New Reforms Designed to 'Stabilize'

President Boris Yeltsin offered a compromise to an unresponsive Congress of People's Deputies on Friday, offering to soften the social effects of economic reform through higher spending.


Yeltsin announced he would take "urgent measures to stabilize the living standards of the population", including an increase of the minimum wage, extra aid to military servicemen and higher student grants.


Yeltsin also promised subsidies for private farms and agricultural cooperatives, which are taking the place of the inefficient state farms.


Conservatives in the Congress have attacked Yeltsin in recent months for carrying through market reforms without compensating the population for its effects, including runaway inflation.


"Whatever the conflicts that shook the building of the Russian state were, the economy remains problem No. 1 today", Yeltsin said. "It is in this sphere that the main dangers have accumulated".


The unemployed and students have seen their benefits eaten away by inflation, while the military has faced sharp budget cuts and overcrowded quarters, due to the withdrawal of soldiers from Eastern Europe.


Yeltsin did not say how he would pay for the additional spending, which could raise the government deficit beyond the targets sought by tight monetarists within the government.


World financial institutions, such as the International Monetary Fund, could also be discouraged by the plan because they seek government spending controls before releasing credits to Russia.


Yeltsin's speech to the Congress follows proposals by his top aides Thursday to freeze foreign debt payments, raise interest rates and support the ruble. Several points in the plan, presented Thursday by First Deputy Prime Minister Vladimir Shumeiko and reform strategist Boris Fyodorov to the Cabinet of Ministers, were echoed in Yeltsin's speech Friday.


The package of emergency measures suggested selling 400 billion rubles ($590 million) worth of gold and precious metals to pay for increased government spending.


Fyodorov, who was appointed finance minister Friday, said he wanted to hike the minimum wage to 4, 500 rubles ($6. 50) a month. Viktor Khlystun, Russia's agriculture minister, proposed earmarking 225 billion rubles in 1993 for the development of private farms. Individual farmers are likely to be issued credits on easy terms totaling 300 billion rubles.


The proposal to interrupt debt payments comes as a surprise to international creditors, who had been expecting an agreement on repayments and rescheduling of the debt for 1993 within the next few weeks. Deputy Prime Minister Alexander Shokhin, Russia's chief negotiator with the Paris Club of creditor nations, had said earlier this week that an agreement was near.


Russia owes about $80 billion in debts from the former Soviet Union, mostly to Germany, France, Italy and Japan. Most Western creditors say Russia should pay about $5 billion this year, but Shokhin has said Russia can only pay $3. 5 billion. It was not clear how the proposal to freeze debt payments would be reconciled with the budget adopted Thursday by the parliament, which allocated $2. 6 billion for foreign debt payments.


Fyodorov also said the emergency economic program, which details measures needed in March and April, included a $2-3 billion sum to stabilize the ruble, which fell to 684 rubles to the dollar in recent weeks. The cash would come from existing reserves, a credit from the World Bank and other loans, the ministers proposed.


The ministers also called on the Central Bank to raise interest rates to 8 percent a month and said import subsidies should be cut. The Central Bank's refinancing rate - the rate it charges commercial banks for funds - is currently 100 percent a year.


But even an 8 percent monthly interest rate would be below inflation, which was 25 percent in February compared to January prices. Yeltsin in his speech blamed the Central Bank for the inflation, and Fyodorov earlier this week called for the resignation of Central Bank Chairman Viktor Gerashchenko.