Outgoing Finance Minister Boris Fyodorov predicted at the start of the year that without him Prime Minister Viktor Chernomyrdin's government would send the ruble as low as 10,000 to the dollar by year's end.


Although he has had egg on his face for most of the summer, the last few weeks have given him an ounce of respectability.


A crash in the ruble is a serious concern for the average Russian, much more so than even six months or a year ago. About 50 percent of Russia's consumer market is now stocked with imported goods. Cheap rubles mean high prices.


The ruble's fall has also come as an embarrassment for a government which is trying to tell the world that Russia is close to financial stabilization. President Boris Yeltsin trumpeted the message to U.S. investors in Washington.


It appears that the government and the Central Bank have been surprised by the swiftness with which the economy has shifted from a gradual deflationary mode, with low inflationary expectations, falling interest rates and a stable currency, to a state of uncertainty.


The government had based its claims of financial stabilization on the gradual improvement in basic indicators since January. Over the summer, inflation has been below 5 percent a month and the ruble has been fairly stable.


Unfortunately, there are an increasing number of signs that financial stabilization is slipping away. The 25 percent crash in the ruble over the past three weeks is only the most obvious sign.


Latest figures have also shown the first rise in inflation since January. From around 5 percent, inflation has jumped close to 8 percent.


Government economists have attributed the growth in inflation and the slackening of financial discipline to seasonal factors. They have said that the government is only issuing credits to pay for the harvest, provisions of food for the north and fuel for the army. Things will get better next spring, we are told.


This theory does not hold that much water. Fyodorov was able to bring inflation down throughout the second half of 1993 despite the very cold weather.


In fact, the underlying problem is political. The government has only held the line on spending thanks to political skill and a fair amount of bold-faced deceit. It has been long on promises but short on payments.


The budget which was finally pushed through parliament in June has proved hopelessly optimistic. Facing a huge shortfall on its collection of taxes, the government had to cut projected expenditures by a third.


The pressure to pay these debts has built over the summer. The government has gradually given in, borrowing from the Central Bank to meet some of its debts and carry out the essential elements of the budget. Money supply indicators have been rising sharply since about June.


The pressure to continue relaxing spending is growing daily. It comes in particular from the army, the parliament and the north.


Let it be said, however, that the government has already done much better than it expected in 1994. Fyodorov is still embarrassed. Chernomyrdin himself said he would bring inflation no lower than 7 to 9 percent at the end of the year. He may well be proved right.


The government says the only way it can get through is to borrow money from the IMF. Thanks to the efforts of Alexander Shokhin at the IMF meeting in Madrid, Russia now has access to another $2 billion of IMF stand-by money.


This money could indeed bring some stability to financial markets which have been concerned at the Central Bank's reserves. But the main game remains here in Russia, in the government's daily battles with lobby groups, the Duma and its own bureaucracy.


What does this mean for the ruble? With no signs of major improvement or a change of policy, it will probably depreciate at around the rate of inflation or worse. About 4,000 per dollar by the end of the year is not out of the question.





Geoff Winestock is a Moscow-based correspondent for the Journal of Commerce.