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Subject: Inflation, Hard-liners Pose Challenge to Yeltsin;Crisis Atmosphere Increases
Date: Fri, 30 Oct 92 04:28:31 EST
Message-ID: <28.1992Oct30.042831@AmeriCast.com>

Inflation, Hard-liners Pose Challenge to Yeltsin;Crisis Atmo-
sphere Increases for Government<By Fred Hiatt and Eleanor
Randolph=Washington Post Foreign Service=

MOSCOW, Oct. 29 - Inflation in Russia has accelerated to a rate
of 5 percent a week, or more than 1,300 percent a year, threaten-
ing to turn into hyperinflation that could fatally undermine the
reforms of President Boris Yeltsin, the government said today.

The Center for Economic Reform, acting Prime Minister Yegor
Gaidar's economic think tank, reported that inflation, after
holding steady through the summer, picked up dramatically at the
beginning of September and has been racing since.

Sergei Vasiliev, head of the center, said the chief culprit is
the Central Bank, which operates outside Gaidar's control and in
May began making more money available to unprofitable state-owned
enterprises unhappy with Gaidar's market reforms. The rate of in-
crease in these credits grew from about 30 percent a month in May
to about 60 percent in August.

"It's a very, very dangerous situation, no question," said
Richard Layard, an adviser to the Gaidar government and professor
at the London School of Economics.

Meanwhile, Yeltsin was challenged anew today by the National Sal-
vation Front, a hard-line group that he banned on Wednesday.  Its
leaders called on opponents of Yeltsin to "rise in defense of the
Russian state," and said their fight to remove him and his re-
formers "has only just begun."

The two developments appeared to deepen the incipient crisis af-
flicting Yeltsin's government as it heads toward a potentially
crucial meeting of the Congress of People's Deputies scheduled
for December. The deteriorating economy has given political am-
munition to ultranationalists demanding the resignations of
Gaidar and other reformists in Yeltsin's government.

The dispute between Gaidar's team and the Central Bank, led by
Viktor Gerashchenko, is part of a wide-ranging debate over the
best method to pursue reform. Gaidar has argued that a tight
financial policy, forcing inefficient enterprises to lay off
workers and to start producing goods consumers want or shut down,
is the only way to move from a command economy to a free market.

Gerashchenko's supporters argue that such a policy will result in
mass unemployment, eroding Yeltsin's popular support and destroy-
ing any chance of reform. They argue for a slower transition,
with more state aid to failing factories. But Vasiliev said today
that providing more subsidies would bring hyperinflation, wreck-
ing any chance at reform.

Layard said the inflation situation is not hopeless because much
of the credit granted by the Central Bank is still unloaned and
thus not playing as much of an inflationary role as it might.

But he said that if the Central Bank does not raise interest
rates and tighten its credit policy, consumers could quickly lose
all faith in the ruble. "I think it will be determined entirely
by the credit policy of the Central Bank," he said.

Gerashchenko has said the government's budget deficit is as much
to blame for inflation as his bank policies.  Government offi-
cials, in a cabinet meeting today, acknowledged that the deficit
so far this year amounts to 9 or 10 percent of gross national
product - twice the target set by the International Monetary
Fund.

But Vasiliev and Layard argued that expenses have been kept to a
level consistent with financial stability and that the real prob-
lem is bank credit and money supply.  Alexander Prokhanov, co-
chairman of the National Salvation Front, told a press conference
today that his group will rouse the Russian citizenry to "go to
the factories, the garrisons, the streets to protect the law, the
constitution, your rights."

The front was formed last weekend at a rally of former Communist
hard-liners. In banning it this week, Yeltsin called its mission
to overthrow his government "unconstitutional." A spokesman for
Yeltsin today reaffirmed the president's plan to bar the front
from operating. "A decree is a decree," he said. "It will be car-
ried out."

The confrontation, which has given a sudden surge of media atten-
tion to a relatively small number of Communists, most of them
elderly, is the latest round in a growing conflict between
Yeltsin and anti-reformers, primarily in the Russian parliament
and Congress.

Yeltsin, who won overwhelmingly in free elections last year, is
increasingly at odds with those in the parliament and Congress
who were "elected" under the old Soviet system dominated by the
Communist Party and who increasingly oppose his way of operating.

Most recently, the parliament decided to hold the next session of
Congress beginning Dec. 1, although Yeltsin has said he might
want to postpone it until spring. A number of anti-Yeltsin legis-
lators have suggested the Congress will try to reduce the
president's powers dramatically and roll back most of his re-
forms. But they also fear Yeltsin will try to retaliate.

"We do not rule out that the madmen in the presidential struc-
tures will risk and attempt a government coup," said Ilya Kon-
stantinov, the other co-chairman of the front.

Some of Yeltsin's supporters apparently want him to hold elec-
tions immediately for the parliament and abolish the similarly
minded Congress, but he told the heads of Russian television to-
day that while he might want to delay the opening of the session,
the matter was "not yet decided."

In an interview to be published Friday in the weekly Argumenty i
Fakty, Yeltsin said: "God knows, I have made many steps to accom-
modate the Supreme Soviet (parliament). But (it) has become con-
servative and in most cases it appears useless to expect any
steps from it that are aimed at radical reforms."

In the interview, carried in advance by Russia's Tass news agen-
cy, Yeltsin warned he would "act more harshly" toward those who
plot his overthrow - a clear reference to the National Salvation
Front.

Deputy Premier Alexander Shokin, a Yeltsin supporter, told the
Japanese news agency Kyodo that Yeltsin might call a referendum
allowing the public to decide whether to get rid of the Congress
and dissolve this parliament. Yeltsin's government has drafted a
new constitution that would drop the Congress and that calls for
immediate parliamentary elections, a change the present parlia-
ment vigorously opposes.

Gaidar told legislators today that although the situation in Rus-
sia is "becoming heated," it should not be blown out of propor-
tion.

Meanwhile, Yeltsin today signed an order disbanding the 5,000-
member guard force controlled by parliamentary speaker Ruslan
Khasbulatov.

He acted after members of the militia surrounded Izvestia's news-
paper building in central Moscow this week. The parliament, over
Yeltsin's strong objections, voted recently to take control of
Izvestia's printing facilities to exercise control over the pa-
per. After today's order, protection of Izvestia's building was
again being handled by the Moscow police.

Izvestia, once the organ of the Soviet leadership, declared its
independence from the government after the unsuccessful hard-line
coup in August 1991. Since then it has strongly supported
Yeltsin's reforms and has repeatedly denounced the parliament and
Khasbulatov.<02:22 10-30C9999-----

Copyright 1992, The Washington Post.  This story is from the
Washington Post's Capitol Edition On-Line and is not to be ar-
chived or redistributed.

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