From: Fred Weir in Moscow Date: Sat, 05 Dec 1998 For the Hindustan Times MOSCOW (HT) -- The Russian government will not abandon market economics but intends to make sweeping policy changes to escape the disaster left by years of misguided reforms, Prime Minister Yevgeny Primakov said at the weekend. "Unsuccessful reforms have given birth to economy of distrust in Russia," Mr. Primakov told the World Economic Forum, which wrapped up in Moscow Saturday. "The toughest consequence of the crisis and the most serious lesson we must draw does not concern the fall in production or decline in the rouble exchange rate, but a total credibility gap, a crisis of confidence," he said. In a biting assessment of the country's worst post-Soviet crisis, Mr. Primakov told the assembly of 200 global corporate and banking leaders that Russia's economic potential has been drained by massive capital flight, its banking system is in ruins, the government is almost incapable of effective action and the people are running out of patience. Mr. Primakov put the blame on his predecessors, who built a huge pyramid of government debt, encouraged the growth of a parasitical banking sector and fumbled the task of revitalizing Russian industry. In August the entire house of cards came tumbling down, after the government was forced to default on its domestic debts and stop defending the national currency. The rouble plummeted to about a third of its pre-crisis value, and in recent days has been sliding dramatically again. Foreign investment has fled Russia, and even the International Monetary Fund suspended payments on a $22-billion bailout package after the August crisis broke. The IMF's chief, Michel Camdessus, concluded talks in Moscow last week with no indication of when, or whether, aid might be resumed. "There is no and there will be no isolation of Russia from international financial organisations," Mr. Primakov said. "We are interested in close ties with them. But the real market strategy in future must be Russian, based mostly on Russian resources." In the absence of foreign investment and credit, Russia's options are cruelly limited. The country must drastically slash its reliance on imported goods and find ways to protect and promote domestic manufacturing, he said. One idea is to declare an amnesty on Russian capital that fled abroad during the post-Soviet era -- which Mr. Primakov put at $15-billion per year -- in order to draw it back into the domestic economy. "This is a paradoxical situation where Russia, which does not have means for development of its own economy, finances development of other countries," he said. Another proposal would be to allow foreign banks to open retail branches in Russia, which is currently against the law. Russians have an estimated $40-billion kept in their mattresses, thanks to their extreme lack of faith in national banks. That skepticism proved justified, Mr. Primakov said, when most domestic banks failed in August, vapourizing the savings of millions of depositors. "The Russian banking system proved weak and artificial, able only to feed on the state budget," he said. Russian citizens, whose living standards collapsed with the rouble, urgently need to be given fresh hope, Mr. Primakov said. "Mistrust of reforms has spread far enough," he said. "The only way is to consolidate social accord." Mr. Primakov's warning was echoed at the weekend by another top Kremlin official, presidential aide Oleg Sysuyev, who urged Western countries to step in with major new loans to Moscow or risk social collapse this winter. "We must think of new credits to fulfill our government's major obligation, that of covering its social expenses, to bar a social explosion," Mr. Sysuyev said.