Russia Frees Ruble to Float as Part of Market Reforms : Economy: But move lacks the boldness Yeltsin government had wanted and stirs fears of inflation.

Russia freed its currency Wednesday to float in value according to supply and demand by the country’s importers and exporters, a move long advocated by market economists as an essential reform in moving from socialism to capitalism and integrating Russia into the world economy.

But the step, intended to be one of President Boris N. Yeltsin’s most important free-market reforms, came without the boldness that his government had wanted in its efforts to transform the old state-controlled Soviet economy into one driven by market forces.

Rather, there was apprehension that the Russian Central Bank does not have the U.S. dollars, German marks or Japanese yen it will need to support the flow out of rubles into hard currencies, even at a floating rate, and that the measure instead will simply add to the country’s inflation, already 1,000% this year.

Not only has Moscow not received the $6 billion promised in April by the Group of Seven major industrial nations to underwrite the ruble’s international convertibility into other currencies, but it also lacks the $10 billion needed to pay foreign debts falling due this year and billions more for urgent imports of medicines and food.

The Russian Central Bank, moreover, found itself setting an exchange rate of 125 rubles to $1--one that fell awkwardly between the rate of 85 rubles to the dollar first suggested by the government and the rate of 146 to the dollar at the last open-market auction here at the Moscow Interbank Currency Exchange.

Although there will still be an official rate and a market rate, officials insisted that the old multitiered system of exchange rates is now gone, freeing the ruble to find--for the first time in more than 60 years--its real value in terms of the goods and services the country produces for the world economy.

“This is what is known as a dirty float,” commented Igor Knyazev, head of the Russian Central Bank’s exchange rates department. “A fully free float in present circumstances is unthinkable. We would be just throwing away all the money we have spent supporting the ruble in the past.”

But Vladimir F. Shumeiko, a deputy prime minister, declared, “What it actually means is that any person . . . can freely sell hard currency through the banks, or the other way around--buy it.”

Even as the new bank rate went into effect, however, the Russian Central Bank announced new regulations, including the forced conversion of 50% of most export earnings at the bank-set rate, to ensure funds for the market but also to end the supply of cheap foreign currency the government had commanded.

The new rate remains limited to domestic transactions. Convertibility on foreign currency markets, essential to Russia’s integration into the world economy, remains far off, certainly no earlier than 1993, although it was planned for as early as Aug. 1.

Officials said the Russian Central Bank would intervene actively in the next few weeks to stabilize the currency market, adjusting its rate and intervening with its own funds to support it. The first test will come today at the next regular currency auction here.

But what was to have been a dramatic break with the past was diminished to another half-step, increasingly typical of Yeltsin’s economic reforms, as if the government lacked the courage of its pro-market beliefs as well as the wherewithal to support them.

In fact, the government appeared to some Russian economists to have gone through with the move--originally announced in May on a crest of confidence after the Group of Seven pledge--in order to maintain the credibility of its whole reform program, especially in advance of Yeltsin’s talks next Wednesday with G-7 leaders at their summit meeting in Munich.

Without the promised Western assistance, consumers will feel the impact of the move more sharply and more quickly than expected in higher prices for foodstuffs, medicines and consumer goods imported from the West--and all subsidized until now through artificial exchange rates.

Without this step, the hidden subsidies would this year total nearly 1 trillion rubles, perhaps $7 billion at present exchange rates, according to government officials.

“Either there will be another slump in imports,” the popular newspaper Komsomolskaya Pravda warned, “ . . . or more expensive imports will provoke another round in the dangerous race between prices and salaries. . . . Hyperinflation will become a reality before we see the first snow.”

And Yeltsin himself told Russians on Wednesday not to expect a quick improvement in the economy. “I tell them: It won’t be easy tomorrow, it won’t be easy this year. Maybe by the end of the year prices will stabilize,” Yeltsin said in comments carried by the Russian news agency Itar-Tass.

The International Monetary Fund, which the Group of Seven named to supervise Russia’s reforms and set conditions for broad Western assistance, has sought guarantees that Russia will proceed with a fundamental transformation of its whole economy before recommending the release of the $24 billion in promised aid.