Yeltsin in retreat as rouble slides

AS THE aftershocks of last month's election threatened to sweep away a third reformist minister in three days, Russia lurched into turmoil yesterday, with President Boris Yeltsin and his Prime Minister unable to agree on the shape of a new government.

Amid fears of a retreat from radical free-market recipes, foreign policy also showed signs of shifting as Moscow asserted a right to keep troops in former Soviet republics.

The rouble, in a nosedive since the government began to unravel on Sunday with the resignation of the First Deputy Prime Minister, Yegor Gaidar, lost a further 7 per cent, plunging to 1,504 against the dollar. Some banks closed currency counters after a stampede to unload wads of roubles.

The reason was Boris Fyodorov. As Finance Minister he won praise in the West for choking inflation but scorn from Russia's industrial barons and more cautious Cabinet colleagues for strangling the economy. Having issued an ultimatum demanding the dismissal of the Central Bank chairman and a conservative vice-prime minister, he yesterday turned down an offer to join a new Cabinet.

Mr Yeltsin spent the day cloistered with the Prime Minister, Viktor Chernomyrdin, for talks described by the Kremlin as 'not easy'. They are due to meet again today to try to fix the Cabinet's makeup. Alexander Shokhin, the chief debt negotiator and bland fair-weather reformer, said he had been offered Mr Gaidar's post.

The apparent retreat from a bold economic experiment, supported by the West but never consistently carried out, was matched by a toughening of Moscow's line towards its erstwhile Soviet satellites. The Foreign Minister, Andrei Kozyrev, yesterday argued against a complete withdrawal of forces, saying that was where Russia's 'vital interests' were concentrated.

The new parliament, entering its second week, churned with gloomy warnings of hyper-inflation from radical democrats and whoops of delight from supporters of Vladimir Zhirinovsky, the ultra-nationalist whose party won 22 per cent of the vote compared with 15 per cent by Russia's Choice, the main reformist bloc.

The third reformer to go is the Social Security Minister, Emma Pamfilova, whose departure signals a rupture between Mr Yeltsin and long-standing democratic activists. 'I hope common sense will win,' she said yesterday, 'but the situation is critical'.

Grigory Yavlinsky, co-author of Mikhail Gorbachev's ill-fated 500-day programme, predicted a 'very conservative line of policy' and soaring inflation, which had fallen to 900 per cent last year from nearly three times that in 1992. Russian industry is in deep crisis, with many of the biggest factories sending most workers home or closing for this month.

Mikhail Poltoranin, once one of Mr Yeltsin's closest allies, said the departure of Mr Gaidar and Mr Fyodorov would leave a 'a gaping hole for inflation to gush through'.

Reformers lose control, page 10

View from City Road, page 28

(Photograph omitted)