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After The Handshake, A Furious Arm Wrestle


International Business

AFTER THE HANDSHAKE, A FURIOUS ARM WRESTLE

For May Day festivities, this year's were especially somber in Moscow's Red Square. Mikhail Gorbachev stood on Lenin's Tomb reviewing a relatively small and nearly silent parade of the working class. Even the Communist Party Politburo failed to show up to cheer. While Gorbachev presided over this hollow ritual, his archrival, Boris N. Yeltsin, was 2,000 miles away in Siberia scoring a big political victory. There, he hammered out an agreement with striking coal miners to go back to work.

Cracks are already appearing in a truce Gorbachev and Yeltsin called in late April to end six months of political stalemate. Along with the leaders of eight other Soviet republics, they supported a vaguely worded plan to pull the nation's collapsing economy from the abyss. Work would begin on a new national treaty, a new constitution, and, possibly, direct elections for president.

Gorbachev sought the compact with Yeltsin as a tactical move to blunt his hardline critics and stem economic chaos. Yeltsin wants to use the alliance to push ahead with more radical economic reforms. Now, both politicians are busy with furious behind-the-scenes duels for political advantage.

PILOT PROJECTS. Over the next few weeks, Gorbachev is likely to come out with a tough, anticrisis regime to restore order. In mid-May, Gorbachev's government is expected to allow the use of force to end strikes that so far have rocked the energy and transportation industries. He is also considering a mass deployment of troops to the farms to speed up spring planting, which is falling far behind schedule.

Meanwhile, Yeltsin is barnstorming the Russian republic to broaden his popular support at Gorbachev's expense. While jetting from coal mine to coal mine there, he has been urging miners not to abandon their political demands, especially calls for Gorbachev's resignation. On May 1, he won an agreement with 5,000 striking miners in Siberia's Kuzbass coal fields to return to work. A key element of the deal provides that their mines will be transferred from Gorbachev's jurisdiction to Yeltsin's. On top of that, the miners will be able to keep 80% of the precious hard-currency earnings from their exports. Moscow now gets all but 6% of the earnings.

Yeltsin is ready to push even further. He's likely to win support from the Russian parliament in mid-June for a plan to sell off industries and farms. Although the proposed laws include some restrictions on land ownership, the program is designed to vastly restructure the economy of Russia, which has most of the country's factories and natural resources. The plan would dismantle most state control over loans to business and setting prices. Yeltsin aides say some 100 joint-stock companies may be formed by July.

One Russian enterprise, the Ust-Ilimsk Wood Industrial Complex in Central Siberia, has already begun selling shares to its 32,000 workers and their unions. Managing Director Victor N. Semonov says it was picked as the pioneer because it owns its raw materials--more than 8 million acres of timberland. In the process, Ust-Ilimsk has cut ties to its Moscow ministry bosses.

The Siberian deal underscores the remaining basic differences between Yeltsin and Gorbachev. Gorbachev insists on keeping large enterprises firmly in the hands of the state. Andre Orlov, the deputy chairman of Gorbachev's State Commission for Economic Reform, says Moscow is putting together a list of up to 100 midsize and large enterprises that it wants to see become joint-stock operations. But Moscow is likely to retain substantial shareholdings and management control.

BITTER FIGHTS. Moscow is already trying to thwart Yeltsin's sell-off scheme. Russian officials complain that Gosbank, the central government bank, is trying to stop companies from switching to Russia's banks by blocking their accounts and holding up payroll funds. To bypass Gosbank, Russia and the Baltic states are setting up their own banks.

Any hopes for help from Western investors are fading fast, too. Just six months ago, the World Bank and the International Monetary Fund were considering providing generous aid to push such privatization and other plans forward. That attitude changed abruptly after Gorbachev abandoned his radical program for a market economy. "I don't think the time is right for massive assistance to the Soviet Union," the British Chancellor of the Exchequer, Norman Lamont, said at an Apr. 29 IMF meeting in Washington.

Of course, privatization alone won't solve the Soviet Union's host of crushing economic problems. Political paralysis has prevented any real moves toward freeing prices or making the ruble convertible, a must for any true reform package. And as Gorbachev and Yeltsin faced off, Soviet gross national product fell a whopping 8% during the first quarter of this year.

Even as Yelstin settles strikes in Russian coal fields, other Soviet labor problems are looming. A new, independent union of air-traffic controllers announced that it would launch a strike on May 21 if the government does not meet its demands for higher pay, longer vacations, and better equipment.

Yeltsin may be able to mop up these skirmishes in short order, too. But by assuming increasing responsibility for the creaky Russian economy with its thousands of aging enterprises, Yeltsin risks promising much and delivering little. If that happens, workers could be demanding his resignation next.Rose Brady and Rosemarie Boyle in Moscow, with Igor Reichlin in Bonn, and Peter Galuszka in New York


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