New Russian Price Controls Signal Struggle Over Reform
THE fragile relations within the Russian government between radical reformers and advocates of a slower path to a market economy are already showing signs of strain.
The first policy initiative of recently installed Prime Minister Viktor Chernomyrdin - the imposition Jan. 5 of broadened price controls - has quickly revealed clear differences between the new premier and the followers of his predecessor, reform architect Yegor Gaidar.
Anatoly Chubais, the head of the Russian privatization program, strongly criticized the move at a private meeting this week with the representatives of major Western countries and international financial institutions. Mr. Chubais, who is considered the most important member of the Gaidar team still in the government, called it a "major mistake," according to one Western participant.
Price controls have long been on the agenda of those forces advocating a slower reform course, including the lobbies of the directors of large state-run enterprises from whose ranks Mr. Chernomyrdin comes. Chubais told the aid donors that Mr. Gaidar had been resisting pressure to impose such controls since last summer.
"The worst version of the decree was the one that was issued," Chubais said. He added that the reformers in the Cabinet would make a concerted effort to get the decree reversed.
Both Chubais and Western advisers, however, say that the effect of the decree will be limited because it will be impossible to administer such controls under present economic conditions. "They'll never be able to do this," one Western economic adviser says. "It's an administrative irrelevancy."
Still, there is concern about what happens now to other key reform policies, especially the privatization program that is just embarking on a process of auctions of state-owned factories. The price decision "is a sign of which guys are winning more battles inside the government," worries the Western adviser. "The only serious reform going on now is in privatization. The hope of the reformers is that the privatization process will reshuffle the cards in such a way that the old system cannot be reconstruct ed."
The concern is that the more conservative forces would shift the program to maintain existing industrial structures, with current managers maintaining control over nominally privatized firms. But so far there is no sign that Premier Chernomyrdin intends to interfere with privatization.
CHUBAIS expressed optimism that the program would meet its targets this year for sale of enterprises, sales in which Russians will be able to buy shares, using the vouchers distributed late last year. "Chubais hopes to get millions involved so that opponents will have to fight not only the government but millions of people," the adviser says.
The lifting of state-set prices was the first reform carried out by the Gaidar reform team at the beginning of last year. Chernomyrdin, in his first major policy speech since becoming premier last month, denied any intention to roll back that or other reforms.
"In the current situation, we believe it unrealistic and irresponsible to raise the question of a price freeze," he told a Moscow audience of industrialists Jan. 5. "Any step in this direction would have only one consequence, a return to the old system of economic management by command."
The decree seeks to control prices on a wide range of raw materials and foodstuffs by limiting the profitability of the enterprises producing these goods. The list of controlled goods includes basic foods such as bread, pasta, flour, and vodka, along with metals, chemicals, paper products, timber, construction materials, and semi-finished industrial products. Energy prices were previously controlled.
In response to growing criticism, the government issued a statement Wednesday defending the move as a step to aid the market by controlling the unchecked price rises imposed by enterprises that either have a monopoly over production or are able to inordinately influence prices.
Chernomyrdin's remarks carefully set forward a far more interventionist approach, and one more oriented toward aiding ailing state-run enterprises, than his predecessor. He argued that Gaidar's hope to create competition and reform state industries by freeing prices and imposing tough financial austerity had failed. Instead production and living standards have fallen and private enterprise has failed to bridge the gap, he said.
"There is much ado about private enterprise and small businesses," Chernomyrdin said, according to an Itar-Tass report. "However, the third estate turned out to be thinner than the film of oil on the Caspian Sea."