Yeltsin Move Threatens Central Bank Independence

After Russian President Boris N. Yeltsin signed a law ordering the Central Bank to turn over $1 billion to help pay down the federal deficit, the bank protested, saying the transfer would threaten its new independence.

The deficit has grown rapidly in recent months, swollen by Yeltsin’s lavish campaign promises. The president signed a law Wednesday ordering the transfer, which bank officials said could damage the fragile financial system and set the stage for a return of hyper-inflation.

“It’s the first real challenge to the independence of the Central Bank,” bank spokeswoman Natalya Khomenko said Thursday. “It’s a dangerous precedent.”

The move could jeopardize Russia’s $10-billion loan deal with the International Monetary Fund, which strictly forbids direct bank financing of the budget deficit.

Economists credit such controls with helping Russia to contain inflation, which fell to a record low of 1.6% a month in May. Inflation stabilized last year after surging in the early 1990s as Russia began its move to a market economy.