Russians Slow Reforms, Hope West Understands : Economy: The moves seek to cushion ‘shock therapy’ favored by lenders. Unemployment is the great fear.

The Russian government disclosed Friday that it is slowing the pace of what was to have been the country’s forced march to a free-market economy, but expressed hope that Western donors would understand and lend the billions of dollars it needs to ease the transition.

Yegor T. Gaidar, who is the first deputy prime minister and President Boris N. Yeltsin’s chief economic strategist, outlined a reform strategy that puts off some of the toughest measures and cushions the initial “shock therapy” with greater government spending and easier credits for state-owned enterprises.

Gaidar, who had launched the country on its course of radical reform with massive price increases, a tight-money policy and huge budget cuts, told a Cabinet meeting that the reforms need to be phased in over a longer period than first envisioned to avoid further collapse of the economy and suffering of the people.

Alexei V. Ulyukayev, the Cabinet spokesman and a senior government economist, said the policy changes announced by Gaidar included additional funds for state enterprises to prevent mass bankruptcies, postponing the privatization of firms and increasing government welfare spending.

As a result, the government’s projected budget deficit will shoot up to 7% of the gross national product during this quarter of the year, according to Finance Minister Vasily Barchuk, and Gaidar described the rise as necessary but “quite dangerous.”

Even more dangerous, however, in Gaidar’s view, is a dramatic increase in unemployment in a country that has experienced very little joblessness for three generations. The government, consequently, is backing away from the immediate closure with which it threatened many unprofitable state enterprises as a major element of its original economic reforms.

As the government proceeds with its reforms, “employment will be especially hard hit,” Gaidar told the British news magazine The Economist in an interview published Friday. “Social pressures connected with employment will become politically dangerous.”

Gaidar stressed that the Yeltsin government is trying to tread a delicate path between reform and not destroying the country’s economy or hurting its people.

“If we can avoid a long-term recession that weakens part of the economy and instead achieve a structural transformation, that will drastically change the economic outlook,” Gaidar told The Economist.

In a long-awaited measure meant to extend price reforms and encourage oil and gas production, the Cabinet approved higher oil and gas prices--roughly triple what they have been.

But in a compromise that illustrates the scaling back of the reforms, the government stopped far short of raising energy prices to international levels, a measure that Western advisers and Russia’s own economists had argued is necessary for the country’s integration into the world economy and is simply the rational allocation of domestic resources.

Producers can now sell oil for up to 2,200 rubles per metric ton, or $22 at the current exchange rate, Ulyukayev said. That is triple the current domestic price of 720 rubles but only a fraction of the world-market rate of $148 per metric ton.

Economy Minister Andrei Nechayev said the government would retain control over the new limits, but the move would push all prices up about 150% as the increases are passed on to Russia’s beleaguered consumers. Inflation is now estimated at 15% to 20% a month, and overall prices have more than quadrupled since most subsidies were ended in January.

The program laid out by Gaidar at the Cabinet meeting nevertheless differed significantly in the scope and timing of its reforms from the one that Russia had originally given the International Monetary Fund and other Western aid donors, according to Ulyukayev.

The privatization of state-owned enterprises, which had been expected to be the main thrust of the current stage of reforms and which would mark the breakup of the old Soviet economy, has slipped back to “a long-term goal,” and the government instead plans to reorganize and streamline its bureaucracy for overseeing industry.

State enterprises, which were to lose their government subsidies and low-interest credits as part of the price reforms, will continue to draw funds as the government struggles to prevent mass bankruptcies and the further collapse of production. Industrial production declined a further 13% in the first three months of the year, and overall the economy shrank about 14%.

Under Gaidar’s three-phase plan for further reforms, the reorganization of tax collection and of foreign trade slipped into the second half of the year as “medium-term” goals, and a campaign to draw foreign investment, which also had priority status earlier, is now a “long-term goal.”

An expected Cabinet reshuffle was also put off for several weeks as the government gave the appearance of disorganization--the Cabinet meeting itself was twice postponed--after the harsh criticism it endured during the session this month of the Congress of People’s Deputies.

All these changes and delays, Ulyukayev acknowledged, put into question Russia’s prospects for $24 billion in economic assistance promised by the Group of Seven leading industrialized nations.

“Our partners in the International Monetary Fund and other financial institutions do understand the situation that the government is facing,” Ulyukayev added, referring to next week’s semiannual meeting of the IMF in Washington that Gaidar will attend.

“Undoubtedly, however, there will be negotiations with our partners on the terms and timing of granting us the loans that had been promised to us.”

But Gaidar told the Cabinet, which was meeting without Yeltsin, that he believed that Western donors would understand the need for such adjustments, particularly since they came in response to harsh criticism this month of the government’s policies by the Congress of People’s Deputies, the national Parliament.

Michel Camdessus, the IMF’s managing director, had warned Russia on Thursday against weakening its commitment to radical economic reform, saying this could make it tougher to obtain foreign help.

David C. Mulford, the U.S. Treasury’s undersecretary for international affairs, specifically warned against easing monetary policy or increasing the budget deficit, as such policy changes could “complicate negotiations” with the IMF on a prospective loan of $4 billion.

A senior U.S. official in Washington, appraising the policy changes announced Friday, commented, “No doubt this will be disappointing,” but predicted that they would not affect the Western aid package for Russia.

“There is a sufficient amount of politics in all this so that absolute rectitude of economic programs usually proves impossible,” he added.

Times staff writer Karen Tumulty in Washington and Viktor K. Grebenshikov, a reporter in The Times’ Moscow Bureau, contributed to this story.