Russia to Revive Vodka Monopoly to Raise Liquid Cash

Russia’s new government announced a grab bag of fix-it measures Thursday for its broken-down economy, including a revival of the state monopoly on vodka and other spirits, a money-spinning scheme as old as the czars.

Prime Minister Yevgeny M. Primakov, speaking at the first meeting of the Cabinet, endeavored to reassure a population shellshocked by a free-falling currency that his government will keep its interests close to heart.

“All the measures proposed are not an end in themselves but are aimed at creating a firm social base for reforms in the Russian economy and at serving the interests of the people,” Primakov said in the televised address.

Among the actions he outlined were the payment of billions of rubles owed in back wages--for members of the military, starting this month; for civilian government employees, in October--and crackdowns on tax cheats and illegal exporters of capital.

Primakov’s incoming government, still incomplete, faces a dismal financial picture: a ruble that is a shadow of its former self and inflation that reached 45.4% in the first three weeks of this month alone.

Taxes, assessed in rubles of depreciating value, are being paid less and less often--the August take for the government’s coffers was less than half of July’s.

To parry the resulting revenue slump, and help find the equivalent of $800 million in back wages that the Finance Ministry says are due soldiers and state-employed workers, as well as pensions for retirees, Primakov and his ministers hope that vodka, the traditional Russian tipple, will be a fiscal El Dorado.

By requiring the country’s distillers and wholesale dealers of hard liquor, defined as 56 proof and up, to obtain state licenses, and shutting down unlicensed operators, the government has calculated it can reap 30 billion rubles--now equivalent to $1.9 billion--in annual income.

Last year, Russians downed a staggering half a billion gallons of vodka, although the quantity officially produced or imported totaled less than half of that, Deputy Prime Minister Gennady V. Kulik told a news conference.

“As a result, the market is overflowing with all sorts of rubbish, and people are dying because they drink too much and, what is worse, they drink substandard stuff,” Kulik said.

Economist Pavel G. Bunich, a member of parliament, expressed doubts about the effectiveness of some of the government’s ideas but welcomed the plan to license alcohol manufacture and sales as a quick and easy moneymaker.

It was “rash and stupid” for Russia’s democratically elected rulers in 1992 to abandon a profitable state prerogative dating back two centuries to the Romanov empire, Bunich said.

Fellow economist Otto Latsis, editor in chief of the daily Noviye Izvestia newspaper, was more critical of Primakov’s speech, saying, “I see no program in what I heard today.”

As for the promise to pay back wages, Latsis said, the government will be able to save money by using cheaper rubles. In effect, although Primakov announced Thursday that starting in January, Russians will receive some compensation for rising prices, there will be no indexation of salaries so that they automatically follow the cost of living.

“This means, in fact, that people’s living standards have been sliced in half,” Latsis said. “It means our people have been grossly robbed.”

Over the past month and a half, the international financial community has lost faith in or grown wary of Russia’s leaders, a process that began Aug. 17, when Primakov’s predecessor froze repayment on $40 billion in short-term government bonds and allowed the ruble to decline steeply against the dollar.

“It was confiscation, daylight robbery,” one Western banker in Moscow said Thursday.

The International Monetary Fund, which since 1992 had doled out $14.8 billion in loans to help Russia move from Soviet socialism to a market-based democracy, suspended an additional $4.5 billion in funds that Russia had expected to receive Sept. 15.

“Unless Russia demonstrates commitment to keep undertaking reform, there won’t be any more money,” IMF official Vasuki Shastri said at the organization’s Washington headquarters.

But speaking after Thursday’s Cabinet meeting in Moscow, Deputy Prime Minister Alexander N. Shokhin hinted that to deny assistance to Russia now could bring the already enfeebled fiscal system crashing down.

“I would not like to scare anyone by discussing the possibility of default on foreign debts,” Shokhin said, “but we must at least hope for the loyal attitude of our partners in the international financial institutions and the G-8 [the United States, the world’s other leading industrialized countries and Russia] and expect them to make available those aid packages that have been announced.”

Viktor V. Gerashchenko, the chairman of Russia’s Central Bank, cautioned Western banks to be more conciliatory.

“There are sensible Western banks,” he said. “But their stubbornness in their conservative, excessively greedy position could mean they will receive nothing.”

Gerashchenko denied a report that he had submitted a plan to the Cabinet to generate more government income by simply printing more rubles. Bunich, however, said the Central Bank’s original schedule calls for it to release an additional 20 billion rubles--now $1.3 billion--soon.

Many economists are worried that by putting too many new rubles into circulation, Russia would unleash a hyper-inflationary spiral, making it even harder to restore people’s confidence in the currency, the banks and the free market.