Moscow, 4 September 1998 (RFE/RL) -- The Russian Federation Council, the upper chamber of parliament, passed today a non-binding resolution supporting Viktor Chernomyrdin for the office of Prime Minister. The vote was 91 for and 15 against in the 175-member Council.
The State Duma, lower chamber, the only body constitutionally empowered to approve or reject candidates for prime minister, postponed its vote on Chernomyrdin until Monday, to allow for more consultations.
The Federation Council -- though without power to confirm or reject Chernomyrdin -- is the body of parliament with regional leaders among its members. Its move came after Chernomyrdin outlined at its session an economic rescue program he called the "economic dictatorship. The program included measures linking the ruble to Russia's gold and foreign currency reserves and envisaging a floatation of national currency. The program amounted to a call for an introduction of, in effect, a currency board, a body to control the supply and flow of money.
Chernomyrdin said the program could begin in January 1999. He said that, until then, Russia's Central Bank ruble reserves would increase through what he called a "controlled emission of money," that is through printing of rubles, to meet government debts. Chernomyrdin acknowledged that prices would rise and inflation would grow.
Commenting on the speech and the resolution, Krasnoyarsk Governor Aleksandr Lebed said that he would support Chernomyrdin. Moscow's Mayor Yuri Luzhkov, who is considered a possible candidate for prime minister in case Chernomyrdin fails to gain the Duma's approval, also supported Chernomyrdin. He said he was speaking also FOR Federation Council Chairman Igor Stroev.
Among Chernomyrdin's opponents was Samara Governor Konstantin Titov, who said he would not support the program because it failed to take into account, in his phrase, "the specificity of Russia's economic policies."
The daily Russky Telegraf, said today that approval by international financial organizations would be needed before the introduction of currency controls in Russia. In the Telegraf's words: "The Central Bank's reserves estimated at $12 billion and another 370,000 million rubles in circulation would mean fixing the exchange rate at 30 rubles to the dollar."
The newspaper went on to say this: "Politically, this would mean that the Duma would have to be dissolved." That's because, the newspaper said, the Communist-dominated lower house of parliament would be unlikely to support unpopular monetarist measures.
Deputy Prime Minister Boris Fedorov said this week that Argentina's experience with a currency board could provide an example for Russia.
Argentina's former Economy Minister Domingo Cavallo, who introduced a fixed currency peg for the peso against the dollar in 1991, is in Moscow at Fedorov's invitation to advise on the measure. He was quoted by Western media as saying, as he put it: "What Russia must do is find the way for politicians to support a strong stabilization process -- and do it now. The question is whether the solutions appear before or after there is an explosion of hyper inflation."
Under Argentine's system, the Central Bank was obliged to have dollars in reserve for every peso in circulation. Increasing foreign in investment coming to the country's economy meant increasing reserves in currency, or gold or other liquid assets, and subsequently an increase of local currency in circulation to provide loans and support economic growth. But economists say that a currency board requires strong economic discipline. The Economist magazine quoted a recent IMF paper indicating that the measure has costly drawbacks. According to the IMF paper quoted by the weekly, a country introducing a currency board commits itself to converting its domestic currency on demand at a fixed exchange rate.
Authorities also must effectively agree to give up the power to change interest rates. If investors want to switch from a national currency into foreign ones, the supply of national currency automatically shrinks, and interest rates rise, says The Economist. And the authorities must agree that they cannot print money at will, as national currency is issued only when there are foreign-exchange reserves to back it.
"Russky Telegraf said that both government officials and influential businessmen who control commercial banks are likely to oppose the introduction of a currency board, because they will lose a great measure of control over the economy.
Furthermore, the immediate impact of the measure on the public could lead to massive dissatisfaction owing to austerity inherent in the operation of the currency board.