Russia Renews Commitment To Open Market Reforms
WHEN key reformers left the Russian government in January, prospects for the future of economic reform looked bleak. After less than three years of flirting with free-market policies, it appeared as if Moscow was abandoning efforts to make the transition from communism to capitalism.
But last week, Prime Minister Viktor Chernomyrdin renewed hope that Russia had not given up on reforms by promising to push through a ``tough budget'' for 1994 in return for a $1.5 billion loan from the International Monetary Fund (IMF). It is the second installment of a $3 billion package. Approval of the loan could pave the way for Russia to receive a $4 billion standby loan from the IMF, as well as funds from other sources. It also sends a clear signal to Moscow that Western democracies have not given up on Russia.
``My discussions here have strengthened my basic confidence that Russia will cope, whatever the difficulties, whatever the magnitude of the changes this country faces,'' IMF Managing Director Michel Camdessus told a Moscow news conference at the end of a five-day visit.
Russia, which pleaded for special treatment from the IMF, has already received $2.5 billion from the lending organization. Additional funds were withheld because the government was wavering on reforms, including subsidizing industry and printing additional money to finance the deficit. Mr. Chernomyrdin, a former apparatchik from the oil and gas sector who replaced reformer Yegor Gaidar to become prime minister in December 1992, has surprised Western skeptics by supporting the policies of his reformist predecessors.
Chernomyrdin initially pledged to soften reforms and was widely expected to keep credits flowing because of his ties to heavy industry. He let Mr. Gaidar take the blame for Russia's economic woes after the young reformer quit the Cabinet in January along with Finance Minister Boris Fyodorov. And this January he dismayed the West by announcing that ``market romanticism'' had come to an end.
But in recent months, Chernomyrdin has scoffed at subsidizing ailing industries and has ignored pleas from the Russian Army and sectors of the agro-industrial complex to grab larger shares of the budget. His draft budget calls for 182 trillion rubles ($103 billion) of spending against 120 trillion rubles of revenue for 1994; this means the country still needs to come up with 18 trillion rubles to comply with the IMF agreement, according to Deputy Finance Minister Andrei Vavilov.
To achieve this, Chernomyrdin has promised to cut spending, lower inflation to between 9 and 7 percent monthly by the end of the year, and increase revenues by raising taxes and increasing import duties.
Official government forecasts say gross national product will fall by 8 percent by the end of the year with a 12 percent decline in industrial output, as compared with a record 24.1 percent decline last month from the previous year. The unemployment rate will be 5 to 6 percent, and the deficit will be less than the previous year and somewhat larger than 9 percent of gross domestic product.
United States Secretary of Commerce Ron Brown, who arrived in Moscow Monday for a week-long visit, praised the IMF agreement and Chermonydrin in particular. ``The steps he has taken have given us great confidence in the future - steps to hold down inflation, steps that represent fiscal prudence,'' he told reporters.
Mr. Fyodorov, however, has attacked the IMF deal and attributed the drop in inflation to an 18-month low of 9.9 percent this February to his own earlier tough polices, rather than the efforts of the new government. Annual inflation last year was 950 percent.
What still remains to be seen is whether Chernomyrdin can put his promises to work, and whether the budget will gain the approval of the largely anti-reform State Duma, parliament's powerful lower house. Concerned about economic change and what they perceive as foreign meddling, many legislators see the IMF loan as unnecessary, saying the budget could fuel unemployment and provoke social tension.
``One must admit that the pace of real reforms has obviously slowed down, and that the role of the state in strengthening these reforms is hardly noticeable,'' President Boris Yeltsin told Izvestia newspaper March 26. ``We can judge if we have a reform government only after reforms are implemented and we can see their results.''
Mikhail Poltoranin, a longtime ally of Mr. Yeltsin, said approval from the IMF came only after Chernomyrdin promised to promote Alexander Shokhin, a moderate, to deputy prime minister March 24. Mr. Shokhin still retains the economic minister portfolio. ``The IMF and other Western organizations received tens of billions of dollars from Russia after Shokhin destroyed our international military hardware market and other markets,'' Mr. Poltoranin said. ``So $1.5 billion out of tens of billions of dollars is like throwing money away.''