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. Last Updated: 07/27/2016

Relief Plan Could Hurt Economy

Boris Yeltsin's new economic relief package could strengthen his popular support and enhance his ability to enact reforms. But the plan, which is inflationary and at ideological odds with the president's previous positions, could undermine the very reforms he supports.


The president announced over the weekend measures to double the minimum wage and provide relief for those hardest hit by the economic reforms enacted after the collapse of the Soviet Union. His program includes compensation for the erosion of people's savings because of inflation.


The political rationale for his plan is sound. Yeltsin sees his popularity rating at 40 to 50 percent and hopes to increase those numbers to strengthen him in his battle against the conservative parliament.


But in so doing, Yeltsin subverts much of what his presidency stands for and stakes a position closer to the Congress he opposes.


Yeltsin has called repeatedly for the government to steer a course of tight monetary policy and blasted the parliament, the Central Bank and government ministers for the country's dismal economic performance in 1992 and early 1993. Uncontrolled spending and the wanton printing of money pushed inflation over 2, 600 percent last year and crushed the value of the ruble.


But economists see the new Yeltsin plan as dangerously inflationary. One Western observer estimated it could cost the government 300 billion rubles ($438 million) a month, while another said it could add 5 to 7 percentage points to the inflation rate.


Continued high inflation will soon wipe out the increased subsidies, while compensating people for the past erosion of their savings will not get rid of the underlying reasons for the price increases.


Sergei Vasilyev, a leading economist at the government-run Center for Economic Reforms, says there are another 20 decrees to come that would, among other things, restrict other parts of the budget to pay for the economic relief package.


The areas to be cut include credits to state enterprises, which would embody the sensible approach of taking money away from outmoded state enterprises and spending it on people. The trouble is that Yeltsin is unable to control the source of those credits: the Central Bank, which is answerable to the parliament.


If he cannot control spending by the government, the parliament or the Central Bank, Yeltsin will do far more harm than good by implementing his economic program. Worse, he threatens to exacerbate the economic situation. The Russian people do not need money to compensate them for high inflation; what they need is a lower inflation rate.