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Russia: From Shock Therapy To Shock Absorbers


International Outlook

RUSSIA: FROM SHOCK THERAPY TO SHOCK ABSORBERS

When Boris Yeltsin hosted Bill Clinton in the Kremlin's gilded St. George's Hall on Jan.13, one member of the Russian President's party clearly stood out. That was Viktor S. Chernomyrdin, the Prime Minister. Chernomyrdin rarely left Yeltsin's side during the summit talks, and he was so aggressive in pushing for pet projects, such as a U.S.-Russian space station, that Clinton teased: "Maybe Mr. Chernomyrdin should register as a lobbyist for Congress."

It's a good thing Clinton established an easy rapport with Chernomyrdin. The stocky, bushy-browed former state industrialist is emerging as the key Russian policymaker after Yeltsin. He is likely to sharply change the course of reform.

Chernomyrdin's ascendancy became clear after the summit, when Yegor T. Gaidar, the architect of Yeltsin's reforms, resigned as deputy premier, and Boris S. Federov, the tight-money finance minister, threatened to follow--though he now seems likely to stay. Both officials are unhappy with the probable scrapping of the tight monetary policies they favor. The political uncertainty whipped up new inflation fears, sending the ruble plummeting to a record 1,650 to the dollar. A huge scramble to change rubles to dollars forced some banks to close.

PRAGMATIC ERA. While this reaction may give him pause, Chernomyrdin still seems likely to eschew inflation fighting. He will instead focus his efforts on halting the crash that has sent real gross domestic product plunging at a 12% annual rate. Responding to a discontented electorate, he will pump money into agriculture, energy, technology, and other industries to ease the pain of shifting to a market economy. He will continue the privatization and modernization of industry. But at the same time, Chernomyrdin will be under pressure to preserve jobs and avoid destroying the massive state combines that remain the backbone of the economy. "The departure of Gaidar signals the end of the romantic period, when a group of young academics tried to stage a revolution without having sufficient political support or a stable social basis," wrote economics analyst Mikhail Berger recently in the newspaper Izvestiya.

December's election upset make the changes inevitable. Russia's Choice, Gaidar and Federov's new political party, was trounced by ultranationalists and Communists, who are now blaming reformers for everything from factory closings to rising crime. "It's natural that Gaidar resigned," says Alexei Mitrofanov, a State Duma deputy from the ultranationalist Liberal Democratic Party. "In all countries, the people who lose the elections leave the government."

The 55-year old Chernomyrdin, who stayed out of the elections, is a breed apart from the academic Gaidar. Chernomyrdin is a pragmatic state-sector industrialist who rose through the ranks of the natural gas ministry to become minister in 1989 and then president of Gazprom, the monopoly that pumps natural gas to Western Europe. Unlike other parts of Russia's energy sector, Gazprom is reputed to be well-managed--although reserves are so massive it's hard to fail.

Chernomyrdin's rise represents the triumph of state-sector industrialists. Since coming on board last year, he has often deftly balanced the warring reform and antireform elements in Yeltsin's government. At the same time, he argued strongly for government bailouts of industries, and he is among those favoring a tougher foreign policy that uses economic incentives to rein in former Soviet republics such as Belarus and Ukraine.

To the dismay of reformers, the Prime Minister insists on retaining his ally, Viktor Geraschenko, as Central Bank chief. Geraschenko is widely blamed for fueling inflation by doling out billions of rubles in credits to failing industries. Federov badly wants the bank job.

If Chernomyrdin gets his way, the bank will crank out even more state credit to build the new social safety net that voters want. But he will also promote Russia's massive privatization program. In part, that's because the increasingly powerful public-sector managers profit tremendously from the sell-offs, often gaining controlling stakes or at least veto power in their companies. Some set up profitable businesses on the side, such as banks or equipment suppliers. Unlike the radical monetarists, Yeltsin's privatization chief, Anatoly B. Chubais, is likely to keep his job.

"VERY COMFORTABLE." The question is how all this will play in the West and before the International Monetary Fund. Western executives seem generally impressed with Chernomyrdin, who is well known to them. On a U.S. visit last September, he stumped hard for investment in Russia. "Most American businessmen feel very comfortable with him," says Eugene K. Lawson, president of the U.S.-Russia Business Council. "He's pro-Western, and he's pragmatic."

The IMF is more skeptical. The fund is now concerned that Russia will not be able to meet guidelines for the release of $28 billion in funds. "We have rules here," says an IMF official. But Bill Clinton remains optimistic. Both he and Vice-President Al Gore, who has developed a friendly relationship with Chernomyrdin, feel he is someone they can work with.EDITED BY STANLEY REED Peter Galuszka and Susan B. Garland in Moscow


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