Don’t Slow Reforms, Russia Warned : Economics: Backing off from market system could jeopardize billions of dollars in aid, Western officials say.

Amid mounting concern that Russian President Boris N. Yeltsin’s government is slowing down its ambitious economic reform program, two leading Western officials pointedly warned Thursday that any backsliding could jeopardize billions of dollars in aid being planned to shore up the crumbling Russian economy.

The warnings came only days before Russian Deputy Prime Minister Yegor T. Gaidar, the architect of Russia’s free-market reform plan, is set to meet in Washington with the Group of Seven leading industrial nations, which are assembling the aid package.

Russia is also expected to be formally accepted into the International Monetary Fund, from which much of the assistance would flow.

The warnings may have been intended to bolster the resolve of Yeltsin’s government amid attacks by conservative opponents in Parliament and the central bank, and public backlash against the hardship of economic shock therapy.

Western officials are particularly concerned with recent reports that the Russian central bank plans to print more money to bail out state-owned enterprises facing insolvency and that the bank is scaling back efforts to eliminate the government’s gaping budget deficit.

Any such moves to relax economic discipline “would have to be regarded, on the face of it, as steps backward. . . . Obviously, this could complicate negotiations” for IMF aid, said David Mulford, U.S. Treasury undersecretary for international affairs and a key participant in the Group of Seven meeting. “This will be one of the issues that will be on the top of the agenda when we have our meeting with Mr. Gaidar.”

Earlier, IMF Director General Michel Camdessus told reporters that he had been reassured by Russian officials that the economic program remains on track but he suggested that he, too, is alarmed by the reports.

“What is essential is to strengthen the stance of adjustment and not dilute it,” Camdessus said.

On Wednesday, Russian officials had said that they expect the IMF to approve a $4-billion assistance program by mid-May, with the funds to begin flowing soon after. They are also anxiously awaiting approval of a $6-billion fund aimed at stabilizing the ruble.

A $24-billion aid package announced weeks ago by President Bush and other Western leaders is conditioned on IMF approval of Russia’s economic reform program.

But the revolutionary restructuring of the Russian economy appears to be running off course in several areas.

When Russia removed controls from 80% of wholesale prices in January, the assumption was that soaring costs would force the weakest and most inefficient state enterprises to shut down.

Instead, most kept producing and now owe each other an estimated 800 billion rubles, or roughly $800 million at the official exchange rate. Rather than allow massive insolvency and unemployment, Moscow plans to pump 220 billion rubles worth of new credit into the economy.

Similarly, Gaidar is reported to be scaling back on plans to eliminate the budget deficit and has been accused of attempting to hide the true size of the shortfall.

And while the government has raised gasoline prices in Moscow fivefold, they still amount to roughly 20 cents a gallon. Inflation fears have postponed further increases.

The government also has failed to meet its goals of selling state-owned enterprises to private owners, implementing land reform and making the ruble convertible into other currencies--some of the most basic moves it must make to build a true market economy.

Last week, Gaidar and several of his top economic aides had promised to unveil the next steps of reform in these areas at a news conference. Instead, they made virtually no mention of the economy and used the media event to celebrate their triumph in a confrontation with conservatives in Parliament.

After that, many had anticipated that Yeltsin would outline additional reform proposals in a speech Tuesday, but he did not.

Even as the West was putting more pressure on Yeltsin’s government, its economic plans were facing a new attack in Moscow.

The Russian State Statistics Committee said that the Cabinet has not followed its fiscal and monetary policies with strong enough efforts to revive production. Reporting that the country’s economy continued to shrink at a rate of 14% during the first quarter of the year, the committee said that the whole web of ties between producers and consumers is falling apart at an undiminished speed.

Industrial production declined a further 13% in the first quarter of the year, according to the new figures. The key energy sector was the hardest hit with sharp drops in the production of coal, oil and natural gas. Food shortages grew significantly with reduced deliveries by farmers of milk and meat.

About 50 million people, a third of the country’s population, have incomes more than 25% below the subsistence level now, according to the committee, as wages have lagged badly behind inflation.

Unemployment jumped 60% in the first quarter, the committee reported.

Freeing of prices from state controls improved supplies of many goods, the committee said, even though it also brought an end or reduction of subsidies for most items.

But the committee said that the government has failed to follow through by increasing competition, ending the monopolies enjoyed by the majority of state enterprises and speeding the sale of state-owned enterprises.

Tumulty reported from Washington and Parks from Moscow.