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. Last Updated: 07/27/2016

Premier Defends Economic Reforms

Prime Minister Viktor Chernomyrdin mounted a stout defense of his government's economic record Friday at a special government session in the Kremlin, declaring that economic reform was entering a "second stage."

Chernomyrdin gave a rosy assessment of the economy's resilience in the last six months. He said that despite acute problems of non-payments and falls in output, a drop in industrial production was levelling out, shortages had disappeared, inflation was falling and conditions were ripening for a "favorable investment climate."

But the prime minister clashed with regional leaders in an acrimonious end to the session, facing heckling from the floor as he called on leaders in the provinces to shift industrial production away from the defense sector.

President Boris Yeltsin cancelled his scheduled address to the session in the Marble Hall of the Kremlin, which was attended by more than 400 industrialists, regional leaders and parliamentary deputies. His press service said he had a "slight cold."

Chernomyrdin seized the opportunity to make a speech of ambitious claims in which he harked back to Russia's historical reformers from the turn-of-the-century Tsarist prime minister Pyotr Stolypin, to the westernizing tsar Peter the Great.

The prime minister mocked the doomsayers who predicted economic chaos when radical reformers Yegor Gaidar and Boris Fyodorov left the government last January. But, in line with recent trends in policy, he used language they would have approved of.

"A very important lesson not only of the past six months but of the past two and a half years as a whole, is that reforms in Russia have brought results," Chernomyrdin said.

The prime minister said that within two months the government would submit proposals to the Duma to reduce profit taxes and value-added tax. He added that "resolute actions are also going to be taken to increase tax collection."

He said that market mechanisms were already taking effect in Russia. Some enterprises were sinking and others were swimming under the new economic conditions.

Chernomyrdin said that the second half of this year would see a "transition to a new stage of reform" when the government's first priority would be reform in the regions.

He said his government would not shrink from the "natural process" of bankruptcy which he said threatened about 2,000 factories. The only exception would be defense factories which were vital to national security.

But he also insisted that the defense sector was the "focus of industrial crisis in industry today." He said a smaller number of plants should deal in defense work, a challenge which provoked the angry exchange at the end of the session.

"The budget is not made of elastic. How much must we suffer before we switch to different kinds of production?" Reuters quoted the prime minister as telling his critics.

Many regional politicians in charge of enforcing federal economic policy were militant in response to the speech.

"Let's describe the situation as it is and not simply optimistically," said Vladislav Zotin, president of the tiny republic of Mari-El, to loud applause. He reported that in his homeland the budget coffers were empty and 40 percent of factories were at a standstill.

Nikolai Gonchar, the former chairman of Moscow City Soviet and now chairman of the Federation Council's Budget Committee was equally scathing.

"Prices are rising and production levels have fallen by more than a quarter," he said. "But the premier assures us that salaries are catching up with prices and inflation is falling. Miracles like that don't happen in nature."

Eduard Rossel, a one-time critic of the government and former governor of Yeltsin's home region of Sverdlovsk was kinder. He said the prime minister had made "a correct analysis and correct deductions for the next six months" and called the speech "encouraging."

Chernomyrdin also used the speech to say he had heeded criticisms by Yeltsin, who chided the government last month for slowness in implementing reform and for having a regressive bureaucracy.

"The president has been right to criticize us and we will take that into account," he said.

He pledged to carry out personnel changes, to separate out people "who are really moving on reform and those who just use difficulties as an excuse and lobby group interests" in the government.