NEWS ANALYSIS : Russia’s Economics Leaders Back at Crossroads

When a frustrated reformer named Boris G. Fyodorov resigned as finance minister in Boris N. Yeltsin’s first Cabinet two years ago, he made a prophetic prediction.

Yeltsin was then the newly elected reformist president of Russia, and Fyodorov was the co-author of an audacious plan to create a market economy in 500 days. The plan faltered under Communist resistance.

“Our government is permeated with the ideas of populism and a desire to please everybody,” the young economist complained at the time. “This is a shortcut to bankruptcy for Russia and the (Soviet) Union as a whole. The ruin is coming quickly.”

Within a year, the Soviet Union had collapsed, and Yeltsin, who survived as a popular anti-Communist hero, had embraced the free market again. Despite his commitment, the notion of a free, Western-style market has never won the full support of Yeltsin’s government or the Russian people. It stands today as an uncertain ideal.

Fyodorov, 34, was brought full circle into a reshuffled Cabinet Wednesday night to shore up the embattled reform forces against a powerful lineup of conservative critics led by Russia’s new prime minister, Viktor S. Chernomyrdin.

Chernomyrdin, a Communist-era industrial manager elected to the post Dec. 14 by a rebellious Parliament, presided over the new Cabinet’s first meeting Thursday and announced that Fyodorov, who worked most recently at the European Bank for Reconstruction and Development in London, would take charge of “economic reform strategy.”

But economists and politicians here said that the two men, 20 years apart in age, represent divergent beliefs and that the government faces more of the same internal feuding that undermined acting Prime Minister Yegor T. Gaidar, Chernomyrdin’s reformist predecessor.

“We are again at a crossroads,” Gaidar said in an interview published Thursday in the Moscow newspaper Trud. “The course of reforms can change, irrespective of the wishes of a person, under pressure by various forces and circumstances. . . . We might go forward and we might try to turn back. I would say the chances are 50-50.”

In Gaidar’s terms, “forward” versus “back” is shorthand for the basic conflict in Russia today over this vast country’s post-Communist direction and identity.

On one side are the reformers. They believe in a quick, painful march into the world economy through “shock therapy”--tight credit and free prices, leading first to an abrupt shakeout of industry with bankruptcies and unemployment, then to the emergence of a healthy, service-oriented capitalist economy backed by Western aid, advice and investment.

To that end, Gaidar’s team took the reins of the economy last January and tried to carry out some of the radical reforms advocated a year earlier by Fyodorov and the 500-day reformers.

They began freeing prices, auctioned off 2,100 smaller state enterprises and tightened credit to bigger ventures--those notoriously unprofitable Soviet factories that guzzled energy reserves to churn out consumer goods nobody wanted and tanks that never went to war.

On the other side, resisting those measures, is an entrenched military-industrial bureaucracy trying to cling to economic power. Chernomyrdin, who ran the oil and gas industry for the Soviets and for Yeltsin, is the bureaucrats’ ally in the government.

Rather than advocating a return to the Communist command economy, they voice support for “reform,” while rejecting many of its tenets. They oppose market forces if they cause short-term discomfort; they are less inclined to take advice from foreigners or give them access to Russian land or raw materials.

“We are categorically against the ideology that people should be thrown into the market the same way they could be thrown into the water,” says Arkady Volsky, a former Communist Party Politburo member who now speaks for the military-industrial complex. “Those who will be able to survive will do so, thanks to God; others will drown.”

Such arguments find a receptive audience among ordinary Russians, who increasingly blame the reform program for soaring prices, the loss of most of their savings and the rise of black market speculators, loan sharks and petty thieves who bear no resemblance to the new entrepreneurs the government hopes to foster.

Sensitive to popular unease, Yeltsin listened to the industrialists and brought Chernomyrdin into the government as a deputy prime minister last May. The Central Bank then undermined Gaidar’s tight fiscal policy by unleashing $5 billion in credits to struggling industries--a major cause of the current 25%-a-month inflation.

Since his election, Chernomyrdin has alarmed the reformers by winning parliamentary approval for another $480 million in loans to state energy companies.

Warning where this might lead, Gaidar outlined his worse-case scenario in the interview: New subsidies to industries would send inflation out of control, prompting authorities to freeze prices. Goods would vanish from the market, so they would reintroduce centralized state distribution. Then the system would fail, as it did in the Soviet era, so they inevitably would go back to market reforms.

By then, he said, “the situation would be much tougher than it is today.”