Shaving off three zeroes Ruble reform: With worst inflation over, Russia introduces new, revalued bank notes.

January 03, 1998

AS THE KREMLIN'S bells chimed in the new year, much of Russia's population no longer could claim to be millionaires. By government order, their bank accounts and cash at hand lost the last three zeroes. Overnight, 50,000 rubles turned into 50. A ride on the Moscow Metro, which cost 2,500 rubles in 1997, suddenly could be taken for 2 rubles and 50 kopecks.

In principle, this redenomination was a purely technical matter that should not affect prices. But many older Russians are skeptical. They remember how ordinary people had their savings wiped out by Communist-era money reforms, which were proclaimed only after they had been implemented.

To allay such fears -- and to underscore that the maneuver is largely symbolic -- the ruble's redenomination was announced well in advance this time. Current banknotes and coins will continue to be accepted, along with brand new ones.

If carried out successfully, the ruble reduction should have a salutary psychological impact by returning price tags of basic items to levels closer to where they were before hyperinflation began. The year 1993 was particularly inflationary. Prices skyrocketed by 2,600 percent, forcing the government to print bigger and bigger denomination bank notes. Inflation has been brought under control since then: Prices rose only 22 percent in 1996 and about 12 percent last year.

With the worst inflation now over, President Boris N. Yeltsin ought to redouble his efforts to combat another major cause of Russia's economic malaise: rampant tax avoidance.

According to management professor Avi Shama, 90 percent of all private-sector production, sales and profits in Russia are never reported to the tax authorities. "To evade taxes, managers used different tactics, including cash deals, double bookkeeping, bogus capital expenditures and fictitious subcontracts," he recently wrote in the Wall Street Journal.

Among the worst scofflaws are Russia's top corporations. They have close links to the Yeltsin inner circle and do not have to fear consequences. Yet the only way to cure Russia's chronic budget shortfalls -- and its general atmosphere of lawlessness -- is to send a message that no one is above the law.

Pub Date: 1/03/98

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