Russian Banker Stays Like Gum on a Shoe
RUSSIA'S deputy prime minister for economics and finance, Boris Fyodorov, made a move this week crucial to Russia's economic future: He sought control of his nation's central bank.
"It's of great importance," says Matthew Sagers, a senior economist of PlanEcon Inc., a Washington consulting firm.
The central bank under its governor, Viktor Gerashchenko, has been primarily responsible for Russia's superinflation that has reduced the ruble to a 650-to-$1 exchange rate.
Mr. Fyodorov and his predecessor, Yegor Gaidar, have urged a tighter monetary policy for many months.
"We must make our credit and monetary policy much tighter to avoid a complete crash of the country's monetary policy," Mr. Gaidar told the parliament last September.
The bank has ignored such oft-repeated pleas, continuing to print too much currency and giving state enterprises vast amounts of credit. Since the bank is accountable to parliament, President Boris Yeltsin could not control its actions.
Now Fyodorov, who used to work at the central bank, has appealed to the bank's divided board of directors to fire his old boss. Earlier such efforts have not succeeded. Mr. Gerashchenko "is stickier than chewing gum under your shoes," says Rudiger Dornbusch, a Massachusetts Institute of Technology economist. He points out that "the hard-core communist bureaucrats" in parliament want to protect the old system with its inefficient state enterprises. So they insist the central bank provide these operations with the funds to keep them from shrinking or going broke.
If Mr. Yeltsin should win the bigger battle with Ruslan Khasbulatov, the parliamentary speaker, for control of the nation's political system, Fyodorov will undoubtedly win control of the central bank and tighten monetary policy.
The 1,033-member Congress of People's Deputies has been called to session today to consider impeaching Yeltsin, a measure requiring a two-thirds majority. Both the hard-liners and the reformists in the legislature claim they will prevail.
Mr. Sagers expects the measure to fail. Even if he's wrong, Yeltsin may ignore impeachment and go ahead with his April 25 constitutional referendum on who the people should trust with more power - the president or the legislature. Should Yeltsin win overwhelming support in that vote, he probably will call a constitutional convention to alter the balance of powers between the administration and the legislature, Sagers says. That would be followed by the election of a new parliament.
This is a hopeful scenario for the development of democracy and economic reform in Russia. It assumes the military sits on the sidelines and that the government bureaucrats continue to take orders from Yeltsin.
The failure of Russia to restrain monetary policy has meant that the International Monetary Fund has been unable to do much to help out the country. It did provide $1 billion in funds last year.
But more-substantial IMF assistance must await reduced inflation, the lifting of price controls on energy, and realistic interest rates. A team of IMF economists has just returned from Moscow after examining the Russian economy in some detail. With economic discipline and a real reform program, that economy could be turned around quickly, the experts say.
Right now, the Russian economy is in bad shape. National output fell 19 percent last year, according to PlanEcon. Consumption fell 15 to 16 percent. Investment is less than one-third of its peak 1988 level. Since 1989, the gross domestic product has tumbled nearly 32 percent. Wholesale prices have risen by a factor of 62 (not 62 percent) between December 1991 and December 1992. The government's budget deficit amounts to about 20 percent of national output, PlanEcon calculates. That's around four times th e level in the United States.
The Group of Seven industrial democracies has been moving to provide more aid. Russian Foreign Minister Andrei Kozyrev was in Washington Wednesday to talk to President Clinton and other officials. He asked for a deadline on Russia's admission as a full G-7 member and that the Seven unfreeze the $6 billion promised last year for a ruble stabilization fund. But that fund would be useless unless the Russian central bank is tamed.