The government secured approval from the State Duma last week to borrow 5 trillion rubles ($1.4 billion) from the Central Bank to cover its spending program in the first quarter of 1995, effectively reversing its pledge to completely replace the bank's subsidized credits with revenues from T-bills and foreign loans to cover the deficit.
When the policy was announced in October as part of the government's first draft budget for 1995, top government officials touted it as a revolutionary element of the budget that would be crucial to bringing inflation under control. Monthly inflation has gained momentum in recent months, hitting 15.1 percent in October and 14.1 percent in November after reaching a low of 4 percent in August.
But when the State Duma on Friday ultimately approved the government's original spending plan as a stopgap measure for the first quarter of 1995, the government immediately asked for permission to borrow the 5 trillion rubles for six months at the discount annual rate of 10 percent. The Central Bank's regular annual refinancing rate is 180 percent.
Despite the turnaround, economists said that Russia's anti-inflationary policy can still survive.
"The size of the credit is not so huge," said one Western economist, speaking on condition of anonymity. "Of course it is a departure from the government's initial intention, and it will have some impact on inflation, but not too big."
A top Russian governmental analyst, who also asked not to be named, agreed, saying that the significance of the move was not yet clear and depended on the government's further actions.
"If it is just this one credit, it's not a big problem," the analyst said, adding it would probably lead to a one-time 3-percent jump in inflation. "But if this is the first step in that direction, it is very sad."
The issue of Central Bank credits will be on the agenda during January negotiations between the Russian government and the International Monetary Fund over some $12 billion in IMF loans, the Western economist said. But he added that it was not very high on the list of priorities compared with the problem of removing restrictions on oil exports.
Government officials have said that Russia will replace oil export quotas with domestic sales quotas as of Jan. 1, a move that experts have said will effectively nullify plans to liberalize the country's oil trade. The Western economist, however, said that the domestic quotas could be bearable as long as they were not too high.
The economist also downplayed criticism of the government's plan to sell some 16 trillion rubles in T-bills to the Central Bank next year, saying that T-bill purchases would not be as inflationary as cheap credits.
"Almost every central bank has a government securities portfolio," he said.
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