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Yeltsin to increase state role in economy

By Alan Philps, The Daily Telegraph, 25 September 1997

PRESIDENT Yeltsin has laid out a new course designed to rein in the free-wheeling "robber capitalism" of the past five years and replace it with a state-guided economy.

The free market, launched in 1992, had served its purpose in destroying the old Communist system, the president said yesterday. Now it was time to increase the role of the state to ensure a fairer division of the spoils.

"A return to the old ways is already an impossibility," Mr Yeltsin, 66, said in a speech to the upper house of the Russian parliament. "Even our opponents recognise the need for reform."

Mr Yeltsin's triumphant tone was sharply at odds with his re-election campaign last year, when he played on people's fears of a "red tide" bringing back empty shelves and the Gulag for dissidents.

The president has now set his sights on a new threat - the handful of over-mighty businessmen and bankers, who have grown super-rich while most people are in dire poverty, and aspire to dictate terms to the Kremlin. "Freedom alone is not enough," he said. "We need a new economic order. We need to increase the role of the state in the economy."

Mindful of Western investors, on whom the government is counting to provide billions of dollars for Russia, he vowed there would be no return to Communist planning, just a "considered economic strategy".

His words were a clear retreat from the full-blooded Thatcherism of the first wave of reform in favour of a German-style model, where the state plays a strategic role, ensuring that banks invest in "patriotic" causes.

The speech marks Mr Yeltsin's response to the "bankers' war" which has been raging since the summer, with some of the leading oligarchs demanding that the government must hand over prize state assets, such as oil companies, at prices set by the banks.

Mr Yeltsin owed his re-election to millions of pounds of support from the so-called "seven bankers", and the oligarchs have been demanding to call in their favour from the Kremlin.

Mr Yeltsin made clear that the rules had changed. "The state will not put up with any attempt at pressure from business and banks. They ought to serve society and act for the good of the Russian people," he said.

The role of big capital has been hotly debated in Moscow, with some analysts claiming that Russia was on the way to becoming a banana republic, where a few big commercial interests controlled all the levers of power.

As part of his new economic order, Mr Yeltsin appears to be trying to rein in the criminals who have spirited fortunes - perhaps hundreds of billions of dollars - abroad. He said he was considering an amnesty, allowing the money to be brought back to Russia, with a fine of 10-15 per cent to the state.

Mr Yeltsin promised to weed out corruption, pinpointing the influence of criminals on venal officials. Mr Yeltsin's frequent anti-corruption drives, however, carry little weight. As long as police and government officials are paid a pittance, there seems little chance of an efficient administration and crime-fighting system.

In Hong Kong for the International Monetary Fund meeting, the government's reform chief, Anatoly Chubais, first deputy Prime Minister, sought to calm fears that the new statist approach would mean an end to privatisation.

Russia would not go back to the "stupidities" of the Soviet economy, dictating prices or increasing its stake in the economy. "In sectors where the state should be, and where the state is now, it will be much stronger than before," he said.