Minister's resignation deals blow to Yeltsin: Finance expert admired by the West for monetarist policies in defence of reforms is victim of cabinet power struggle

BORIS FYODOROV, the strict monetarist regarded in the West as crucial to defending Russia's fledgling reforms from the renewed threat of hyperinflation, announced last night he was leaving the government. As he went, he warned that his country might be about to jeopardise the little economic progress it has achieved with great pain over the last two years.

President Boris Yeltsin approved a new cabinet in which Mr Fyodorov could have remained as finance minister but he would have lost the added authority he had as a deputy prime minister. 'I don't have the inclination to stay in the government even in the capacity of finance minister,' a disappointed Mr Fyodorov told reporters. 'I have reached the limit where we can push for the stability of the rouble or normal market reforms.'

The Prime Minister, Viktor Chernomyrdin, who appears to have won a power struggle with Mr Yeltsin over the formation of the cabinet, held a press conference to assure the world that Russia remained committed to its transition to the free market. 'The government will not retreat from the course of continuing and deepening reform,' he promised. But the new team undoubtedly tilts in a more conservative direction than the outgoing one.

Mr Fyodorov's radical colleague Yegor Gaidar, who resigned on Sunday complaining that his work was being undermined by other ministers who failed to consult him, has been replaced as economics minister by Alexander Sho khin, 42. Like Mr Gaidar and Mr Fyodorov, he is well known in Western financial circles because he has been Russia's chief debt negotiator. But he has made statements calling for protectionism and state support to ailing Russian industry, which have caused experts to fear he may allow the budget deficit to widen again.

Under Mr Gaidar and Mr Fyodorov, Russia managed to bring its inflation down to 12 per cent a month at the end of last year and the rouble stabil ised at a rate of about 1,250 to one US dollar. Tight monetary policies were extremely painful for ordinary Russians but there was a glimmer of hope that their suffering would soon be rewarded by the achievement of a reasonably strong national currency.

Yesterday Mr Chernomyr din, who must now deal with a rouble in free-fall because of the political crisis, said: 'The current government considers the fight against inflation its utmost aim. But in fighting inflation, we will switch from mainly monetarist methods to mostly non-monetarist methods widely tested abroad.' He did not say precisely what these would be.

Mr Fyodorov said in reaction: 'A change of policy which the Prime Minister outlined today includes a promise to fight inflation with 'non-monetary methods'. I do not know what this means, but I am sure it means the end to a policy of financial stabili sation.' The rouble could fall to 12,000 to the dollar by the end of 1994, he predicted, and Russia could become as economically weak as Ukraine.

The rest of the new Russian government comprises slow-track reformers except for Anatoly Chubais, the Privatisation Minister much hated by conservatives, who stays on as a deputy prime minister. Already, he said yesterday, about 50 per cent of state property in Russia had been privatised and he was determined to see the transition through.

When Bill Clinton came to Moscow last week and Mr Yeltsin wanted to convince him of his continuing determination to walk the hard path of reform, he brought out Mr Fyodorov and Mr Gaidar to meet the US President, who was duly impressed by the young economists. Whether the Kremlin leader knew then that he was about to sacrifice them or whether this only became inevitable in the tough talks that have been going on with Mr Chernomyrdin this week remains a mystery.

But certainly, Mr Yeltsin has conceded to Mr Cher nomyrdin, a former oil industry bureaucrat and lukewarm reformer, now in a strong position between the President and the hostile new parliament.

That Russia would slow its reforms has seemed likely since December, when old Communists and a new generation of virulent Russian nationalists did surprisingly well at the polls, riding a popular wave of discontentment with hardship. To placate them, more public money may now be spent on social welfare but if the price of that is hyperin flation, life will not improve for Russian citizens.

The cabinet so far: prime minister, Viktor Chernomyr din; first deputy prime minister, Oleg Soskovets; deputy prime ministers, Anatoly Chubais, Alexander Zaver yukha, Yuri Yarov; economics minister, Alexander Shokhin; privatisation minister, Anatoly Chubais; nationalities minister, Sergei Shakhrai.

(Photograph omitted)