CRISIS OF PAYMENT

Massive non-payments by enterprises acted to dampen the shockwaves. Products were manufactured and even supplied but not paid for. The volume of back payments from enterprises (among enterprises themselves, and between enterprises and banks) increased over three months by 746.3 billion roubles or 23 (!) times over. This colossal sum - if compared with how much was produced by the industry during the three months - means that more than a third (37.4%) of industrial output was not paid for by suppliers. Non-payments that began by potentially bankrupt enterprises snowballed to involve cost-efficient enterprises as well. Non-payment affected banks (defaulting on loans) and an increasing number of banks today are in the red. In a bid to prevent banks' closures and panic, the Central Bank of Russia (CBR) made a decision to grant automatic loans to banks in the red. The non-payment problem became problem No.1 in the sphere of production. Rather than asking for subsidies enterprises today are insisting that the problem be resolved. This is clearly a temporary tendency, it cannot last long - it is an irrational economy.

The payment crisis has been caused by continued existence of unprofitable and inefficient enterprises and the manufacture of products unnecessary in altered conditions. A policy of financial stabilization in conjunction with attempts to prevent bankruptcies (there is no bankruptcy legislation) means that instead of trying to combat the disease - inefficiency of the economy - they are combating its symptoms in the financial sphere (subsidies for enterprises from the state budget, subsidized prices, etc.). What has been accomplished is that the problem, far from being resolved, has moved from the sphere of state finances into the sphere of payment discipline. This has produced yet another practical proof that a financial stabilization without structural economic reform has no chances of succeeding.

The selected method of combating non-payment by the CBR's expansion of its credits to 200 billion roubles, is rather unimaginative. It is doubtful that enterprises are going to use such loans to repay their old debts. The CBR in fact has no way of checking up on the use of the loans. There is a risk that the money may act as a stimulant on the economy, and, failing to solve the current non-payment problem, it would cause even greater inflation and add another spiral to the payment crisis.

Another way to defuse the payment crisis proposed by the "grass-roots" and likely to become widespread is based on bill circulation. The law on its introduction has been passed by the Russian Supreme Soviet and there are no serious hurdles to overcome. Bill circulation to be introduced in the prevailing conditions (as a method to get non-payment paid off and to settle reciprocal claims) is capable of increasing the money supply and of partially alleviating the non-payment problem. But bill circulation, if introduced abruptly and on a wide scale, can be inflationary like the CBR loans.

The present acute payment crisis could be eased through settlement of reciprocal non-payments. This is technically possible but difficult because commercial banks are too numerous and because it would be necessary to grant special credits whose utilization is hard to monitor.

The only radical way to end the payment crisis is a purposeful structural and industrial policy from the government supported by tax, customs and preferential credit terms, stimulating the output of competitive products and merciless with regard to manufacturers of non-competitive goods. Such a policy could lay a real basis for future economic growth. Sadly, thus far the government's policy boils down to making increasing numbers of exclusive decisions and granting preferential terms to individual regions and enterprises.