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. Last Updated: 07/27/2016

Chernomyrdin Confounds Doomsayers

Despite the predictions of hyperinflation and a command economy that sounded when Russia changed governments at the start of the year, Prime Minister Viktor Chernomyrdin appears to be following the tight monetary policy of his reformist predecessors, economists say.

Acting Finance Minister Sergei Dubinin told parliament Tuesday that inflation fell to 8.5 percent in March from 9.9 percent in February and 22 percent in January, in a clear demonstration of the government's ability to control spending.

"So far the government has been pursuing a rather tight monetary policy and we hope it will continue," said Charles Blitzer, chief economist for the World Bank in Moscow.

Valentina Levina, an economic adviser to the government, said that while the government has gained itself a pro-industry image, it actually has done nothing to support ailing industries.

"Gaidar would give some money after industries complained they were on the verge of collapse, but Chernomyrdin just won't," Levina said, referring to the outed reformer, Yegor Gaidar.

Last year, Gaidar and Finance Minister Boris Fyodorov, chief reformers in the government, tried to curtail state subsidies to factories so that they would be forced to adjust to the demands of the market or go bankrupt.

When Chernomyrdin's more conservative cabinet committed itself earlier this year to multibillion-ruble subsidies and debt payments in several sectors, especially agriculture and energy, both Gaidar and Fyodorov predicted economic disaster.

But so far, the government has not followed through on its big-spending promises, and has even won support from Fyodorov, now head of the State Duma's banking subcommittee, for a draft budget that envisions monthly inflation of 7 to 9 percent by the end of the year.

The draft budget is central to an agreement reached last month with the International Monetary Fund for the release of $1.5 billion in delayed credits.

The disparity between promises and actual spending has not been lost on factory directors, who complain that government austerity is destroying production as lack of funds forces factories to close down.

"No one receives any money from the government, and that's why no one can pay us for our trucks," said Vladimir Nosov, a spokesman for the ZiL truck factory in Moscow, which has halted production for the whole of this week due to shortages of money.

He said that Russian farmers, who have always been ZiL's main customers, could not pay for the trucks because they had not received credits promised by the government.

"Look at the whole automotive industry," Nosov said. "Factories shut down, then find some money and work for a while and then stop again."

Russian media reported this week that four other large enterprises, including one of Russia's largest tractor factories in Kirovsk and the country's sole fluorescent lamp producer in Smolensk, have halted production, sending their workers on partly paid leave.

First Deputy Prime Minister Oleg Soskovets warned last week that industrial production in the first quarter of this year had fallen 25 percent compared to the same period in 1993. According to the State Statistics Committee, machine-building has suffered the sharpest decline, falling by nearly half.

But Levina questioned the figures, saying that factories could be exaggerating their production decline when providing data to statistics officials, then selling the uncounted production on the side to avoid taxes.

She pointed out that electricity production and shipping activity fell far less than total industrial output.

"If there is such a sharp production decline, who is consuming the electricity and what is being shipped?" she asked.

Nonetheless, she said, the government will not be able to avoid paying some bills, such as subsidies for food deliveries to Russia's northern regions and credits to farmers to pay for fuel during the sowing campaign.

She said the government is unlikely to let factories actually go bankrupt, fearing social unrest if tens of thousands workers are laid off.

Blitzer agreed that it will be hard for the government to avoid major expenditures for much longer.

"There is a clear dissatisfaction of miners and military with the budget," Blitzer said, adding that the government would also be under extremely strong pressure from farmers on the eve of the sowing campaign.

Last week, Deputy Prime Minister Alexander Shokhin told coal miners gathered in Moscow that the government was considering shifting funding from the military and automakers to pay 3.4 trillion rubles in subsidies promised to the coal industry. The miners have threatened a nationwide strike April 13 if the government does not begin payments by Thursday.