Yeltsin's Economic Shock TrooperBy
The words rang like shots: "Pozor! Pozor!" (Shame! Shame!) Tens of thousands of workers, pensioners, and hardline Communists marching near the Kremlin on Feb. 9 screamed their opposition to Russian President Boris N. Yeltsin's radical economic program, demanding his resignation and that of Economics Minister Yegor Gaidar. Not a mile away, at the Russian Parliament, just as many demonstrators waved placards begging the pair for speedier reforms. "Yeltsin and Gaidar--don't retreat," one said. "Take more radical steps now."
The Russian Republic has become a country divided, and a radical, 35-year-old economist named Yegor Timurovich Gaidar is straddling the breach. As architect of Yeltsin's economic shock therapy, Gaidar is probably the most controversial figure in Russia right now, next to Yeltsin himself. Millions of Russians became impoverished overnight when he freed prices on most goods on Jan. 2. And the pain has prompted even Yeltsin's own vice-president, Alexander Rutskoi, to call the program "economic genocide," while insulting Gaidar's team as "boys in pink shorts."
Gaidar is anything but a sissy, though. In a matter of weeks he has forced through the type of wrenching economic program that former Soviet President Mikhail Gorbachev's economic advisers could only talk about. The goal of his high-risk austerity program is to stabilize Russia's collapsed economy and integrate it with the rest of the world's. "I hope to create the preconditions for stable economic growth in Russia," he explains in fluent English. Such talk is earning high marks in the West. "He is the best macroeconomist you can find in the former Soviet Union," says Swedish economist Anders Aslund.
NO COUNTERWEIGHT. But at home, Gaidar's harsh, unyielding style only fuels his growing unpopularity. Many observers predict he won't last long; Yeltsin may be forced to buy time by dumping him. Moreover, some Western economists question whether Gaidar is moving too fast on prices without providing the counterbalance of privatization. As it stands, most enterprises are still in the hands of the state, quashing the kind of free-market competition that might ease the price hikes.
Gaidar insists that Yeltsin fully backs him and that he has no intention of resigning. He plans to stick to traditional macroeconomic discipline--relying on his instinct for applying it amid Russia's wildly shifting political currents (table). His only major compromise so far came in early February, when he rolled back part of a controversial 28% value-added tax on all goods. Now, food will be taxed at only 15%, tripling the first-quarter budget deficit.
Gaidar, a graduate of Moscow State University, honed his free-market approach as a protege of Stanislav Shatalin, one of the first renegade economists to research ways to reform the Soviet economy under Brezhnev. "Before perestroika, we were regarded as terrible extremists and we were under strong suspicion," he recalls. When Gorbachev's reforms loosened press strictures, Gaidar became chief economics correspondent for the journal Kommunist. In late 1990, after a brief stint at Pravda, he set up his own Institute of Economic Policy.
It was there that Gaidar found a niche: Anticipating some sort of Soviet breakup, he worked out a program of economic reform exclusive to the Russian Republic. Better-known economists serving Gorbachev, such as Grigory Yavlinsky and Nikolai Petrakov, were caught in endless debates on how to reform the Soviet Union as a whole. So when the August, 1991, coup transformed the Soviet political situation, Gaidar won over Yeltsin and his top aide, Gennady Burbulis, with an economic solution geared to Russia's own interests.
Like many young Russians, Gaidar is something of a paradox. He bluntly shuns the dogmas of communism. Yet his upbringing was as red as the hammer and sickle. His grandfather, Arkady Gaidar, was a regiment commander in the Red Army at 17 and became a children's writer famous for such patriotic stories as Timur and his Team, about a group of young Soviets who secretly do good deeds for people. His father, Timur Gaidar, was a Rear Admiral in the Soviet Navy and Pravda's first correspondent in Cuba in the early 1960s. At age 6, Yegor watched and supported Castro's revolution.
As with many of his peers, Gaidar began to lose faith in communism--if not Russia--after the Soviet invasion of Czechoslovakia in 1968. Still, he became a Communist Party member and kept his party card until Aug. 19, 1991, the first day of the coup. "He is pragmatic, but he also is a little bit of a romantic," says Sergei Kolesnikov, an aide who first worked with Gaidar at Kommunist. His family's communist ardor seems to have flip-flopped in Gaidar, emerging finally as a fervent belief in a free-market Russia.
FIVE-YEAR PLAN. Gaidar is convinced his radical reforms are the only way to save Russia from a return to dangerous central control. But many wonder whether his stubborn refusal to loosen the sails will snap the republic's masts in the coming storm. Although prices are now increasing at a slower pace and more food is available in stores, enterprises around the country are hurting badly. Industrial production is likely to fall 20% this year, and factories could ax as many as 10 million workers.
Gaidar is hustling in the West to raise a $5 billion to $6 billion fund to stabilize the ruble in order to attract Western investment. But privatization is only inching along, prompting economists such as the Hoover Institution's Judy Shelton to wonder how Gaidar will create the competition necessary to offset price hikes. "The old apparat still controls those stores and the means of distribution," Shelton says. Answers Gaidar: "You would need a year to privatize. We're going ahead with the price hikes because we don't have time."
Time is clearly of the essence. With economic pain stirring a pot of xenophobia, nationalism, and communist nostalgia, Russia could become explosive. Gaidar predicts real economic health is five years away. But will he last that long? Behind his paper-cluttered desk at the old Communist Party headquarters, Yegor Timurovich blushes, giggles a little--and shakes his head. Five months, perhaps--if he's lucky.
GAIDAR'S DRASTIC REFORMS PRICES Freed most wholesale and retail prices on Jan. 2. The annual inflation rate soared to 300% SPENDING Cut most industrial subsidies, slashed weapons orders by 85%, and pledged to shrink budget deficit from 15% to 1% of GNP TAXES Slapped a tax of 15% on food and 28% on other goods, while imposing an even heavier levy on corporate profits and many commercial transactions MONEY Floated ruble against dollar on Jan. 2, allowing its market value to plunge below 1c. Asked West for $6 billion stabilization fund to make ruble convertible by July INDUSTRY Predicts 20% plunge in industrial production in 1992; plans to sell off 25% of state-owned enterprises and property by yearend DATA: BW
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