Russia’s Central Bank Gives In to Yeltsin’s $1 Billion Demand

The Central Bank gave in to President Boris N. Yeltsin’s demand for money to help finance his preelection spending spree, agreeing today to turn over the equivalent of $1 billion.

The decision was made at a meeting of the bank’s board of directors, the Interfax news agency said.

Bank officials had earlier protested the president’s raid on its profits and threatened to challenge it in court.

They said it was a threat to the Central Bank’s independence, a cornerstone of Russia’s developing market economy, and warned that it could bloat the money supply, threaten Russia’s fragile financial system and set the stage for a return to hyper-inflation.

Yeltsin, facing a fierce challenge from Communist leader Gennady A. Zyuganov in next Sunday’s election, has ordered tens of trillions of rubles be paid in wages, benefits, tax breaks and other giveaways designed to woo voters.

The surge in spending coupled with a steep drop in tax revenues, attributed in part to election-year uncertainty, has stretched the budget to the limit.

Yeltsin’s top economics advisor, Alexander Y. Livshits, told Interfax that the president won’t make a habit of such raids and said the administration was sure Russia could “endure such expenditures without a rise in inflation.”

Yeltsin acted with stunning swiftness Wednesday, when a bill mandating the transfer was passed by both houses of parliament and signed by the president in a single day.

The legislation gave the bank until Monday to transfer the money.

The measure specifically earmarks the money for vacation pay for teachers, state-funded summer trips for residents of Arctic cities and defense spending.

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

Economists credit the IMF-imposed monetary program for Russia’s success in controlling inflation, which fell to a record low of 1.6% a month in May.

Bank officials have said the money will come out of a reserve fund set aside for emergency loans to troubled banks.