Chernomyrdin advocates 'economic dictatorship' Russia would use dollar as a currency board

September 05, 1998|By Will Englund | Will Englund,SUN FOREIGN STAFF

MOSCOW -- Criticized for standing pat as Russia embarked on its economic decline, Viktor S. Chernomyrdin tried to turn tough yesterday, vowing to impose an "economic dictatorship" if confirmed as prime minister.

Those are the kinds of words that might warm the hearts of the Communists whose votes he desperately needs -- but what he really had in mind for the tumbling Russian economy was a rescue built upon the U.S. dollar.

A week ago Chernomyrdin's allies were talking about the need to crank up the printing presses, freeze prices and halt the convertibility of the ruble, a Soviet-style version of economic dictatorship.

Since then he has had sessions with the head of the International Monetary Fund, with President Clinton and with the architect of Argentina's currency reform, and now he's talking about paying off debts, strong bankruptcy laws, "tough and very clear rules" -- and a ruble that would be strictly tied to the dollar. That sounds like a different kind of dictatorship altogether.

But he still hasn't been confirmed for a second term as prime minister.

The Duma, or lower house of parliament, had planned to vote on hisnomination a second time yesterday, but at the request of President Boris N. Yeltsin put off the vote until Monday. That leaves a whole weekend for deal-making.

The Communists have led the opposition to Chernomyrdin, and some Communist deputies said yesterday that their solidarity was beginning to crumble as deputies start looking out for their own interests, patronage and otherwise. Others said the party was solid.

Some members believe the Communists will try to use the extra time to persuade Yeltsin to pick another candidate, most likely Moscow Mayor Yuri Luzhkov. Others believe the extra time will allow the members of the upper house, who can't abide Luzhkov, to bring extra pressure on their colleagues in the Duma to fall in line behind Chernomyrdin.

It was at the upper house, or Federation Council, that Chernomyrdin appeared yesterday, even though it has no formal role in the confirmation.

Speaking forcefully, and at times angrily, he said he plans to form a government capable of "precise and decisive actions."

He called for sweeping tax cuts, confiscation of tax dodgers' property, the ousting of inept and dishonest managers through new bankruptcy laws, an end to the tolerance of arrears between companies. He called for the payment of the government's own wage and pension arrears, an amount equal to about $2 billion at yesterday's rate, through the issuance of new rubles. And he talked about securing the ruble tightly to hard currency held in reserve.

"This may be the last chance to build a normal economy in Russia," he said. "Yes, our actions will not be popular ones. Yes, the authorities will be cursed from bottom to top. And people will be right in doing so. Life is hard, and there is nothing to praise the government for.

"But if we do not stop the panic," he said, "we will get into bad trouble."

And yesterday the collapse barreled onward. The ruble fell to 16.99 to the dollar, compared with 6.2 three weeks ago. Shoppers again jammed Moscow's stores, hoping to buy up staples before the prices go up any further. The whole city is in a going-out-of-business mode.

In the provinces it's different, because there is so little money to begin with.

"I would say the panic is not in the shops but in people's souls," said Vladimir Samarin, an editor at a newspaper in the city of Orel. "And there is confusion in people's minds."

Chernomyrdin may not have lifted that confusion much, but to economists he seemed to be talking about a mechanism called a currency board, in which a country issues its own money only to the extent that it holds an equal value of solid currency (generally the dollar) in reserve.

It's like going back to the gold standard, except that dollars take the place of gold. It brings inflation to a halt in a hurry. Estonia and Lithuania have currency boards, and so does Argentina.

The designer of the Argentine system, Domingo Cavallo, met with Chernomyrdin this week and said yesterday that it looked as though he was talking about a currency board. But, apparently with an eye toward his Communist opponents who could get some mileage out of attacking the idea that the ruble would be subordinated to the dollar, Chernomyrdin didn't actually spell out his plan in detail.

And it doesn't appear that Russia has enough hard currency to support such a system, which leads some critics to question whether Chernomyrdin actually plans to print money while merely talking about a strong ruble.

Moscow has $12 billion in reserves right now, with about $9 billion worth of rubles in circulation. The government arrears that Chernomyrdin wants to pay off amount to about $2 billion more.

Last night, Boris Fyodorov, the deputy prime minister who drew up Chernomyrdin's plan, said on television that the intention is to print money to pay off the arrears and then begin to tie the ruble to harder currencies.

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