In an effort to reduce the inflationary effect of subsidies to industry, the Finance Ministry this month will issue about 1 trillion rubles ($590 million) in one-year treasury bonds to pay off the government's debts to enterprises, a top ministry official said Thursday.


Bella Zlatkis, head of the ministry's public securities and financial markets department, said in an interview that the new issue could begin next week.


"We will issue the bonds to the agriculture industry, to the defense industry, to whomever we owe," she said.


The 1 trillion rubles in bonds would represent 22 percent of the 4.5 trillion ruble government debt to enterprises.


The bond issue could alleviate inflationary fears on Russian financial markets, where expectations that the government will increase payments to the agriculture and defense industries have led investors and speculators to flock to the dollar and pushed down the ruble.


In theory, the bonds would help curb inflation by eliminating the need for the Central Bank to print more money to pay government debts to industry.


To be repaid for the debts immediately, enterprises will have to sell the bonds on a secondary market, most likely to commercial banks, Zlatkis said. This would also soak up rubles.


Zlatkis said that the Finance Ministry would seek to develop a secondary market to make sure enterprises and banks will be able to trade the bonds.


The bonds will pay an interest rate of 40 percent annually, which is far below the Central Bank's refinancing rate of 210 percent annually. However, the Central Bank will allow commercial banks to use the bonds to fulfill their reserve requirements, on which the Central Bank presently pays no interest.Zlatkis said that the bonds would also provide a good learning experience for enterprises that have become accustomed to relying on the government for financing.


"This way we will teach enterprises and organizations to work with financial instruments," she said.