Two Former Republics Drop Soviet-Era Ruble

Moscow's conditions for joining zone called too stringent

By , Special to The Christian Science Monitor. Staff Writer Daniel Sneider contributed to this article from Yerevan.

THE former Soviet republics of Kazakhstan and Uzbekistan have taken their first steps toward economic independence from Russia by dumping the increasingly worthless Soviet-era ruble and introducing their own currencies.

Both countries, which had been using pre-1993 Soviet rubles that are no longer valid in Russia, had attempted over the past two months to reach an agreement with Moscow on sharing the ruble as part of a six-nation ruble zone.

But in a joint statement last week, the presidents of the two nations said they had been prompted to issue their own currencies because Moscow had set unrealistic terms for joining the zone, the ITAR-Tass and Interfax news agencies reported.

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Uzbek Deputy Prime Minister Baktiar Hamidov said earlier that Russia was ``enslaving'' the central Asian states with its tough demands for economic policy control, according to Interfax.

Russia has in recent weeks adopted a stance requiring the five nations that were to make up the zone - Kazakhstan, Uzbekistan, Tajikistan, Belarus, and Armenia - to transfer their gold and hard-currency reserves to Russia as collateral for using new Russian bank notes.

Analysts say the harsh stance was the result of a split in the Russian government between reformers who place a priority on economic reforms, and old-style politicians who put a higher premium on preserving Russia's role as de facto head of the crumbling post-Soviet political empire.

The stance evidently toughened in favor of the economists, who saw increased monetary ties with the former Soviet republics as more of a burden.

Headed by Finance Minister Boris Fyodorov, the reformers have warned that a ruble zone would fuel Russia's inflation rate and could threaten the ruble's stability because the other countries have disparate tax, customs, and monetary policies.

``Russia has political interests as well as economic interests. They are the preservation of the Commonwealth and the preservation of the zone of Russian influence,'' Armenian President Lev Ter-Petrosian said in an interview last week in the Armenian capital, Yerevan.

``Maybe now Russia is free from that and concerned only with economics. But I don't think Russia can completely refrain from [exercising] its political ambitions,'' he warned.

Russian Central Bank Chairman Viktor Gerashchenko, a staunch proponent of the zone, now admits that Russia's economy can be run more smoothly without it. He says the zone would have worked only if the five nations had become so economically subordinate to Moscow that their banks were branch offices of his bank.

In the past year Russia has steadfastly tried to isolate itself from former republics that still use the ruble, halting direct bank transfers with them and supplying commercial loans instead of cash.

But Russia dealt the republics a severe blow in June when billions of the increasingly worthless Soviet-era rubles were dumped on their territories after Russia declared them invalid within its borders - a move tantamount to issuing its own national currency. Hyper-inflation resulted.

``Our ruble rate immediately took a drastic fall because suddenly we had a lot more money, but no goods,'' says Albert Mikhailov, chief of economic affairs at the Kazakh mission in Moscow and a member of Kazakhstan's negotiating team with Russia. ``We're now going to have a lot of problems with our own national currency because we need something to prop it up with. Our currency market is still in its infancy.''

Oil-rich Kazakhstan introduced its new currency, the tenge, Nov. 15, the same day Uzbekistan put into circulation a new interim currency called the sum-coupon. Both currencies will temporarily be used in tandem with Soviet-era rubles.

THE tenge already has support: Kazakh President Nursultan Nazarbayev told national television Nov. 12 that it was welcomed by the International Monetary Fund, which has stipulated that Commonwealth nations must adopt their own currency before loans can be made.

The World Bank and European Bank for Reconstruction and Development have also offered aid, according to Interfax.

But other countries are lagging behind. Belarus has already introduced a transitional currency, known as the ``zaichik.'' That leaves Armenia, Tajikistan, and Azerbaijan as the only former Soviet republics still using the Soviet ruble.

Tajik Deputy Prime Minister Rustam Morzoyev has said that Tajikistan, the most impoverished of the new republics, would meet Moscow's terms for using new Russian bank notes and would not introduce its own currency, ITAR-Tass reported.

Russia is now concentrating on setting up a new ruble zone that would incorporate a system of fixed exchange rates among the currencies of the former Soviet system, says Viktor Mezhuritsky, deputy head of the Russian Finance Ministry's budget department.

``They will have to bring themselves up to our level, make their laws correspond to our laws in areas concerning budget and monetary circulation,'' Mr. Mezhuritsky says. ``They didn't like the conditions we set down, but we liked them.''

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