Russian reformers say hyperinflation is near

REFORMERS in the Russian government warned yesterday that their country was about to slide over a dangerous threshold from inflation to hyperinflation. But they said they had not lost hope because they had won their argument in cabinet for a tight monetary policy, rather than increased state spending as advocated by the Prime Minister, Viktor Chernomyrdin, when he took office at the end of last year.

The figures were announced by Anatoly Chubais, the minister responsible for privatisation, who told reporters that while December inflation had been 25-27 per cent, the rate for January looked as if it might reach 50 per cent or more. 'Weekly inflation is already as much as 10 per cent,' he said. 'If this continues, we will reach 50 per cent, a critical level. Once we cross that threshold, we will have hyperinflation and capital flight.'

Ordinary Russians struggling to live on an average of 7,000 roubles ( pounds 9) a month already feel they have been hit by hyperinflation as they see prices rising daily. A loaf of bread which cost between one and two roubles just over a year ago is now as much as 30 roubles. Meat once cost two to three roubles a kilo, but now shoppers must pay up to 700 roubles. Yesterday petrol prices rose 50 per cent to 48 roubles a litre, still cheap by world standards but not for Russians.

The government's chief economic strategist, the Deputy Prime Minister, Boris Fyodorov, said, however, that his team was determined to turn the tide using the tight monetary policy which the cabinet approved, not without heated debate, at its meeting yesterday. By the end of the year he said he hoped to have inflation down to five per cent a month, and he also promised to keep the state budget deficit below five per cent of Gross National Product.

Inflation began in Russia last January when Yegor Gaidar, then the prime minister, took the risk of freeing prices after decades of Communist control which had led to a situation where many items cost less in the shops than it cost to produce them. But, aware of the danger of hyperinflation, he also kept a tight rein on state spending. His economic policy seemed to be more or less succeeding until the summer, when he was persuaded to issue credits to ailing industries to prevent mass unemployment.

This was not enough to satisfy conservatives at last December's Congress of People's Deputies. Their angry complaints about the decline of industry and living standards reached such a pitch that President Boris Yeltsin was forced to drop Mr Gaidar and appoint Mr Chernomyrdin, a former Communist apparatchik who seemed inclined to turn the clock back. Mr Chernomyrdin, however, inherited virtually the entire team of young reformers who had been working with Mr Gaidar and, in addition, he found himself dealing with Mr Fyodorov, a liberal just back from working at the European Bank for Reconstruction and Development in London.

There have been some enormous rows as the young ministers have tried to keep the new Prime Minister on the track of reform. For example, just after New Year Mr Chernomyrdin ordered the resumption of price controls, but only days later a statement was issued saying this had been a 'mistake'.

Judging by yesterday's cabinet decisions the reformers have the upper hand at the moment. But whether they can keep it long enough to achieve anything is another matter. The political struggle between liberals and hardliners will not be over at least until Russia votes on a new constitution in a referendum in April.

MINSK - New cracks emerged in the ailing Commonwealth of Independent States yesterday when Ukraine rejected a proposed blueprint for closer integration and other states voiced serious doubts, Reuter reports.

The Ukrainian First Deputy Prime Minister, Mykola Makarevich, said Kiev would refuse to sign a 'CIS statute' at a summit of heads of state tomorrow in the Belarus capital, Minsk.

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