Russia Slows Reform Plan And Allows Budget Deficit

Despite Western pressure for greater economic reform before aid can begin to flow, Russian government backs off reforms under domestic pressure

UNDER severe pressure from opponents, the Russian government has eased up a bit on its crash economic reform program, raising concern among Western officials about the near-term chances for an infusion of much-needed foreign aid.

Western nations, including the United States, have praised Russian reform efforts to date, particularly the freeing of price controls on most consumer goods Jan. 2. But more needs to be done, especially on reducing the budget deficit, before substantial assistance will be forthcoming from world financial institutions, such as the International Monetary Fund (IMF), Western officials say.

"You never see smooth sailing in this situation, but they've made a good beginning," said US Undersecretary of the Treasury David Mulford, on a visit to Moscow last weekend for hastily arranged talks with Deputy Prime Minister Yegor Gaidar. "On the budget deficit they have a lot more to do and they know they have a lot more to do," Mr. Mulford said.

Indeed, after pledging to balance its first quarter budget, the Russian government appears to be backing down. During a Parliamentary debate Friday, Mr. Gaidar, who is in charge of the reform program, estimated the government would run a first-quarter deficit of about 67.5 billion rubles (about $675 million).

Russia has vigorously sought membership in the IMF, whose specialists have been working with the government to transform the country's economy from the communist system to a market system. Gaidar and others have pressed the West to provide aid and to create a multibillion-dollar fund to help stabilize the ruble, the feeble Russian currency.

Many experts say the IMF will extend full membership to Russia soon, perhaps in April. But Mulford said a much more detailed reform program must be worked out before Russia can gain access to millions of dollars in IMF assistance.

"Before we are in that position we have to have finances lined up, a full stabilization program must be in place, and you must know what currency is going to function," Mulford said. "These are still all unknowns at this point."

Mulford also contradicted reports in the West that a ruble stabilization fund was on the verge of being established.

Fulfilling the IMF requirements seems to be more and more problematic for the Russian government, which has its hands full with domestic discontent over its policies. Gaidar's reform team last week was attacked by several leading economists and business leaders, including Nikolai Petrakov, chief of the Institute of the Market Economy.

The critics, speaking in parliament, demanded the government resign and called for significant changes in policies. Mr. Petrakov, who is leading the anti-Gaidar movement, has repeatedly argued for re-establishing some price controls, replacing the ruble with a new Russian currency, and loosening the tight credit policy.

The government says it is committed to radical reform and is putting up stiff resistance to critics, typified by government spokesman Alexei Ulyukayev's sharp reply to Petrakov's proposals, published in the Nezavisimaya Gazeta newspaper. "The administrative mechanism of con- trol is ruined and it's hardly possible to restore it," he said.

Nevertheless, the pace of reform has slackened in advance of next week's Russian Congress of People's Deputies, which could hold a vote of confidence in the government. Last week, President Boris Yeltsin said the freeing of artificially low energy prices would be postponed from mid-April until June, when the crop-planting season ends. Government officials also have expressed willingness to slightly loosen the tight credit policy.

The moves cautioned the West that the government may sound a general retreat on reform.

"You can find people who are concerned about that," said Mulford, adding it was too early to make any definite judgments. A relaxation of Russia's tight fiscal and credit policies would hinder its bid for IMF aid and a stabilization fund, he continued.

Such statements could harm the government at home. Anti-Western sentiment is growing in Russia. Petrakov and others have said Russia can live without the IMF's help and accuse Gaidar of pandering to the West.

Furthermore, Sergei Stankevich, an aide to President Yeltsin, called over the weekend for a thorough revision of Russian foreign policy. Writing in Nezavisimaya Gazeta, Mr. Stankevich said Russia should strengthen ties with industrializing nations, such as Brazil, South Africa, and Turkey, rather than concentrate on relations with the West.

"For many years ahead we will be allocated the role of a junior partner at best, which we should not accept," Stankevich said of Russia's relations with the West.