Kremlin Downplays Chechen Fight’s Effect on Economy : Russia: Rare special statement insists reform plans are unchanged. Pledge comes as fate of $6-billion international loan remains undecided.

Smarting from Western censure of the war in breakaway Chechnya, the Kremlin issued a rare special statement Tuesday meant to assuage worries that the conflict could scuttle the Russian budget and hurt economic reforms.

President Boris N. Yeltsin and his Cabinet “confirm the unchanged nature of the Russian leadership’s policy of conducting economic reforms,” the statement said. “There will be no revision of this policy in connection with the events in Chechnya.”

The Kremlin pledge came after an inconclusive visit by International Monetary Fund officials that left the fate of a desperately needed $6-billion loan up in the air. It also followed a weekend meeting in Toronto of the world’s richest industrial powers, the Group of Seven, at which some leaders worried openly about the implications of the Chechen conflict.

“The Big Seven voiced concern that the actions of Russian troops in Chechnya may harm Moscow’s efforts to stabilize the economy,” the Kremlin statement said.

The Defense Ministry, meanwhile, was doing its best to create the impression that the Russian troops’ actions will soon end.

A ministry spokesman told the Interfax news agency Tuesday that a panel has already been set up to plan the withdrawal of Russian army troops, believed to number well over 40,000, from Chechnya. The secessionist region of about 1 million people in the Caucasus Mountains has seen nearly two full months of fierce fighting since Russian troops moved in Dec. 11.

“The army has routed the main bandit formations, destroyed a large number of heavy artillery guns and other hardware, encircled Grozny and seized strategic objects in the Chechen capital,” the spokesman told Interfax.

Defense Ministry descriptions of the Chechen battlefield have tended to err greatly in the Russians’ favor, but the latest reports did indicate that Chechen fighters have lost further ground in Grozny, the capital.

Russian reports said the Chechens have retreated from Minutka Square, where they based many of their operations after losing their headquarters in the presidential palace. But the Chechens still appeared to control parts of Grozny, and the Reuters news agency reported continued shelling near the square as well as sightings of truckloads of Chechen fighters moving into the city.

Given the heavy fighting still under way, Russia’s plan to begin withdrawing soldiers appeared premature, despite Defense Minister Pavel S. Grachev’s declaration Monday that the troops have “fully fulfilled the task” given them.

However, the regular army troops are expected to be largely replaced by Interior Ministry forces, which specialize more in police functions and could cope better with mopping-up duties. Interior Ministry soldiers stationed near Grozny say they have been told that they should expect to be there several more months.

Even if the fighting in Chechnya dies down, the damage will have been colossal. A Russian lawmaker and human rights activist, Yuri Rybakov, told Interfax that he had lists of 25,000 civilians killed during the conflict.

The latest casualty figures for Russian troops were also issued Tuesday: at least 907 killed and more than 3,400 wounded, Interfax reported.

On the financial front, Russian Deputy Finance Minister Andrei Vavilov denied that talks with the International Monetary Fund have broken down. He said the $6-billion loan deal needs only a few “final touches.”

Still, serious doubts have been raised about the loan, including whether international lending agencies are willing to be seen as financing the war in Chechnya and whether Russia’s budget, already thrown out of kilter by soaring inflation and added war spending, will satisfy lenders’ requirements for a tough fiscal policy.

Some estimates put the cost of the war at $30 million a day, with an expected total of about $1.5 billion, plus $3 billion or more to rebuild Grozny and resettle refugees.

The Russian government’s budget for 1995 had called for $60 billion in spending with a deficit of $19 billion, or 7.7% of the gross national product. War spending could push the deficit to about 10%, a level unacceptable to the IMF.

On the other hand, a Western financial expert said, if the IMF turns down the $6-billion loan, Russia will simply be unable to manage.

“It would be disastrous,” said the expert, who asked to remain anonymous. “They cannot make it when you look at the figures. It’s like a company facing bankruptcy--they just don’t make it.”

Russian Finance Ministry officials and IMF counterparts will meet again in two weeks to discuss the loan, Vavilov told Interfax. The Kremlin statement issued Tuesday appeared to be solidifying the groundwork for the next meeting.

“The main task of economic policy in 1995 was and remains the attainment of financial stabilization on the basis of pursuing a tough budget and credit and monetary policy,” the statement maintained.