Crunch Time In Russia

At Gosznak, Russia's government printing office, workers are busy oiling their presses. The machines are ready to churn out more money in 1994's first quarter than they did in all of last year, some believe. Set to go into circulation are new 100,000-ruble bank notes, double the highest denomination available today.

Say do svidanya to fiscal discipline in Russia. State bailouts are the first order for the new Cabinet that President Boris Yeltsin and Prime Minister Viktor Chernomyrdin are just about through installing. Heading the handout list is agriculture, which will get an immediate

4 trillion-ruble ($258 million) kick for its bloated empire of collective and state farms. Shuttered factories can expect Moscow to settle their debts. These moves are part of Chernomyrdin's scheme to revive an economy that has seen industrial production plunge 16% while budget deficits and unpaid bills approach 30% of gross domestic product.

There is much debate in Moscow on where this new policy team will lead. To outsiders, it is short on reformers and long on mediocre apparatchiks. They are "specialists in satisfying the interests of agricultural and industrial lobbies," says Anders Aslund, a former Yeltsin adviser.

But the health of Russia's economy depends on what policy Chernomyrdin pursues after the big bailout. If he can come up with a cohesive industrial policy, he may be able to stabilize Russia's battered industrial machine. An economic pickup could also help quell bitter public resentment of reform. Then, Russia might be better prepared for the tight-money policies pushed by former Finance Minister Boris Federov, whose resignation Yeltsin accepted on Jan. 26.

Already, the broad outlines of an industrial policy are emerging (table). Chernomyrdin's aides are talking about following up the bailout with selective state investments in transportation and telecommunications infrastructure. Since inflation is hurting Russia's ability to flood the world with cheap raw materials, the vast but hobbled energy sector would get a big lift with investments aimed at boosting production and helping exports.

But skeptics abound. Even if the Cabinet sticks with a clear industrial policy, any progress may be done in by hyperinflation. Moreover, having Moscow bureaucrats pick industrial champions opens the door for more corruption.

Chernomyrdin is also portrayed as determined to weed out inefficient factories, mines, and farms. After the big bailout in this year's first quarter settles debts, enterprises are supposed to go on a strict bottom-line basis. If they can't make it then, the new bankruptcy law is supposed to go into effect, and their assets will be sold off.

OPEN DOOR. Meanwhile, there is no indication that Chernomyrdin intends to obstruct Russia's fast-moving privatization program. About 40% of the work force now labors in private companies. The voucher auction program, through which many more enterprises will be sold off, is likely to continue until its scheduled completion in July. Chernomyrdin also wants to cut import barriers, reasoning that the ensuing flood of consumer goods will soak up extra rubles while forcing local producers to become more competitive.

The big unknown is what Chernomyrdin might do in order to bring inflation under control and to stabilize the ruble. He has hinted that he favors voluntary wage and price caps hammered out by labor and management. While Moscow is awash with rumors that he may opt for a fixed exchange rate, it may already be too late for that. There are now at least six currency exchanges in the country. Says Igor G. Doromin, chief of market research at the Moscow Interbank Currency Exchange: "If they try to enforce a fixed exchange rate, they will only create a much bigger black market."

Chernomyrdin's admirers, particularly foreign energy executives, praise the Prime Minister as a "can-do" manager who will improve the nation's investment climate. But one wonders whether he will be able to get through the new Parliament the sort of laws needed to reassure foreign investors. Hardly reassuring is the selection of a member of Vladimir V. Zhirinovsky's xenophobic Liberal Democratic Party as head of the energy committee of the State Duma, or lower house, where the LDP could be in a position to obstruct multibillion-dollar projects.

It's hard to avoid the conclusion that the new government looks like an unsettling throwback to Gorbachev's ineffective reform policies. Still, optimists point out that some reforms, such as privatization, have progressed far enough that it will be tough to return to the command economy. They also say that the new team consists of older individuals with the connections and clout to advance reform that the departed Yegor T. Gaidar and his cohorts lacked. But whether they will be so inclined is another question.


BAILOUTS Print rubles so industry and agriculture can pay debts and salaries

TRY DISCIPLINE After initial bailouts, set new performance standards and cut eff state funds if they are not met

PROJECT FINANCE More rubles for infrastructure, such as roads and telecommunications, and for export industries, such as oil and gas

VENTURE CAPITAL Offer state-guaranteed loans for a new crop of fast-growing private companies

TRADE Lower import barriers to spark competition at home and hold down inflation


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