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. Last Updated: 07/27/2016

Monetary Debate Divides Cabinet Ministers

Just as the government has succeeded in gaining some control over economic policy from the conservative parliament and the reluctant Central Bank, the debate over striving for a balanced budget and stopping inflation has erupted within the government itself.


Reformers in the government have pressed their advantage since they won both a surprise victory in the April referendum on confidence in economic reform and more recently the support of the Central Bank for ah agreement to tighten monetary policy.


But the reformers have now opened a debate within cabinet itself that will test whether President Boris Yeltsin will allow an end to direct budgetary subsidies to loss-making industries, and deliver on promises of economic reform he has made to Western governments in exchange for aid.


"The reformers are making a lot of noise again", said a Western diplomat who asked not to be named.


But they have run up against less reform-minded ministers who oppose the tighter fiscal policy the government has sought to adopt in recent weeks. At the cabinet meetings, "There is a kind of lobby of the agriculture and the industrial sector", said a government aide. "All of them are asking for money and support for their industry".


This weekend in a warning to regional leaders, Boris Fyodorov, deputy prime minister and finance minister, and the most vociferous advocate of a balanced budget within the cabinet, predicted that unless spending was controlled Russia's budget deficit for 1993 would reach 22 trillion rubles ($21 billion) and monthly inflation would touch 40 percent. The deal with the Central Bank had set a target for the budget deficit of 7 trillion rubles and an inflation rate of 10 percent.


Fyodorov has tried to outmaneuver the heavy spending ministries by pushing Yeltsin to pare down the number of deputy prime ministers in the government. "The proposal is always in Fyodorov's mouth", according to an aid.


Fyodorov's tactic assumes that the conservative state planning ministries would lose out in such a shift. Last week, Fyodorov openly called for the State Pricing Committee and the Economics Ministry to be abolished. Only a few months ago, top reformers in cabinet were fearing for their jobs.


Debate broke out at last week's cabinet meeting, with top government ministers sparring over whether the government should continue indirect budget subsidies through regulating prices and reverting to a fixed ruble exchange rate for some imports.


Economics Minister Oleg Lobov, an old-style industrialist appointed shortly before the April referendum, expressed some support for the measures, saying the government should consider a version of currency reform. He also called on the president to ban immediately the circulation of foreign currencies in Russia. But most of the cabinet disagreed as Fyodorov teamed up with another key liberal, Deputy Prime Minister Anatoly Chubais, to defeat it. Chubais called the proposal "absolutely inconceivable".


Since the referendum, reformers in Russia appear to have the ear of Yeltsin. Last week, he signed a Fyodorov proposal to place a moratorium on new government spending. But the difficult work - figuring out which programs to cut - is yet to be done.


But each measure aimed at a tighter monetary policy appears to be coupled with another policy going in the opposite direction: some social spending has been tied to the inflation rate and ministers have also approved a defense conversion program that is estimated to cost 2 trillion rubles ($2 billion) and $3 billion in hard currency.


"I'm very much afraid that the break will last too long", said former Foreign Trade Minister Pyotr Aven, who was fired in December.