WORLD, Page 52Now It's More Like Real MoneyThe ruble is cut down to size -- but may have to be cut moreBy Ricahrd Hornick/With reporting by Paul Hofheinz/Moscow
U.S. DOLLAR-SOVIET RUBLE EXCHANGE RATES:
OFFICIAL RATE: $1 = 0.6 rubles. This arbitrarily determined
level overvalues the ruble and hampers East-West trade.
SPECIAL RATE: $1 = 6 rubles. The new, more realistic rate will
be available for travelers and business people.
BLACK MARKET RATE: $1 = 15 rubles*. This thriving sector
diverts sought-after foreign cash from government coffers
*A year ago, the level was five rubles.
Among superpower currencies, the Soviet ruble gets no respect.
Its official value is so overstated after decades of isolation from
the market place that even Soviet citizens treat it as funny money.
In the past year Soviet economists have openly acknowledged that
the ruble's official rate of exchange with Western currencies was
seriously out of whack. While the Soviet state bank, Gosbank, gave
visiting foreigners only 0.65 rubles for every U.S. dollar, a
thriving black market offered as much as 15 rubles. An internal
study done for the Central Committee of the Soviet Communist Party
reportedly estimated the ruble's true value to be as low as 20 to
the dollar.
The Politburo, giving it self plenty of time to reconcile the
currency with reality, voted a year ago to begin "steps to ensure
the ruble's convertibility" by the year 2000. So Sovietologists in
the West were caught by surprise last week when Gosbank announced
that it would devalue the Soviet currency 90% for transactions that
do not involve imports or exports. Foreign visitors will get
much more bang for their buck: 6.26 rubles per dollar. But Soviet
citizens traveling abroad will receive a paltry 16 cents per ruble
instead of the official $1.60, which will seriously hamper their
ability to go on shopping trips abroad for scarce consumer goods.
Last week's move was just a small step toward making the ruble
freely convertible to other currencies, a process that will have
to be done gradually over many years to prevent disruptions in the
Soviet Union's economy. The ruble's nonconvertibility has been a
major barrier to East-West joint ventures.
Western visitors will not reap many bargains from last week's
step, which in practical terms will apply to a small portion of
transactions. Tourists are generally asked to pay in foreign
currency for lodging, transit and food. And as Soviet citizens know
painfully well, the ruble is virtually worthless in the domestic
economy. Moscow cabbies speed past hapless hailers unless they hold
up something more enticing: a greenback or a pack of Marlboro
cigarettes.
One reason Soviets have little use for their own currency is
the shortage of consumer goods to buy. The result is that the goods
have become the storehouse of value rather than the money, as in
hyperinflationary economies. A leading Soviet economic official
told a visiting American that his neighbor had a seven-year supply
of detergent in his tiny apartment.
More important, the Soviet Union has a glut of cash, a
so-called monetary overhang, which has ballooned under Mikhail
Gorbachev because the Soviet government has run increasingly large
budget deficits to maintain social peace by subsidizing prices for
essential goods and services. The government prints more money to
cover the gap, which in a free-market economy would increase
inflation. But under the severe price controls of a command
economy, the money has no place to go but under the mattress. Jan
Vanous, research director of PlanEcon, a Washington-based
consulting firm, estimates that by the end of 1989 the store of
unspent, readily available money will exceed 460 billion rubles,
at least a third of which would be spent immediately if goods were
on hand.
Soviet officials are concentrating on how to reduce the
monetary overhang before it turns into a pent-up avalanche of
hyperinflation. The official Soviet plan for next year is to
increase by 20% the production of durable consumer goods and to
triple the output of such goods as washing machines, vacuum
cleaners and VCRs. But few Soviet economists believe this plan can
succeed.
The Soviets suffer no shortage of outside advice. The most
radical solution proffered by visiting scholars and bureaucrats is
a massive currency reform, similar to the program carried out in
Germany in 1948, when the authorities by fiat eliminated 90% of the
citizens' cash holdings. Soviet officials reportedly fear that such
a solution would destroy the public's minimal remaining confidence
in Gorbachev's efforts at economic restructuring, or perestroika.
Likewise, proposals to increase radically the prices of consumer
goods, to bring them into line with free-market levels, run the
risk of popular unrest because more than 41 million Soviets are
already living below the poverty line. Notes a Western diplomat in
Moscow: "They're terrified of price reform." Hoping to avoid such
measures, the Soviets listen to all suggestions. Federal Reserve
Board member Wayne Angell received an appreciative hearing last
summer when he suggested that the solution to the overhang was to
back the ruble with the country's huge gold reserves. Aside from
technical problems, the plan may underestimate the average Soviet
citizen's skepticism. As one Muscovite told the New York Times,
"Even if they said the ruble was now backed by diamonds, I wouldn't
trust them."
But Gorbachev's economic team is growing bolder. Last week's
devaluation was aimed primarily at challenging the black market.
Explained Valeri Pekshev, deputy chairman of Gosbank: "Foreign
currency was accumulating in the pockets of shady types rather than
in the coffers of state banks." According to PlanEcon's Vanous, the
Soviets plan to cut the official exchange rate in half next year
for exporting companies. The goal is to reach one unified, rational
rate to replace the current hodgepodge of official and negotiated
rates. But in spite of such encouraging moves, true convertibility
is not much closer than it was a week ago. Until the Kremlin can
inspire domestic confidence in the ruble, Gorbachev's perestroika
