Bush and Yeltsin To Focus on Aid At First Summit

MODERN diplomacy's link between economics and security has never been more stark.

The first full-fledged summit between President Bush and Russian President Boris Yeltsin begins in Washington today, and the economic emphasis is aimed at helping to change an old enemy into a new, lucrative market for US exports and investments.

Mr. Yeltsin desperately needs US aid and private-sector support to champion the transformation from communism to a free-market system. Without international financing, Russian reformers could lose the battle against hard-liners who are fighting defense cuts and the opening to the West.

Accompanying the Yeltsin entourage, which includes the country's chief economic advisers and banking officials, are some 80 leading Russian business people.

Washington is ready: "We want to move as aggressively as possible ... to develop commercial ties" with Russia, a Commerce Department official says.

Despite this week's rush of high-level meetings designed to promote trade and investment ties and the long treaty negotiations that preceded them, the US is still concerned about reforms in what is most crucial to Russia's economic rebound: the energy sector. Russia's efforts to attract foreign investment in this highly guarded national treasure is a barometer of just how far the reformers can effect change.

Experts believe a fully developed Russian oil industry would provide the country with enough export earnings to help restructure its economy.

A dramatic increase in oil capacity will go far beyond the current bare minimum of satisfying domestic fuel demand - a need still heavily subsidized by the cash-poor Russian government. Export sales promise precious foreign exchange that enable the government to pay off debts, purchase imports, and provide the financial base for modernizing plants, equipment and the labor force. Energy policy debated

Russia's donors, bankers, and would-be foreign investors see the Russian government taking a wrong turn in its energy policy. On May 30, Yeltsin said he would resist pressure from the International Monetary Fund to free energy prices to rise to world levels. He invoked the importance of maintaining enough popularity to continue with the reform process: "The Russian people still support me, but patience has its limits."

In order to retain power, Yeltsin has done much to accommodate more conservative members of the Russian parliament; during the past several months he has ordered a number of Cabinet and economic-policy team shuffles.

Shortly before his departure for Washington, Yeltsin issued a decree naming economic-reform czar Yegor Gaidar the acting head of the government. The move is a clear response to critics at home and abroad who have questioned Yeltsin's support for radical reforms after a recent Cabinet reshuffle undermined Mr. Gaidar.

"By doing this, President Yeltsin confirms that Gaidar is the No. 1 man in economic reform and that Yeltsin backs his course," government spokesman Gennady Shipitko said.

But of all the recent Russian government changes, members of Vice Premier Yegor Gaidar's reform camp say they are most unhappy with Energy Minister Valdimir Lopukhin's ouster and his replacement by former Soviet Gas Minister Viktor Chernomyrdin.

Mr. Lopukhin favored a market economy approach, including price liberalization and foreign investment. His replacement does not, says Alexsel Ulyukayev, the government's economic policy spokesman and Gaidar team member.

The appointment reflects a split in the Russian energy industry, explains Mr. Ulyukayev. "The situation in the gas industry is more or less OK. It operates as it did before 1985. Gas production remains steady and gas deliveries through the pipeline to Germany have continued. "So they don't like the market economy," concludes Ulyukayev.

Lopukhin enjoyed good contacts with Western oil companies that have been pursuing deals across the ex-Soviet Union. "Now, after his resignation," says Ulyukayev, "they will be less interested in investing in Russia."

Like other international advisers encouraging Russian strides toward a market economy, World Bank Division Chief for Infrastructure, Energy, and Environment Jonathan Brown laments the "very conservative, nationalist background" of the new Russian energy minister.

The minister's aversion to radical reforms - such as laws that permit foreign investment and ownership - will likely slow the country's already jeopardized economic growth. Mr. Chernomyrdin regards foreign involvement in Russia's raw materials as a national security risk. "He is very powerful," says Mr. Brown. "Unfortunately, he will probably be an agent of stagnation rather than ... of change." Price of freedom

"I am willing to bet that in the next three years, there will be more foreign investment in [energy-rich] Azerbaijan and Kazakhstan than in Russia," says Brown. "These smaller republics want to be free of the old Soviet system and Russian influence, and they recognize that producing more oil and gas exports is the way to do it. That is the price you pay for freedom."

Bush administration officials will work hard this week to convince the Russians that US money, oil firms, and technical expertise can help the fledgling reformers better secure their freedom.