Russia Cancels Controversial Profit Limits : Economy: Reversal of new prime minister’s decree is victory for free-market reformers.

In a victory for free-market reformers, the Russian government did an about-face Monday and lifted controversial new profit limits on products from food to tires.

The profit-limiting decree, the first major policy move by new Prime Minister Viktor S. Chernomyrdin, had been interpreted as a sign that he planned to try to administer the economy by fiat in the old Communist style rather than by working with market forces.

But Boris G. Fyodorov, the Russian vice prime minister in charge of economics, told reporters that Chernomyrdin had signed the decree only because of a “bureaucratic slip-up” and announced that the government will set no new ceilings on prices and profits except in monopolized industries. Rather than resorting to “non-economic, administrative levers,” he said, the government will fight ravaging inflation by cutting the budget deficit and trying to control the money supply.

“The prime minister said from the outset that the government is not changing its course,” Fyodorov said. “We have a government program, and we are going to continue it.”

The Russian reform program, begun under former Prime Minister Yegor T. Gaidar in the fall of 1991, aimed to shift the country from centralized government planning to a market-driven economy by freeing prices and selling off state-owned property. Gaidar also struggled unsuccessfully to balance the budget.

The plan made giant strides, but it also unleashed inflation estimated at 2,500% a year in 1992 and left most Russians poorer than ever. Angry lawmakers dumped Gaidar last month and replaced him with Chernomyrdin, a longtime power in the gas and oil industries.

Fyodorov, who replaced Gaidar as the government’s leading economic theorist, said that the Gaidar team had talked tough but that it had, in fact, started waffling on its promises of tight budget restraints months ago. This year, he said, recalcitrant factory directors and lawmakers will learn what a tough government really is.

The Gaidar government had predicted there would be bankruptcies and high unemployment as it withdrew government subsidies and let factories sink or swim on their own. But it ultimately backed down under severe pressure from industry.

Fyodorov said that, beginning soon, the government will subsidize factories much more selectively, giving money only to those that show they are trying hard to turn a profit.

Fyodorov said that hopeless factories will be allowed to go bankrupt--not that they will necessarily close down, but they will at least have to reorganize.

Russian commentators praised Chernomyrdin’s willingness to reverse the decree on profit limits as proof that he is flexible and willing to listen to the savvy young economists bequeathed him by Gaidar. Fyodorov said he does not think the sudden swing left Chernomyrdin’s image tarnished.

Fyodorov said that any attempt to clamp on new price controls was doomed anyway. “The economy is already different,” he said. “Whether we want it or not, we live in a market. It could be uncomfortable, distorted, unpleasant. But it’s a market. And in these conditions, no one could fulfill such a decree.”