Prices Stabilizing, Russians Report : Economy: After a rocky first month, Yeltsin’s plan to reform market is beginning to work, officials say.

Amid growing criticism of President Boris N. Yeltsin’s economic policies, a top Russian official defended the month-old reforms Monday, insisting that they have been successful and that prices are stabilizing.

“I think we’ve had reasonable success,” Yegor T. Gaidar, the deputy prime minister responsible for the economy, told reporters. “The amount of supply in the shops is increasing throughout the country.”

First Deputy Prime Minister Gennady E. Burbulis said the dramatic surge in prices after Yeltsin lifted price controls and subsidies a month ago has now stopped. After increasing as much as 10 to 25 times last month, prices across Russia have now stabilized and are dropping in one-third of the country’s vast territory, Burbulis told Russian Television late Sunday night.

“We thought the picture would be more complex and motley, but it is now assuming a certain character of stabilization,” he said. “We shall achieve a decline in prices in the coming days and weeks of February.”

Gaidar, who had earlier predicted that hyper-inflation would continue for three to four months, concurred with Burbulis’ forecast.

“After the first sharp increase, prices have stabilized on a number of products,” he said at a news conference Monday. “Of course, we are not deceiving ourselves by saying that inflation is behind us and all the prices will decrease--that would be wishful thinking--but there are no signs that in the following month we will be threatened by hyper-inflation.”

The relative optimism of the Russian officials was diluted, however, by their admission that the reforms have not yet stimulated production, which dropped 15% in 1991.

Gaidar said production is likely to be about 20% lower in the first quarter of 1992 than in the same period last year, largely because of the sagging demand for military hardware and other investment-heavy projects. He also predicted that the production of oil, one of the country’s main hard currency earners, will drop another 10% this year. Oil production has already slumped dramatically from the peak in 1988 because of shortages of materials and outdated machinery.

“We are deeply convinced that the drop in production, following the increase of prices . . . is quite natural,” Gaidar said.

While Yeltsin’s men defended his policies, the leadership of the Russian legislature passed a resolution on the “improvement of pricing policies” that decreases the value-added tax on flour, pasta products, cereals, milk and cooking oil to 15%, news agencies reported. The ruling also exempts state-owned catering facilities from value-added tax.

An across-the-board value-added tax had been set at 28% as part of economic reforms designed by Gaidar. The value-added tax has been one of the most fiercely criticized reform plans.

Gaidar said the legislature’s resolution is a “non-destructive compromise,” which was reached after long negotiations.

Two conservative newspapers heaped criticism on the Yeltsin-Gaidar reforms.

Pravda, the Communist newspaper, reported on a meeting Saturday of several of the country’s leading pro-market economists, who found fault with the program. The economists agreed that changes are necessary to protect the populace from poverty.

“It is necessary to make urgent corrections in the government’s program, which has one major drawback--a low level of social programs to help the population,” they decided, according to Pravda.

The newspaper Rossiiskaya Gazeta wrote: “The fall in production is taking on frightening proportions.”

The paper said light industry production fell by 15% to 30% in the first 19 days of January, while deliveries of meat, cereals and milk fell by a third.

Gaidar, in his news conference, stressed that Russians will continue to suffer economic hardships as Yeltsin’s government forces the country through the drastic change from a centrally planned socialist economy to an economic system based on the market forces of supply and demand.

“It would be too optimistic to say that the most difficult period of reforms is behind us,” he said. “Unfortunately, the transition from a command economy to a market one is such that the first two years are difficult. . . .

“The most unpleasant and painful shock, which is related to the sharp increase of prices, is already behind. If the government is not weak and does not make uncorrectable mistakes, the highest rate of inflation is behind us, but this does not mean that the problems are behind us because we face structural difficulties in restructuring the economy.”

Gaidar said sudden poverty for Russians, many of whom suddenly cannot afford ordinary consumer goods, was unavoidable because the relative wealth that they enjoyed until recently was phony.

“At the end of last year we were a poor society of rich people,” he said. “There is no such thing. . . . This was illusional wealth.”

The only reason people seemed well off before was that prices were being kept artificially low and the government kept printing money and increasing salaries, so average wage earners could afford most goods. The only way to pump life into the economy, however, was to destroy that artificial situation, and that is what Yeltsin did by ending price controls and canceling subsidies.

“Now in January, we became a poor society of poor people,” he said.