Yeltsin to Shore Up Weakened Reforms
An opposition-led move to curb inflation sparks a run on Russian banks, popular ire
RUSSIAN President Boris Yeltsin broke off his summer vacation in northwest Russia and returned to Moscow yesterday to quash a series of challenges to his authority from the opposition-dominated parliament.
The Russian leader's problems were compounded by a shock announcement from the Central Bank on Saturday that all pre-1993 bank notes would be removed from circulation by today.
The surprise move, supposedly aimed at stabilizing the currency, sent Russians flooding into stores over the weekend in a desperate attempt to dump their old Soviet-era rubles, muttering angrily against a government that treats its citizens as an afterthought. Even the Saturday evening news program on Russian state television was dominated by bitter reaction, complete with a graphic of a giant pig emerging from the entrance of the Central Bank.
President Yeltsin hurried back to the capital after the parliament passed a series of measures that are aimed at undermining key aspects of the government's economic policies. Last week the parliament, controlled by an alliance of former Communists and extreme Russian nationalists, reversed a Yeltsin decision to speed up privatization of state-run industry and shifted control of the disposal of state property from a reformist-led committee to the conservative government of Prime Minister Viktor Chernomyr din. Deficit spending
The most serious move came at the end of the week with passage of a budget that would create a deficit of 22 trillion rubles (about $22 billion), equal to a quarter of the country's gross national product.
Government officials warn this could again trigger hyperinflation after months of success in bringing inflation levels down. "Everything we have been trying to achieve could be lost as a result of parliament's decision," Deputy Finance Minister Sergei Dubinin told reporters on July 23.
The parliament has thrown additional mud at Yeltsin, ordering a probe into alleged corruption by Deputy Premier Vladimir Shumeiko and demanding the ouster of his interior minister.
These moves are widely understood as an attempt to regain the political initiative from President Yeltsin and to further stall his effort to gain passage of a new draft constitution, one that the government hopes will lead to new parliamentary elections in the fall. The president's press service responded with a July 23 statement, warning against an attempt to "seize power ... fraught with the most dangerous and negative consequences for the young Russian democracy."
Under these circumstances, the timing of the Central Bank's decision to take hundreds of billions of ruble notes out of circulation is even more questionable. The government had already replaced 80 percent of those notes.
For ordinary citizens, the announcement was reminiscent of a 1991 overnight elimination of large-denomination notes by the then-Soviet government in which many citizens lost their savings. This time Russian citizens will have two weeks to exchange 35,000 old rubles (about $35), less than two months average wages, with the rest of their money to be held in special bank accounts for six months. With inflation soaring at 750 percent, citizens are panicked.
"I don't see any justifiable reason except a clear confiscatory purpose to do it like this, all of a sudden, with no warning, in two days," comments Denis Kiselyov, an economist at the World Bank office in Moscow.
"The measure will kill whatever trust there was in the ruble," presidential adviser and parliament member Pyotr Fillipov told the Interfax news agency. Indeed, despite government predictions that this would strengthen the ruble, which had shown signs of stabilizing its value against the dollar, the currency took a sharp nose dive over the weekend.
While the Central Bank is an independent institution, formally under the authority of the parliament, the money reform was backed by and apparently coordinated with the government. The Finance Ministry, under the direction of reformist Boris Fyodorov, appears to share the two key objectives of the Bank - to help curb inflation by taking cash out of circulation and to compel the former Soviet republics that continue to use the ruble to submit to Russian control over their money and finances if they want t o receive new ruble notes.
Out of 14 other former Soviet republics, only five - the three Baltic states, Kyrgyzstan, and Ukraine - have removed the ruble from circulation. Some use only the ruble while others, including Georgia, Moldova, Belarus, and Azerbaijan, circulate rubles in parallel with interim currencies or coupons. The Russian money shift essentially creates what amounts to a new, solely Russian ruble, eliminating the old Soviet notes that circulate in large amounts in those countries. No warning
The governments that still use the ruble received no warning of the Russian change, officials from numerous countries said. Over the weekend, shocked officials in Moldova, Belarus, and Georgia indicated their intention to speed up introduction of national currencies. Russian officials said Uzbekistan and Kazakhstan had agreed to use new Russian rubles. The Armenian government, which said it would continue using old notes, said it feared an inflationary influx of those rubles and criticized the Russians f or violating agreements establishing the ruble zone of former Soviet states.