Yeltsin suffers worst defeat: Russia steps back from radical free-market reforms after Gaidar is ousted as prime minister in favour of a conservative

RUSSIA yesterday took a dramatic step back from radical free-market reform, toppling Yegor Gaidar as Prime Minister in favour of a conservative, energy industry bureaucrat who immediately called for policy changes.

Mr Gaidar's departure, announced on the final day of a tumultuous two-week session of the Congress of People's Deputies, is perhaps the most serious defeat of President Yeltsin's career, and has dashed hopes of a rapid transition to the market place.

Mr Yeltsin, who had last week vowed to call a referendum to thwart what he called a 'creeping coup' by conservative legislators, had promised to back Mr Gaidar to the hilt, to the point of dissolving Congress if it blocked him. Yesterday he dropped him with barely a fight.

Victorious are the very forces President Yeltsin had last week vowed to resist at all costs in Congress, a body elected in 1990 under Communism and stacked with opponents of radical change. After struggling to protect Mr Gaidar from a barrage of criticism from Russia's supreme legislature, President Yeltsin yesterday stunned supporters by nominating Viktor Chernomyrdin to take over as head of the government. In his first policy statement, the new Prime Minister said he was for 'a market economy, for reforms, but not for a bazaar'.

Meanwhile in Stockholm, Andrei Kozyrev, the Russian Foreign Minister, shocked delegates to the Conference on Security and Co-operation in Europe by giving a speech which suggested Moscow had returned to Cold War positions, only to retract it, minutes later, saying it was a stunt to show the West why it needed Mr Yeltsin. In Moscow some radical reformers suggested Mr Yeltsin had changed camp. 'I think this is literally a catastrophe,' said Gleb Yakunin, a radical deputy who, like many other reformers, had wanted Mr Yeltsin to stand firm in his defiance of the Congress. 'If the President can make such catastrophic mistakes then such a president cannot be trusted.'

Despite suggestions that Mr Gaidar might carry on as overall steward of economic policy, the 36-year-old economist insisted that he would have no part in Mr Chernomyrdin's team. 'I'll of course resign and will not return,' he said.

Other ministers were also expected to leave, although several said they would wait to see what precise changes were planned. 'The Gaidar team will suffer some major losses,' Vycheslav Kostikov, a presidential spokesman, predicted. But he added: 'The main vectors of economic reform will not be changed.'

Sergei Stankevich, President Yeltsin's political adviser, also moved to calm concern of a possible U-turn in policy: 'The current policy will be changed tangibly, but not radically.'

But Mr Gaidar seemed less sure. Exasperated and exhausted after a fortnight trying in vain to convince Congress to endorse his policies, he said he did not want to interfere with his successor's 'efforts to carry out the policies he deems necessary'.

What those might be is still unknown. But, after chairing his first cabinet meeting yesterday evening, Mr Chernomyrdin made clear he intended a shift in emphasis if not direction: 'I think the reforms should now take a somewhat different tone, move on to another stage. We need to concentrate seriously on production.'

Such comments set a sharply different tone from that of Mr Gaidar, for whom the fostering of small-scale private enterprise was seen as crucial if Russia was to erode habits engrained by seven decades of Communism.

Mr Gaidar last Wednesday fell 54 votes short in an earlier attempt to secure confirmation as Prime Minister. The following day, Mr Yeltsin blasted Congress as a bastion of reactionaries bent on blocking change. By Friday, though, his temper had calmed and he agreed to a compromise aimed at repairing a possibly explosive rift with Congress.

After a weekend of hectic lobbying, President Yeltsin yesterday made Mr Gaidar one of five candidates put before Congress for a preliminary round of voting. Mr Yeltsin had been committed to fielding more than just a single candidate under the terms of a pact worked out on Saturday with the Congress Speaker, Ruslan Khasbulatov.

Mr Gaidar finished a distant third, although President Yeltsin could in theory have either nominated him again or at least kept him on as acting prime minister, a post he has held since spring. Instead, in a move that baffled even his most ardent supporters, he chose to nominate Mr Chernomyrdin, who had finished second in the preliminary round behind Yuri Skokov, the chairman of democratic Russia's equivalent of the Politburo, the Security Council.

'I remain committed to Yegor Timurovich (Gaidar),' Mr Yeltsin announced from the podium, his voice shaking and face set in a scowl. 'He could be the best choice. After we spoke, he did not directly withdraw his candidature but with his consent I suggest another candidate.'

Mr Chernomyrdin then went on to win a resounding endorsement from the Congress, with 721 votes for and only 172 against.