West Likes Reshuffle

As political tensions between Russia and the West build over the question of NATO expansion, Western observers are taking heart from more positive economic developments likely to see progress at this week's presidential summit.


U.S. officials hailed the latest appointments to the Russian government, and a new World Bank report predicts Russia could achieve 6 percent growth in the medium term if structural reforms prove fruitful.


Analysts caution that this week's Cabinet reshuffle alone is no panacea, with many positions yet to be filled. But diplomats and economists voice a growing sentiment that Russia is finally poised to turn the corner on reforms.


"Here you have for the very first time the new senior economic leadership of the Russian Federation, all of whom are committed reformers, and of course, led by the greatest reformer of all -- Yeltsin," said U.S. State Department spokesman Nicholas Burns.


President Boris Yeltsin has installed Anatoly Chubais and Boris Nemtsov as first deputy premiers behind Prime Minister Viktor Chernomyrdin, along with a host of other young deputy prime ministers. Alfred Kokh, head of the State Property Committee since last summer, will take over all functions responsible for budget revenue, including oversight of the State Tax Service.


"We think it's a very positive sign. It's a vigorous group. It's a young group. And we're very anxious to work with that group," Burns was quoted by Reuters as saying in Washington.


More appointments are still to come, with Western observers pointing to such figures as Deputy Economics Minister Sergei Vasilyev and Kremlin aides Alexei Kudrin and Maxim Boiko.


Consolidations also have been undertaken, as with the ministries of Industry and Defense Industry, which have been folded into the Economics Ministry. One Western economist, however, said proof of reform will lie in whether these ministerial functions are truly reformed. Either way, "it's clearly not as far as they should have gone," he said.


The World Bank, which has approved $6.4 billion in loans to Russia, said in a report released Tuesday that Russia is likely to record zero growth this year but would move into positive territory in 1998. Over the medium term, growth could reach 6 percent a year, it said.


The bank's assessment is more guarded than an official Russian forecast of 2 percent growth this year. Some economists said Western skepticism exists because, although reforms will be beneficial in the long run, there is a short-term price.


"Paradoxically, concerted efforts toward implementing difficult structural reforms could subdue the prospect for a strong recovery this year," the investment bank Renaissance Capital noted in a research report Wednesday.


The World Bank report pushed a broad menu of reforms needed to stimulate investment and growth, including changes to the tax code, pension reform, housing subsidies, regulation of natural monopolies and privatization.


"Russia is slowly emerging from deep recession and can now look forward to economic growth," a World Bank statement said. "However, significant reforms are still needed before Russia's new direction can be assured."


Foreign analysts have long offered similar optimism and prescriptions. If this time is to be different, it is because there are no elections on the horizon and because Yeltsin has thrown his political weight behind changes in the cabinet, analysts said.


The reform process could get a boost from this week's summit in Helsinki. (See story, Page 15.) Although economic issues will play second fiddle to NATO expansion, Russian membership to international bodies such as the World Trade Organization will be on the agenda, and the Americans will press for tax, legal and accounting measures that would encourage more foreign investment.


"What you're going to see is the Americans asking for structural reform, particularly on the tax front, and the Russians asking for increased access to Western markets," said Peter Charow, executive director of the American Chamber of Commerce in Russia.