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. Last Updated: 07/27/2016

Yeltsin: Ignore Parliament Budget

President Boris Yeltsin backed a tight fiscal policy Thursday, directing the government to ignore a budget passed by parliament that would swell Russia's budget deficit.

Yeltsin ordered the government to follow a budget plan which he approved earlier in the year that limits the budget deficit to under 10 trillion rubles, ignoring parliament's budget which set a budget deficit of 23 trillion rubles ($23, 000 billion) or 25 percent of GDP.

"Under no circumstances will I sign this", he told a meeting of Russian newspaper editors, referring to the budget law. "If implemented, it would mean the collapse of the Russian currency system, the destruction of the ruble and the undermining of Russian statehood".

Reformers in the government, led by Finance Minister Boris Fyodorov, have called for a tight budget policy to stop the inflation which has run near 20 percent per month for the past six months.

The government has committed itself to strict budget limits in a deal struck with the Central Bank designed to stabilize the ruble and win support from the International Monetary Fund.

But despite Yeltsin's remarks, the government faces strong pressure for extra spending.

At a special meeting Thursday, the government ordered the Finance Ministry to produce a compensation plan for depositors in the State Savings Bank whose savings have lost most of their value because of last year's 2, 000 percent inflation.

Russia's Constitutional Court ordered the government to execute presidential and parliamentary decisions to compensate the 70 million account holders in late May, but did not say how much compensation the government should pay.

Oleg Lobov, first deputy prime minister in charge of the Economics Ministry, told a press conference that the plans to compensate the 70 million depositors could cost as much as 1. 7 trillion rubles ($1. 7 billion). But he said that this was well short of the full value of the lost savings, which would amount to 10 trillion rubles.

Under Thursday's decision, Fyodorov has until the end of this month to come up with the means to pay for the program, Lobov said.

Lobov also announced new plans to compensate industries to boost the timber industry with investments, to subsidize retail stores of agricultural products, and for a hike in railroad transport fees.

Lobov responded Thursday to criticism from Fyodorov who has accused Lobov's Economics Ministry of clinging to the planned Soviet economy.

Lobov described Fyodorov's continuous attacks on excessive credits to industry as "a fetish".

The government also faced pressure for extra spending Thursday from coal miners and metallurgical factories in the wake of a presidential decree that freed the price of coal from July 1.

The decree was expected to end massive state subsidies to the industry totaling 2. 5 trillion rubles.

While some mines raised their prices by five and even eight times shortly after the presidential decree, the metallurgical plants have refused to buy coal at the new price, saying it would lift the price of their products well above world levels.

On Thursday, a special commission reached a preliminary agreement to raise the coal price for the metallurgical industry by 3. 5 times, Leonid Shevelev, the deputy chairman of the metallurgy committee, told Interfax.

But the deal assumes that an increase in subsidies to the coal mines to compensate them for what will still be an artificially low price, Interfax reported.

Shevelev said the current level of the subsidies would force coal producers to raise their prices at least 4. 5 times. The government is already under pressure from coal miners to pay subsidies promised in a deal with unions in February.

The Russian Miners Union made a decision at its meeting Thursday to launch a large-scale strike on Sept. 6 if the government did not pay its debts to the industry. Union official Viktor Myatin said that the government owed the coal industry about 300 billion rubles in subsidies.

Recent increases in the cost of electricity and coal have already forced Russian aluminum producers to lift the price of their product to world levels, which could significantly cut Russian aluminium exports.