West Worries as Russia Retreats on Economy : Reforms: ‘We are watching it very closely,’ U.S. official says. Billions in credits could be affected.

Russia’s retreat on key portions of its economic reform program is starting to worry Western governments that are preparing to provide it with billions of dollars in additional credits, a top U.S. official acknowledged here Sunday.

David C. Mulford, undersecretary of the Treasury, said the United States and other Western governments are following Russia’s recent retreat from its proclaimed goals of no government budget deficit this year, strict controls on industrial credits and an increase in energy prices to pay production costs.

“We are watching it very closely,” Mulford said, noting that loosening of the tight monetary and fiscal policies Russia adopted late last year could weaken the whole reform effort here. “It is a matter of degree, but certainly to the extent that there is any relaxation of fiscal and monetary policies, that will be seen as negative.”

Mulford’s surprise visit, solely for a lengthy talk Sunday afternoon with Yegor T. Gaidar, Russia’s first deputy prime minister for economic policy, had all the earmarks of an attempt to stiffen the government’s resolve to pursue its monetarist course despite rising criticism here.

Not only are Gaidar and his reforms under broad attack from both radicals and conservatives, but Russia’s very cooperation with international financial organizations has also been sharply criticized.

According to Russian political commentators, Gaidar himself might be sacrificed by President Boris N. Yeltsin if the assault grows. Mulford was assessing the mood in Moscow before a key meeting in Paris on Tuesday of top economics and finance officials from the Group of Seven leading industrial countries to discuss the Russian reforms.

While Mulford praised the government’s reform program as “a very substantial, positive beginning,” he indicated after his meeting with Gaidar that even tougher measures will be required for Russia to satisfy the International Monetary Fund, whose approval in turn would probably lead to extensive Western credits from other organizations and governments.

“The IMF plays a key role in giving the centerpiece estimate, the sense of the international community that the reform is fully developed and in place,” Mulford told journalists.

Russia is expected to win IMF membership in late April, but Mulford said negotiations are still far from complete on the reforms that would bring Moscow the vital credits it needs for restructuring its economy.

“I think that the program that they have introduced now is still not a comprehensive program of the sort that will be put into place when a full (IMF-approved) program is agreed,” he said.

Russia wants the IMF to provide a multibillion-dollar fund to stabilize its currency, the ruble, but Mulford said this is several steps away.

“It is not accurate to say that it is pretty close to being realized,” he said. “Before we are in that position, we have to have finance lined up, a full stabilization program must be in place and you must know what kind of currency is going to function. These are still all unknowns at this point.”

Mulford indicated he hopes Russia will do more to rectify those sectors of the economy that either can earn it essential hard currency abroad--such as the export of crude oil, natural gas and petroleum products--and areas where hard-currency expenditures can be cut, such as agricultural imports.

What first worried Western economists advising the government was the abandonment of the early commitment to a zero-deficit state budget as a way to control inflation; projections by the Russian Finance Ministry put the first-quarter deficit at roughly $840 million, more than that for all of 1991.

Government officials then disclosed that, contrary to original plans, the country’s banks will be allowed to lend about $2.2 billion to Russian enterprises unable to break even once state subsidies are ended; the alternative of widespread bankruptcies and unemployment is politically unacceptable, the officials said.

Gaidar, in a further retreat, has now delayed the freeing of prices for oil, gas and electricity from April 1 until mid-May or June at the request of Russia’s partners in the Commonwealth of Independent States that are not ready to absorb the 80%, across-the-board increase in prices likely to result--on top of an 11-fold jump in consumer prices so far this year.

But in a weekend television interview, Gaidar denied any fundamental retreat. “We are not demoralized, and we are not panicking,” Gaidar said. “The revisions in the program are tactical, not on its principles.”