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. Last Updated: 07/27/2016

Russia Earmarks Trillions For Coal

The Russian government said it plans to provide at least 9.2 trillion rubles ($5.7 billion) in subsidies to the coal industry this year, escalating the deficit financing that is causing concern among numerous free-market economists.


Earlier this week, President Boris Yeltsin and Prime Minister Viktor Chernomyrdin promised to increase budget spending to industries and agriculture.


The continuing pledges indicate that the government is caving in to pressure to open purse strings and bodes ill for controlling the money supply which some economists have warned could lead to runaway inflation.


Defense Minister Pavel Grachev disclosed Tuesday that Yeltsin had agreed to deliver 2.3 trillion rubles the government owes to military industries within the first three months of this year.


On Thursday, the government started to pay 67 billion rubles in debts to television stations to end a one-day blackout of stations by communications unions protesting nonpayment of wages.


The proposed 9.2 trillion ruble payment to the coal industry, disclosed by Sergei Mironov, an official of the government-owned Russian Coal company, is the second largest promise of allocations made by the government during the current flurry of payment pledges.


Deputy Prime Minister Alexander Zaveryukha, who is in charge of agriculture, said last month that the government would provide 14 trillion rubles in subsidies and cheap credits this year to agriculture. However, Andrei Illarionov, a government adviser who was later fired, said the program could cost as much as 34 trillion rubles. Former Finance Minister Boris Fyodorov, who now is chairman of the parliamentary subcommittee on banks, predicted on Friday that Chernomyrdin's spending promises to the coal industry would lead to higher inflation."I am happy for the miners," Fyodorov said. "But that means that inflation will be 30-35 percent within two months, and we will feel it in our pockets."


Inflation hit 22 percent in January compared to 12 percent in December.


Fyodorov said the government has relaxed its control of budget spending under pressure from industrial managers, but he added that the government will have no choice but to bring back the tight monetary measures which he advocated as the finance minister.


Chernomyrdin said Yeltsin will announce the 1994 budget Friday and that it will include a big deficit, Reuters reported. Officials have estimated Russia's 1993 budget deficit at between 8 and 10.5 percent of gross domestic product.


Valery Grishin, a press spokesman for the government, said in an interview that Chernomyrdin has held several meetings this week with officials from various industries and supported their demands for quick payment of government debts from last year.


At a meeting with coal industry representatives on Friday morning, Chernomyrdin ordered the acting finance minister, Sergei Dubinin, to urgently pay the rest of the government debts to the coal industry for 1993, Grishin said.


The debts, currently estimated at 120 billion rubles, stem from the government's promises made last year to subsidize the coal industry with 1.1 trillion rubles, according to Mironov, head of the finances and credits department of the Russian Coal Company.


Yeltsin freed coal prices last summer, but the government maintained its promises to support the industry and guarantee part of the miners' wages as well as subsidies for loss-making mines.


The Finance Ministry repeatedly refused to make the promised payments last year, citing cash shortages, which prompted unrest among coal workers.


After the departure of Fyodorov and Economics Minister Yegor Gaidar from the cabinet in January, the government moved swiftly to pay up the debts, delivering within the last two weeks most of the 360 billion rubles owed on Jan. 1.?