency of the group, particularly for settling accounts between members. The agreement allows for introducing national currency "on the basis of special agreements, guaranteeing respect for the economic interests of the parties." The Ukraine planned to introduce its own currency in mid-1992, but according to Mr. Shushkevich the three agreed not to take such a step until the end of the year. This is intended to allow time for the radical reforms to take effect and for the economy to stabilize after the expected inflationary surge of prices. "The main reason the agreement was signed was because Russia had to take measures against the economic intervention of the Ukraine," says Russian parliamentarian Alexander Domrin, a member of the Committee on International Economic relations. "The Ukraine has huge amounts of rubles, and they could be used against Russia," he explains, expressing a widespread fear that Ukrainians seeking goods would flood Russia with rubles, spurring hyperinflation. Gaidar says the currency decision will be especially welcome to the Group of Seven leading industrial nations (G-7), whose economic assistance is considered crucial to the success of the Russian reforms. He expresses hope that it will "accelerate the financial aid of the G-7," perhaps leading to the creation of a stabilization fund to back the value of the ruble as it becomes freely convertible into other currencies, a key part of the reform package. The Dec. 8 statement provides for joint steps to control inflation through monetary and budget austerity, including an inter-bank agreement to curtail the printing of money and policy coordination to limit budget deficits. It also moves toward a common approach to taxes, particularly regarding value-added tax rates. The Russian government has already decided to enact a high 28 percent value-added tax, intended as its main means of revenue, along with a new, graduated, personal income tax.
Trade at world prices The commonwealth agreement seems to set up a common single market as well. It calls for coordinating signatories' external economic and customs policies and ensuring "freedom of transit" between member states. Trade between the states, although denominated in rubles, will switch to world market prices, Gaidar said. The new pact eliminates virtually all the central economic institutions, including the huge industrial ministries. There will be no single budget among the countries in the commonwealth with the sole exception of a defense budget, explained Gaidar. Within 10 days, the three members are to decide on a 1992 budget for their combined armed forces, which are provided for in the political statement. But what is far from clear is the fate of the broader economic community formed by a treaty in October, of which all the three Slavic states along with seven other former Soviet republics are signatories. That treaty formed an inter-state economic committee, currently headed by former Russian Premier Ivan Silayev, which is to coordinate economic policies and manage the economy. "It is not clear what this stucture is and what it is doing," Russian Deputy Premier Gennady Burbulis told reporters Dec. 10. Some aspects of its operation, such as a banking union, may be preserved, he said, but a meeting of republican officials Dec. 13 will decide the fate of the broader structure.