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. Last Updated: 07/27/2016

Premier's Politics, Economics at Odds

While Prime Minister Viktor Chernomyrdin has insisted that his new government would not change the course of Russian reforms, he has sketched out a program that represents a major shift in economic policy.


According to the prime minister's statements on Thursday and Friday, his economic program will result in changes in four key areas:


?Higher inflation -- in the range of 15 to 18 percent per month for the first six months of the year -- than forecast by the reformers under their plan, but declining to 8 to 9 percent. The former finance minister, Boris Fyodorov, has predicted that Chernomyrdins plan will result in inflation of 30 percent by year's end. Last December it was 12 percent.


?A lower ruble that falls in line with inflation as opposed to one supported by the Central Bank and remained stable despite big jumps in the cost of goods.


?Controls on prices and wages through agreements with producers and trade unions as opposed to allowing both to be determined by the free market.


?A resumption of easy-term credits to industry and a commitment to honoring all spending promises, in contrast with the radical reformers attempts to push tight monetary policy.


The prime minister's political pronouncements seemed in contradiction with his economic ones. For example, Chernomyrdin said at his press conference Thursday: "The president's course towards radical and economic reforms in Russia remains."


But ending low-interest loans to industry, one of the cores of the radical reform program, will resume.


Most important of these changes, Chernomyrdin outlined a shift from attempts to allow the market to control the economy to one in which the government plays a decisive role, especially in helping Russian's state companies.


Chernomyrdin's fight against inflation, he said, will shift from a policy that attempted to control the money supply to one that will use a combination of market and government controls.


Chernomyrdin hopes to reduce inflation by keeping wages and prices down. He said he would accomplish this with "such classical forms of combating inflation as general agreements between the government, the trade unions and producers." He said a package of measures should be finished this year.


Chernomyrdin also said prices can be controlled by increasing the amount of goods available on the market, allowing in more foreign goods.


Imports would be encouraged by "the removal of artificial barriers to foreign goods and capital." He stopped short of saying this would mean a cut to import tariffs and said only that "everything will be under constant review."


A reduction in tariffs is unlikely given the protectionist nature of the new cabinet and imports will probably get more expensive under the monetary controls part of the prime minister's plans.


While Fyodorov pursued a controversial policy of a strong, stable ruble, in which Russian wages grew in dollar terms, Chernomyrdin said he viewed this as a mistake and that the ruble should be allowed to fall with inflation.


"We cannot stop the ruble's fall and this is not our task," he said.


Indeed, under the Chernomyrdin plan, it might be more difficult to stop the currency's decline. The prime minister, in his press conference Thursday, enunciated a reversal of the three-month-long government policy of stopping cheap credits to industry.


"There will be easy credits," he declared, denying this would encourage inflation.


Chernomyrdin did say that unproductive enterprises would be shut down and that low-interest credits to industry would be given selectively.


Chernomyrdin believes that inflation can still be controlled even with a resumption in credits. Echoing comments that have been made by the industrialist First Deputy Prime Minister Oleg Soskovets, the prime minister said that credits will be given to industries that can earn profits and pay higher taxes, expanding the revenue base of the government.


Still, the prime minister elaborated far more modest goals in the battle against inflation. He said inflation would range between 15 and 18 percent in the first six months of the year, contradicting Fyodorov's plans to bring inflation down rapidly by this spring to 5 percent monthly.


"Let me stress that inflation has been and remains the main problem for us," Chernomyrdin said. "Everything else hinges on this problem."