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. Last Updated: 07/27/2016

Compensation Is Set for Depositors

President Boris Yeltsin has ordered the government and the formerly state-owned savings bank Sberbank to pay the bank's depositors 600 billion rubles ($389 million) in compensation for losses caused by inflation in the last two years.


In a decree dated Dec. 24, 1993, the president instructed Sberbank, which holds almost 90 percent of Russian household savings, to make a one-time-only compensation payment to all of its depositors equal to three times the balance of their accounts on Jan. 1, 1992.


Retired and handicapped depositors will be compensated first, starting Tuesday, and the rest of the account holders will receive the compensations starting July 1, the decree says.


The Central Bank will "propose" to Sberbank's shareholders' meeting that the bank use its own private funds from its profits to pay the remaining 200 billion rubles, according to the decree.


The Central Bank owns by far the biggest share of Sberbank, with the rest of the stock divided between minor shareholders, including the Izhevsk automobile factory and the Rostov-on-Don helicopter factory.


The government will raise the other two-thirds of the money for the compensation from sales of precious metals and stones on foreign and domestic markets.


Sberbank's depositors had their accounts frozen for almost a year after the liberalization of prices in early 1992, to prevent money supply growth and more inflation. Prices rose about 2,600 percent in 1992 but depositors only received interest of about 30 percent per year for most of this period.


Last year the Russian parliament, and the now defunct Constitutional Court demanded that some way be found to compensate depositors. The government again refused, citing shortages of cash and saying the compensation would whip up inflation.


Alexei Sytnin, the Central Bank's spokesman, said Thursday the latest compensation measure was relatively small and would have no significant impact on inflation.


"Several hundred billion rubles is not much compared to 7.8 trillion of the Finance Ministry's debt at the beginning of January," Sytnin said, referring to the Central Bank's estimate of government obligations to various sectors because of promises made in 1993.


But Andrei Illarionov, an economic adviser to Prime Minister Viktor Chernomyrdin, disapproved of the measure, saying that the government had no sources to finance the compensation.


He agreed that the 600 billion rubles in compensation was small compared to other government expenditures.But Illarionov said it would still have an impact, adding "several percent to inflation."


He also said tripling the deposits would not make up for depositors' losses considering that prices have gone up 60,000 percent since they were released in 1992.


Sberbank officials refused to comment on the decree. An official who did not want to be named said the shareholders' meeting which will decide whether to approve the payments is scheduled for April 20.





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