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. Last Updated: 07/27/2016

Russia Cuts Credits to Ruble Zone

Russia's decision last week to reduce sharply its trade credits to ruble zone republics will place further strains on the trade relations between republics, diplomatic sources said Monday.


Deputy Prime Minister and Finance Minister Boris Fyodorov announced in his draft budget statement to parliament last week that Russia would only offer 800 billion rubles ($750 million) in credits to neighboring republics for the second half of 1993.


In real terms, this represents a dramatic reduction compared to 1992 when according to the Working Center on Economic Reform, Russia granted CIS republics 1. 5 trillion rubles in 1992. close to 10 percent of GDP.


The move was designed to slow Russia's inflation which has been fueled by an uncontrolled growth in the money supply, and follows a more gradual scaling back on credits in the first half of the year.


According to the Working Center figures, Russia paid out 5 percent of GDP in credits to ruble-zone republics in the first quarter and 2 percent in the second quarter. The 800 billion ruble limit would represent a further significant reduction in real terms.


A Ukrainian diplomat said Ukraine had depended on credits from Russia for purchases of oil and natural gas and the reduction would make trade more difficult. "It's impossible not to buy Russian goods", he said.


Viktor Azaryonov, first secretary of the Belarussian embassy, said that Belarus would be protected from the cut in credits by trade agreements for 1993, exchanging Russian oil and gas for Belarussian cars and tractors.


As well as limiting the absolute amount of credits, Fyodorov also announced that Russia would put all credits on a commercial basis. Previously most of the credits to ruble-zone republics had been technical credits issued by the Central Bank with no definite repayment schedule.


Viktor Mezhuritsky, deputy head of the budget department at the Finance Ministry, said that parliament had backed Fyodorov's proposal.