RUSSIA RAISES NEW REFORM QUESTIONS

Something constructive may yet emerge from Russia's self-induced setback to economic reform. While bureaucrats try to appease old Communists, the people who will, if permitted, make the economy work might profitably use the interregnum to get to know one another better. Those people are, of course, Russian industrialists and the foreign oil and other companies eager to begin business in the huge federation.

Jan. 26, 1993

3 min read

Last month, the Congress of People's Deputies succeeded in ousting reformist Prime Minister Yegor Gaidar. His replacement, Viktor Chernomyrdin, this month provided a sample of things to come. He limited profit margins on sales of food and other basic goods not produced by designated monopolies, which have remained under government control all along. Privatization, he said, will continue, although some measure of continued state control seems likely.

SETBACK TO REFORM

While reform remains the objective, this is bad news. just before Chernomyrdin became prime minister, President Boris Yeltsin proposed an oil industry privatization plan that moved too slowly. It now appears that the federation's crude oil production average for 1992 was only 7.7 million b/d-16% below its 1991 level. Most of Russia's hard currency earnings must come from exports dependent upon this diminishing flow of oil. The new prime minister could best help the economy by expediting oil industry recovery, starting with speedy privatization.

Instead, he is busy prescribing the wrong medicine for inflation. Like all central planners, Chernomyrdin blames Russian businesses for skyrocketing prices-and misses the point. There are simply too many rubles pursuing too few goods because the Russian economy remains so unproductive. Profit and price controls, like all such poisons from the past, will just make matters worse.

Of course, if Chernomyrdin hadn't resurrected some old prescriptions, die-hard Communists might have usurped even more political gains from popular discomfort. Russian reform was destined to be difficult. So foreign oil companies have another political storm to ride out as they try to make sense of the federation's mercurial taxes and fees and negotiate with people still perplexed by the fundamentals of commerce.

Meanwhile, they should listen to George A. Helland, deputy assistant secretary for export assistance in the Bush administration's Department of Energy, on the subject of Russian attitudes. Reporting on a visit by Commerce Department officials to Russia, Helland writes: "It appears that the Russians are growing tired of conferences and visits by western businessmen to 'kick the area' without setting up many joint ventures." This was one of several messages that Helland says the delegation "repeatedly heard" during a tour of projects to turn defense facilities into factories.

BAD EXPERIENCES

"Several Russians voiced frustrations at not knowing which Westerners to trust," Helland goes on. "Some had bad experiences with unethical businessmen over the past few years who had not delivered what they promised." Russians further told the Commerce delegation that they are trying, in a short time, to learn about western accounting, business planning, and marketing. They also said they want goods made in the U.S. "Most managers favored doing business with Americans," Helland says. "However, many Russians voiced frustrations at the slow rate at which American companies were investing in their country."

Russian business managers, it seems, are losing patience. Maybe they have something in common with their foreign counterparts, after all.