A change of heart in Moscow: Yeltsin has abandoned his Prime Minister, but what of his reforms? It is a question our leaders cannot ignore, writes Marshall I Goldman

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The Independent Online
As much as President-elect Bill Clinton may want to focus on America's domestic economy, the events in the world around him may not allow him that luxury. For example, just as Mr Clinton's economic conference was about to begin in Little Rock, Arkansas, President Boris Yeltsin decided to abandon his acting Prime Minister, Yegor Gaidar, and nominate Viktor Chernomyrdin in his stead. For outsiders, this certainly seems like a sharp change in policy for Mr Yeltsin.

After months of fierce battling in support of Mr Gaidar, why did Mr Yeltsin suddenly abandon him? Under the terms of an agreement with the Congress of People's Deputies reached late last week, he could have reappointed Mr Gaidar as the temporary Prime Minister, at least until April. Given that he had been so outspoken and supportive of his Prime Minister in the reform process, that certainly seemed to be what he would do. At one point last week, Mr Yeltsin angrily accused his opponents in the Congress of launching a 'creeping coup' against him and his policies - an attempt to achieve what last year's August coup failed to do.

Admittedly, Mr Yeltsin realised that the reforms were not going well and that the economy was in a serious condition, with the gross domestic product dropping 20 per cent or more and prices rising 2,000 per cent or more a year. He had also been under tremendous pressure from the military-industrial complex, led by Arkady Volsky. They wanted to curb the reform process. Specifically, they sought increased subsidies for their factories, to prevent them from going bankrupt, and they wanted a halt to any privatisation process that would reduce their control or allow meaningful ownership by outsiders.

By appointing Mr Chernomyrdin, Mr Yeltsin seems to have surrendered to Mr Volsky and his pressure. Given his record, Mr Chernomyrdin seems like a throwback to the old school of party control and central planning. He worked as a bureaucrat in the Communist Party apparatus for many years before he was appointed Minister of Gas in February 1985. That predates Mikhail Gorbachev's appointment as General Secretary by one month and the beginning of the Perestroika process. In late May of this year, he was promoted to Minister of Energy, replacing Vladimir Lopukhin, one Mr Gaidar's original appointees. Mr Lopukhin had been a strong supporter of raising domestic oil prices to world levels and privatising and rationalising the oil industry in particular. His dismissal and replacement by Mr Chernomyrdin was the first sign that the Gaidar reforms were in trouble.

Mr Chernomyrdin has been associated with other anti-reform measures as well. After widely seeking Western bids for development of a major gas deposit in the Barents Sea, the Russian government decided to overturn a 1989 preliminary commitment to assign the concession to a team from Conoco, along with some Finnish and Norwegian firms. The contract agreement was then reassigned to Rosshelf, a group of 19 Russian companies, primarily producers of military equipment, including nuclear submarines. This seems to be a very pointed concession to the military-industrial complex and Mr Volsky's supporters. It also reflects growing pressure from nationalists who resent the Gaidar government's willingness to open such opportunities to foreign investors.

Of great concern to those of us in the West is what all of this implies for the reform process. Mr Chernomyrdin insists that he supports the reform process, but not at the expense of the country's industrial production. That is code language for restoring subsidies to state industries, most of which are industrial dinosaurs. As a minimum, it suggests that Mr Chernomyrdin will curb some of Mr Gaidar's reforms. If Mr Chernomyrdin increases the subsidies to state enterprises, and halts the privatisation process as Mr Volsky has requested, this will mean larger government subsidies, bigger budget deficits, more printing of money and higher inflation. If that happens, it will violate the terms agreed with the International Monetary Fund, which will then find itself hard pressed to provide the loan support it had promised. Without that support, the Russian economy will face even more difficult times. That, in turn, will put even more pressure on the West to provide economic support, particularly if food shortages should lead to hunger and rioting. Ironically, we may find it necessary to be more forthcoming to a non-reform government than we were to the Gaidar reformers.

There are also likely to be diplomatic consequences for the West. Mr Yeltsin's Foreign Minister, Andrei Kozyrev, has been especially vilified by the hardliners. He has been criticised for being too eager to please the West, and the United States in particular. Among his shortcomings is his failure to stand up for the Serbs (fellow Slavs) in the former Yugoslavia. As it is, Mr Kozyrev already finds himself trapped between the United States, which is calling for compliance with arms control agreements, and the Russian military, which feels too many concessions have already been made. Last week the minister in charge of what used to be the KGB launched an attack on the West for what he saw as an unrelenting effort to gather intelligence and weaken Russia. It was a scene out of the Cold War. Moreover, that was before Mr Yeltsin had decided to abandon Mr Gaidar. It is hard to see how Mr Kozyrev or most of the other reform ministers can retain their positions in the post-Gaidar era.

As if there were not enough to worry about, both in terms of the fate of the economic and political reforms, there is also the chance that Mr Yeltsin's enemies will not be satisfied with Mr Gaidar's scalp. Many of them, especially members of the former Communist apparatus, have always resented Mr Yeltsin's muckraking ways and have vowed to humiliate him. They may now sense a growing weakness in his armour and move more vigorously to force his resignation.

It may be that Viktor Chernomyrdin's appointment will prove to be less of a retreat than the immediate events would indicate. For Bill Clinton, however, and for all Western leaders, Yegor Gaidar's defeat is a development they cannot ignore.

The author is associate director of the Russian Research Center, Harvard University.

(Photograph omitted)

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