One Giant Step Backward

By Bruce W. Nelan

Suppose the monthly inflation rate in the U.S. was 20%, the output of the nation's industries had fallen 15% in a year, unemployment was rising across the country and the government was visibly inept. Suppose California and Texas had seceded, foreign communists were advising how to reconstruct the U.S. government, NATO had been disbanded, all U.S. military bases abroad had been closed and batches of the armed forces' most sophisticated weapons were being sold at bargain rates to former enemies.

That is the equivalent of what Russia is going through, and it would spell political backlash -- if not worse -- in any language. When Bill Clinton was in Moscow two weeks ago, Boris Yeltsin assured him that free-market reforms would continue in spite of the December elections that boosted extreme nationalists and old communists into parliament as the dominant opposition. But Air Force One was hardly airborne before the Russian government started stepping back from its pledges.

In another perils-of-Boris power struggle, this time between President Yeltsin and conservative Prime Minister Viktor Chernomyrdin over the makeup of the new Cabinet, Chernomyrdin effectively won. Or at least Yeltsin beat a tactical retreat. The government's famous young reform ministers were mostly dumped or demoted. In their place arrived a group of Soviet-era leftovers, production managers from the old military-industrial complex who favor salary increases and handouts to money-losing state industries. "The period of market romanticism has ended for us," Chernomyrdin crowed. "We must make our people's life easier."

The question all this raises is ominously familiar. Russia embraces reform more in theory than in practice. The nation needs a leader with the skills for the inglorious task of building institutions brick by brick, compromise by compromise. But the latest accumulation of electoral miscalculations and slide to the right makes people wonder whether Yeltsin is that man.

While the President stands aloof, the Prime Minister and his Cabinet claim they will press on with reforms, just more slowly and with "corrections." But their policies are unlikely to make either reform or ordinary Russian lives any easier. Western experts have long insisted that the most painful aspect of Russia's effort to move to a market economy has been its roaring inflation. The main cause of that has been the Russian central bank's penchant for handing out subsidies and loans to bankrupt factories and state farms by printing billions of rubles, speeding the destruction of the national currency. Frantic Russians last week rushed to buy hard currency, driving down the ruble 15%, to almost 2,000 for one dollar, before it rebounded. At the end of 1992, the exchange rate was around 500 to the dollar.

The new Cabinet is expected to increase subsidies to industry and agriculture, arguing that otherwise too many Russians would be thrown out of work. Last week the 10-member Russian Security Council, the main executive decision-making body, approved funding for a nuclear-powered submarine, a heavy-missile transporter and a new generation of Sukhoi fighter planes. The program, the Moscow press reported, "will save many defense factories from extinction."

The Duma, parliament's lower house, celebrated the pain-relieving approach by voting its members a pay increase, free travel on planes and trains, free apartments in Moscow, free telephones and 24-hour limousine service. "Are you crazy?" demanded populist politician Nikolai Travkin, pointing to the government deficit already in the trillions of rubles. The other parliamentarians ignored him.

Though the West can hardly expect to call the shots for Russia's policies, the Cabinet shake-up was still an embarrassing turn of events for Clinton. During his days in Moscow, the U.S. President had praised Yeltsin for his dedication to reform. Last week a pensive Clinton predicted that Yeltsin would survive. "He's a very tough guy," Clinton said. "He's on the right side of history."

The U.S. may hope so, but Yeltsin is increasingly lonely on that side. In spite of Yeltsin's pleas, Deputy Prime Minister Yegor Gaidar, the engineer of the reform train, said he would not remain in a government that was irresponsible enough to spend $500 million it does not have on a new - Parliament Building and to dilute its floundering ruble by bringing Belarus into a currency union with Russia. Gaidar finally walked out, explaining, "I cannot serve in the government and at the same time be in opposition to it." Yeltsin, Gaidar told TIME, "is trying to protect the reform process, but even Yeltsin is not God Almighty."

In fact, Yeltsin and Chernomyrdin, the top men in Russian politics, are beginning to resemble the eagle on the state seal: it has two heads facing in opposite directions. The Prime Minister, a burly former head of the Soviet gas industry who used to wear baggy gray suits, is now garbed in American-style blue suits, white shirts and photogenic red ties. He has assumed the role of spokesman for Russians who protested reform with their antigovernment votes in December, and he is apparently positioning himself for a run in the 1996 presidential election. He and Yeltsin warred repeatedly last week over the new Cabinet, including one six-hour, face-to-face marathon.

Though Yeltsin tried to keep him on, another top free-marketeer, Finance Minister Boris Fyodorov, resigned, saying he would not serve in a government that also retained the free-spending central-bank chief Viktor Gerashchenko. Three other reform ministers lost the rank of Deputy Prime Minister. Only one new economic thinker remained in the Cabinet: Anatoli Chubais, who heads the program that is successfully privatizing small businesses. "I see no tragedy in some people leaving the government," sniffed Chernomyrdin. "It is a natural process."

On the contrary, Fyodorov responded, "this is a turn back." He forecast the government of Chernomyrdin and Gerashchenko would push inflation, now running at about 20% a month, up to 30% by April. "A collapse is inevitable," he said. The daily Izvestia agreed: "The government of reformers has ceased to exist." Two top Western economists, Jeffrey Sachs of Harvard University and Anders Aslund of Sweden, resigned as advisers to the government.

No matter how much Western analysts support Russian economic changes, they have to admit the reformers have not proved themselves as politicians. Yeltsin chose to play the good czar in the December elections, remaining above politics. His lack of leadership allowed the reform forces to fragment and be swamped by such simplistic nationalists as Vladimir Zhirinovsky. Since the election Yeltsin has remained mostly out of sight, and when he appears in public, he seems stiff and slow moving.

As for Gaidar, though he may still hope to run for President someday, "he doesn't have the political skills to bring people around to a position they otherwise wouldn't take," says Blair Ruble, director of the Kennan Institute of Advanced Russian Studies in Washington. Just who, Ruble asks, is really out there selling reform to the Russian public? He sees no one doing the job. "They've got to cajole, to bring people into the tent."

No one, naturally, said the course of Russian political and economic transformation would run unhindered to success. The experts unanimously predicted ups and downs, and they are still doing so. "I don't think all is lost -- far from it," says a U.S. official in Washington. "There are going to be periods of advance and retreat." The long-term prospects for reform, says former CIA director Robert Gates, "remain pretty much as they have been: iffy."

Washington officials are not giving up on Yeltsin and point out that he has "plenty of clout" with the powers he gained under the new constitution. At the same time, as a democrat he must pay attention to his voters' wishes. In his conversations with Yeltsin two weeks ago, Clinton advised the Russian President to roll up his sleeves and begin wheeling and dealing with the parliament, putting together majorities piece by piece, issue by issue. But Yeltsin is not a consensus-building politician, and that would require him to change his above-the-fray style totally.

Yeltsin's message in return was that his opponents, including Zhirinovsky, would soon worsen Russia's situation and discredit themselves, allowing reform to bounce back. That is precisely what many in the West are hoping for, though they know economic chaos can give renewed life to reactionaries just as readily as to reformers.

With reporting by Sally B. Donnelly/ Moscow and J.F.O. McAllister/Washington