In attempts to revive the economy and curb hyperinflation, the Russian government has mandated changes to the money supply. On July 26, 1993, a dramatic announcement was made dictating the exchange of all rubles issued before 1993 into currency printed this year. The official reason for this move is to “allow uniformity to the legal tender.” Before the change, there could be as many as five different types of 100 ruble notes in circulation.
Desperate measures
This change will not merely provide uniformity to the money supply, more importantly it will control the money in circulation by limiting the amount that can be exchanged. Each Russian citizen will be allowed to convert a specified maximum amount of old rubles. All other currency must remain frozen in state banks at interest rates far below the inflation rate. The accounts will remain frozen for a specified period of months after which time only a portion of the account can be withdrawn. (At the time of writing, specific amounts and time periods were still being altered.)
This drastic action was taken to curb the inflation rate and increase the value of the new ruble. A strong Russian economy is required for a number of reasons, including repayment of debt incurred by the former Soviet Union. According to the Associated Press, “Russia’s economy will collapse if the country is forced to repay its share of the former Soviet debt next year” (AP News Service, July 14, 1993). Although the foreign debt is repayable in American dollars, a strengthened ruble should help stimulate foreign investment and boost the economy.
This past June, the group of seven industrialized nations meeting in Tokyo reaffirmed to Russian President Boris Yeltsin that a $28.4 billion aid package to Russia would be implemented. Despite this generous assistance, the economy remains in desperate shape.
Drop in oil production
In the past, when the former Soviet government required additional revenue, they did not have to resort to drastic currency manipulation schemes. The former regime would order the Siberian oil field managers to increase production, thus generating much needed foreign capital. This option is not available to the Yeltsin government.
Siberian oil production has dropped dramatically. “When production was at its peak in the late 1970’s and early 80’s, the giant Samotlor Lake oil field produced almost as much oil as Iraq and Kuwait combined. But today the boom is over. At Samotlor, production has fallen by 15% a year since 1986” (Washington Post, June 9, 1993).
The reason for the drop in production is directly attributable to the wasteful extraction methods used by the Soviet regime. In the same article, the Washington Post reported, “In the past the bosses in Moscow kept shouting more, more, so we gave them more, remarked Gigory Pikhman, former supervisor of construction for the oil city. Yet the oil was extracted in a barbaric fashion with no interest for conservation.
Approximately 2,500 oil wells in the area – one out of every four – are out of operation.”
Sale of assets
Economic reforms are not the only way in which Russia is attempting to boost and supplement the economy. The Yeltsin government realizes the fastest way to provide cash is to liquidate assets. The greatest of these includes Russia’s arsenal of nuclear weapons and their delivery systems.
Although there are plenty of customers willing to purchase the advanced Soviet technology, consummating deals has proved more difficult than initially thought. The United States is continually pressuring Russia to refrain from such sales.
Just recently, the Russian government reached a settlement with the Clinton administration in Washington. The compromise gives Russia the best of both worlds — money and the retention of its arsenal. “Russia agreed today to halt its planned sales of equipment -including sophisticated rocket engines and technology — to India. Under pressure from the U.S. government, the Yeltsin government reversed a promise that he had made to the Indian government during his trip to New Delhi in January” (New York Times, July 17,1993). In return for halting the sale to India, the U.S. offered Russia a co-operative space program that “could mean $700 million in commercial trade for Russia.” Russia thus keeps her military resources and gets her needed revenue.
The Cossacks
The Russian requirement for money is due in part to a military machine that, surprisingly enough, continues to expand despite the decline in the economy. Yeltsin has ordered that the ancient guarantors of Russia’s borders — the Cossacks –be re-established “as a military force split into 24 military districts” (The Economist, July 10, 1993).
During the 14th through 17th centuries, the Cossacks were deployed as a paramilitary group responsible for expanding the Russian empire. From the 18th through 20th centuries, they evolved into 13 elite cavalry units serving on the Russian frontiers. By 1916, they numbered 4.4 million of which 300,000 were listed in the Russian army.
The general in charge of the elite 14th army, Alexander Lebed who describes himself as a Cossack, has been put in command. General Lebed was quoted in the Economist as seeing the reestablishment of the Cossacks as a “return to the morals of the past: honor and duty and a readiness to die for the motherland.”
Initially, the primary focus of the Cossacks will be to protect the rights of all 250 million Russians. The Economist notes that Russia’s neighbors are left wondering if the Cossacks will also be the means of reestablishing the Russian empire of the past.
The Cossacks have always been a great cavalry unit and we cannot help but recall the words of Ezekiel 38:4: “And I will turn you about, and put hooks in your jaws, and will bring you forth, and all your army, horses and horsemen.”
We wait and watch, praying that day may come quickly.
The Origin of the Organic World – Part One