Print more roubles and to hell with the markets Presses roll as Russia spurns IMF medicine

Moscow is ignoring advice from the West and cranking up its currency presses, writes Phil Reeves
Click to follow
The Independent Online
THE WEST'S policy of keeping Russia from abandoning the path to a market economy, by urging it to stick to tight monetarist rules, is finally in ashes this weekend.

Moscow has made clear that it plans to print roubles, ignoring the stance of the International Monetary Fund and the advice of Western leaders. Two senior Russian officials - Viktor Chernomyrdin, the acting premier, and Boris Fyodorov, head of the tax service - say the currency presses will be allowed to roll, at least for a while. Talk of protectionism abounds.

Although the country is under a temporary government, such an approach has the blessing of the Kremlin. And none of the other possible candidates for premier - should Mr Chernomyrdin be rejected by parliament or withdraw - is any more pro-market. Never has the West's dream of turning post-Soviet Russia into an internationally integrated market economy, the "painful" holy grail outlined yet again by Bill Clinton during his two-day summit to Moscow last week, seemed so remote.

The favourite as a replacement candidate for premier, Yuri Luzhkov, the 62-year-old mayor of Moscow, yesterday spelt out his economic philosophy in blunt terms that will deepen the chill now running up spines in Washington.

Speaking at a Soviet-style ceremony to celebrate Moscow Day, he pressed the case for protecting domestic producers: "Why should we be commanded by Western economists and countries which want to face no competition on the Russian market after suppressing Russian producers and making Russia just a supplier of natural resources?"

The Communists, the largest parliamentary party, still oppose Mr Chernomyrdin, despite renewed efforts to woo them with a power-sharing agreement. The acting premier's confirmation goes to a second vote in the lower house, or State Duma, tomorrow. If it rejects him three times, parliament will either be dissolved or there will be a constitutional crisis, with a stand- off against the Kremlin.

Opposition forces were pressing for an alternative candidate yesterday. They proffered five other names, though none would produce anything but even longer faces and deeper sighs in the West.

The list includes not only the tub-thumping Mr Luzhkov, but also a Soviet- era central bank chairman, Vladimir Gerashchenko, and the former head of the Soviet state planning committee, Yuri Maslyukov. These are not exactly members of a monetarist dream team.

After spending billions of dollars propping up Russia and Mr Yeltsin, efforts by the West to persuade the country to sort out its economy - such as introducing a working tax system - have never looked so wasted. An IMF-supervised $23bn (pounds 14bn) rescue package is in disarray, with a question mark over whether it will give Russia a second $4.3bn tranche, some of which is due this month.

The IMF's head, Michel Camdessus, has made clear his feelings about the proposals in unusually sharp tones, telling Moscow to "stop printing money for the wrong purposes and put the budget in order".

To be fair, Mr Chernomyrdin has said Russia only plans "a limited rouble emission". But once the presses start, the temptation to keep them going will be immense, deepened by clamouring banks, broken-down industrial empires and an unpaid population. Inflation shot up to 15 per cent last month, and is now higher. On Friday, the rouble lost more than a quarter of its value. The streets of the capital yesterday were crowded by people stocking up with goods.

It is also true that Mr Chernomyrdin, who outlined his strategy in a speech on Friday, has made other promises that will not jar with the West. He has vowed to continue with reforms, to create a flat rate income tax of 20 per cent, and to install an "economic dictatorship" to force companies to pay debts or face bankruptcy (or possibly renationalisation).

Russia's plan is to print roubles only as long as it needs to and then to introduce a currency board next year to peg the rouble to gold and foreign reserves. But to do that, it will need more international support - a figure Moscow estimates at $15bn. Getting extra funds in the current climate, let alone such a large amount, is going to be extremely difficult.

But without the money the plan is wishful thinking. While roubles are churned out, Mr Chernomyrdin's proposals will collapse under the weight of other problems: insolvent banks, unsafe nuclear stockpiles and bases (the biggest Russian submarine builder has sent its employees on compulsory holiday for fear of social unrest), a waning president and political in-fighting.

The list of woes grew even longer yesterday in an unstable area that Moscow regards with anxiety - Russia's southern flank. Interior Ministry troops were rushed into Dagestan, which borders Chechnya, after a car bomb killed 17 people and injured more than 80 others.

The worry is that Moscow - overwhelmed by the burden of a collapsing economy and deep social strife - will have another explosion in the Caucasus.

Comments