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. Last Updated: 07/27/2016

Government Predicts Ruble Fall, Jobless Rise

The ruble will fall gradually against the dollar, inflation will be cut considerably, but unemployment will rise dramatically, according to the latest government predictions for 1994.


The forecasts, published in Izvestia, Trud and other Moscow daily newspapers on New Year's Eve, suggest Russia will move closer to financial stabilization, albeit at the cost of falling production and growing hardship.


But as Russia prepares for a post-election cabinet reshuffle and the first sitting of the new Federal Assembly, the government forecasters warn that the predictions all depend on politics.


Finance Minister Boris Fyodorov said in an article published in Izvestia on Dec. 31, said that Russia could soon abandon its policy of gradual financial stabilization in the near future.


"I do not know who will be at the steering wheel of Russia's financial policy in 1994. That is to be decided by the president and prime minister," he wrote.


Criticisms have grown of the economic reformers in the government in the aftermath of the Dec. 12 parliamentary elections in which Russia's Choice, the party of both Fyodorov and Economics Minister Yegor Gaidar, won only about 20 percent of seats.


Fyodorov said that the ruble would fall during 1994 but only gradually providing no major policy or cabinet changes took place. He predicted an exchange rate by the end of the year of between 2,000 and 2,500 to the dollar, down from 1247 now.


He also predicted that inflation could be as low as 5 percent a month by the end of 1994, an annual rate of only 80 percent. Gaidar's Economics Ministry predicted inflation would be even lower in 1994,according to a forecast published in several Moscow papers.


But Fyodorov said that if he and his supporters lose control of policy in 1994, it will mean the "Ukrainization" of the Russian economy, involving hyperinflation, collapsing production and an exchange rate of 10,000 to the dollar.


Gaidar and Fyodorov have adopted a broadly monetarist policy, advocating cuts in the budget deficit and in cheap state credits to industry to reducing inflation, now about 15 percent a month.


Fyodorov deflected criticisms of this antiinflation financial policy, saying it was laughable to call it "excessively tight," and adding that the inflation rate for 1993 of 900 percent inflation was still "catastrophically too great."


The Economics Ministry forecast said that financial stabilization would be achieved without a major deepening of the recession, predicting that gross domestic product would only fall by 5 percent compared to 12 percent last year.


However, the same forecast predicted that the actual level of unemployment, including those out of work but not officially registered, would reach 6-7 million, compared to 4.2 million now.The reports also said that the real incomes of the population would drop by 3-5 percent compared to 1993.


Finance Minister Boris Fyodorov was more optimistic, predicting that real incomes would rise 20-30 percent. He said that the dollar equivalent of the average monthly salary would grow to $250 by the end of 1994, up from $100 now, thanks largely to the real appreciation of the ruble.


The main threat to the government's tight budget policy has come from calls for increased spending.


A presidential decree last week allowed the government to draw on 7.5 trillion rubles ($6 billion) of credits from the Russian Central Bank to meet its deficit spending requirements, a sharp increase on the 4.5 trillion rubles used in the last quarter of 1993.


RIA quoted Labor Minister Gennady Melikyan as saying Dec. 29 that government plans to increase the share of gross national product devoted to "social spending" to 13 percent compared to 9 percent in 1993.


Fyodorov also said he favors increased social spending but insisted that money for larger benefits must not be taken from the budget.


The government appears set to raise taxes to pay for higher social spending. RIA quoted First Deputy Prime Minister Vladimir Shumeiko as saying the government had prepared regulations imposing heavier taxes on high income.


Last month President Boris Yeltsin rejected the Finance Ministry's proposal to raise personal income taxes for top wage earners and instead signed a decree lowering tax thresholds for the poor at an estimated cost of 500 billion rubles. More recently, another decree raised the top level of corporate profits tax.