Bank OKs credits cap in Russia Cabinet urged pact to combat inflation

April 11, 1993|By New York Times News Service

MOSCOW -- Under pressure from Western governments an the International Monetary Fund, which are stepping up their aid, the Russian central bank has agreed with the Russian government for the first time on the amount of new credits it will issue.

Although technical and possibly temporary, covering only the second quarter of this year, the agreement is important. The unrestrained issuing of credits by the central bank has driven Russian inflation to dangerous levels, devalued the ruble and undermined the economic reforms of President Boris N. Yeltsin.

Essentially, the credits are loans to borrowers such as industrial enterprises, which repay at artificially low interest rates, if at all. Their accounts are credited with sums of money, which they can then spend, increasing the amount in circulation.

Announcing the agreement yesterday, Finance Minister Boris Fyodorov called it an historic event. He said it was a sign of growing collaboration with the central bank despite Russia's political warfare.

He pleaded with all branches of the government -- not just the legislature, but also Mr. Yeltsin and his prime minister, Viktor Chernomyrdin -- not to pass populist measures aimed at voters that would further unbalance the budget.

Mr. Yeltsin is in a struggle for power with the hard-line Russian legislature, which was elected under Communist rule and controls the central bank.

Successive members of the Yeltsin Cabinet have fought unsuccessfully for more than a year to gain control of the bank to have a coherent monetary and fiscal policy. Only then, they say, will it be possible to stabilize the economy, reduce inflation to manageable levels, make the ruble convertible -- or freely exchangeable with foreign currencies at market rates -- and create an environment in which Russian and Western businessmen can consider long-term investments.

Two weeks from today, Mr. Yeltsin faces a crucial referendum on his performance as president and on his economic reforms.

And on Wednesday in Tokyo, ministers of the Group of Seven major industrial nations will meet to agree on another $25 billion or so of grants and loans to Russia, timed and intended to help Mr. Yeltsin win the political mandate needed to revive economic reform.

Mr. Fyodorov has drawn up a relatively detailed program of economic changes, including quarterly limits on the amount of credits issued by the central bank to its main beneficiaries: Russia's huge, inefficient industries, the commercial banks that lend to those industries, the government itself, to cover its budget deficit, and independent former Soviet republics that still use the ruble as their currency.

But Mr. Fyodorov -- and Mr. Yeltsin -- have lacked the political clout to force the program through the legislature. The director of the central bank, Viktor Gerashchenko, has been openly defiant, saying that the government is to blame for inflation and that it is the job of the central bank to keep Russian industry alive with credits.

Russian officials said yesterday that pressure from the West was an important factor in the bank's change of mind.

Technically, as Mr. Fyodorov described it yesterday, the three deputy governors of the central bank who sit on a Credit Policy Commission with the government signed a detailed agreement to limit the growth of credits in the second quarter of this year to 30 percent more than the credits issued in the first quarter.

Figures for the first quarter of this year are not yet publicly available.

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