Yeltsin Takes Control Over Soviet Finances
Russian Federation President Boris N. Yeltsin, moving boldly to implement his promised program of radical economic reforms, assumed control of key elements of the Soviet Union’s financial system over the weekend.
Asserting the right of the federation to control its economy, Yeltsin ordered the republic’s Finance Ministry to assume the duties of the Soviet Finance Ministry, including the issuance of money and custody of the country’s gold reserves.
In a renewed effort to force the breakup of the central government’s bloated bureaucracy, Yeltsin also decreed a halt of Russian Federation payments, as of Wednesday, to all federal agencies except those--such as the Defense and Foreign ministries--to whose continuation he has agreed.
And in a further assertion of his growing “Russia first” philosophy, Yeltsin suspended shipments of oil and petroleum products to other Soviet republics, effectively treating them as foreign countries, to assure the Russian Federation of heat and power this winter--and give it real leverage in coming negotiations with its neighbors.
The 10 decrees, the first steps in Yeltsin’s reform program, also raised the minimum wage, nearly doubled the pay of government workers and began to establish the “social safety net” to protect those with low incomes from the price increases that will come when government subsidies are ended.
The Yeltsin decrees reflect a victory for the radical economists who have advised the Russian president not only to move boldly but to make the Russian Federation, the largest of the Soviet republics, the vehicle for the country’s transformation.
Yegor Gaidar, the new Russian deputy prime minister for economic policy, has argued strongly in recent days that “Russia has no choice--it must take its own steps.”
With about 60% of the country’s wealth, Russia has the ability to propel the whole Soviet Union through radical reform, Gaidar said, and for its own sake can no longer delay the tough measures required to transform a state-owned, government-run economy into one energized by market forces and private entrepreneurship.
Of Yeltsin’s 10 decrees, which all have the force of law, the most significant, politically as well as economically, is one that asserts Russian Federation primacy in managing the country’s financial system.
Declaring that the Soviet government has failed to implement the economic treaty signed recently establishing a common market among the remaining republics, Yeltsin formally subordinated the central government’s fiscal organs to the Russian Finance Ministry.
After accusing the Soviet Finance Ministry of “destabilizing the economic situation, accelerating inflation and aggravating the financial crisis in Russia and the Soviet Union,” Yeltsin not only ordered seizure of the ministry but also the Soviet mint in a direct step to halt the printing of more rubles.
That decree also cuts the central ministries off from funds from Russia, which traditionally provides more than two-thirds of the state budget, and thus forces implementation of an earlier decision by the central government itself to shut down about 80 ministries and other agencies, handing over the responsibilities to republic governments or newly established enterprises.
Although still preliminary in nature, the decrees indicate that Yeltsin is moving rapidly toward a “big bang” reform that would include freeing prices from state controls and sharply cutting state spending--measures likely to occur about Jan. 1.
Yeltsin has already indicated that state subsidies will be withdrawn from all but a limited selection of basic consumer goods, mostly foods, and that prices will then have to reflect production costs, first of all, then the market forces of supply and demand.
Among the decrees published Sunday are measures freeing foreign trade from most of the present state controls to introduce new elements of competition and speed the integration of the Soviet Union into the world economy.
From Jan. 1, the value of the Soviet ruble--now about 2 cents, although the official rate of exchange remains $1.70--will be determined by the Russian Central Bank based on prices at foreign exchange auctions, inter-bank transfers and other free-market deals.
In taking the lead, however, Russia effectively will dictate to the other republics--notably the Ukraine, the second-most populous and wealthy--the terms of the new economic union being established to succeed the Soviet Union. And that leads to resentment of Russia as the new “central government.”
Yeltsin’s decree suspending the “export” of Russia’s oil and petroleum products not only to other countries but also other republics within the Soviet Union reflects Gaidar’s “Russia first” approach--and probably breaches the accord on a new economic union among the Soviet republics.
But Gaidar had argued last week that recently signed agreements by the central government would permit the export of about a third of Russia’s oil production, despite a 12% production decline. If Russia proceeded with the exports, its cities would suffer severe heat and power shortages, he warned. Russia’s oil production constitutes about 90% of the Soviet total.
Senior officials from the Group of Seven major industrial democracies, meanwhile, arrived here Sunday for three days of discussions on economic assistance to the Soviet Union--and a search for ways to help it avoid defaulting on repayments of its foreign debts.
Putting final touches on a planned rescue effort, the officials will seek assurances from leaders of both the Soviet government and the 12 republics on repayment of fresh loans.
“They have to think about how solidly we are behaving and to what extent we are reliable,” Ivan S. Silayev, chairman of the committee overseeing the Soviet economy, told the independent Interfax news agency over the weekend.
Silayev said he hopes the deputy finance ministers from the Group of Seven will give the country time to implement reforms by deferring repayments on some of the Soviet Union’s foreign debt, now estimated at $68 billion to as much as $91 billion.
“If they discover again that we have the same instability as before, then we will be putting up a barrier to food deliveries that will be very difficult to overcome,” Silayev said.
Foreign lenders, worried that the Soviet Union might declare itself bankrupt, have been withholding new funds until they get repayment guarantees--largely based on sales of the oil, gold, diamonds, platinum and other precious metals that Yeltsin has declared to be Russia’s property.
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