MOSCOW. (RIA Novosti economic commentator Vlad Grinkevich) - The ten-year history of the Russian kopeck has come to an end.
Arkady Tkachuk, Director of Goznak Association in charge of printing banknotes, said, "Kopecks cost more than their nominal value and do not return to banks. This is why there is no point in minting them."
This verdict and the start of the mass minting of ten ruble coins, which was also announced by Tkachuk, mean that the government has acknowledged its defeat in curbing inflation. This is confirmed by yesterday's proposal by the Ministry of Trade and Economic Development to raise the annual forecast of the price rise from 8.5% to 9.5%.
The kopeck returned into circulation after the 1997 denomination. But the new Russian coin was different from its Soviet predecessor. A Soviet kopeck could buy a glass of soda water or a box of matches. A Russian kopeck is worth nothing and can buy nothing, but it was not supposed to buy anything. In bringing it back, the then Russian leaders merely wanted it to symbolize the strength of the national currency and the advent of stability in the Russian economy.
President Boris Yeltsin made optimistic statements such as, "We are reliably controlling the circulation of money and inflation. Prices on basic foods are practically stable, and we are firmly convinced that they will remain stable. This is why we have decided to carry out monetary reform. We are thereby declaring that there will be no inflation. We have done away with it. New zeroes will never appear on our banknotes." A year later, after the default of 1998, the ruble collapsed, and inflation reached high levels.
The appearance of new zeroes on banknotes is not far off - a 5,000-ruble banknote was put into circulation in 2006. Now the printing of a 10,000-ruble banknote is under discussion. In the meantime, the 1997 symbol of stability has become a real burden in the wallets of Russians. People have long stopped taking kopeck change, or bending to pick up a dropped coin. Now, ten years after, Tkachuk said, "Kopecks are mostly used in payments for utilities. If we round these sums, we will save on getting rid from small coins."
Withdrawal of kopecks from circulation and replacement of ten-ruble banknotes with coins are justified economically, but they make it abundantly clear that inflation is out of control.
Few believed in the government's ability to keep inflation at 8.5% this year. Experts believe that officials resorted to contradictory measures in fighting inflation. Chief Economist of the Trust Bank Yevgeny Nadorshin made this comment, "We are trying to counter inflation by administrative actions but are whipping it up by monetary measures. In winter, experts predicted that in the next few months the government would have to make a choice between economic growth and fighting inflation, and most likely, it would favor the former option."
These predictions are coming true. At a government session Prime Minister Viktor Zubkov admitted that the attempts to freeze prices on basic foods did not produce the desired effect. It was hard not to notice this because prices on bread jumped by 15-25% in a week in several regions at once. Prices on dairy products and vegetable oil also started rising, but not at such a pace. The prime minister suggested that the agreement on freezing prices should not be extended. He said that instead it is necessary to more actively use custom duties and tariffs, and organize open trade in oil products, mineral fertilizer, construction materials and other commodities.
Yesterday the Ministry of Trade and Economic Development actually decided to give up its policy of targeting inflation. Director of its consolidated macroeconomic forecasting department Gennady Kuranov said that inflation would reach 9.5% instead of 8.5%, and that the GDP would grow at a rate of 7.1% instead of 6.7%. The government's budget commission should make a final decision on this question at a session on March 28.
Some experts consider a stake on economic growth preferable to fighting inflation, all the more so since adjustments promised to pensioners and public sector employees would surpass most of the reasonable inflation forecasts.
It goes without saying that when we enter another "era of stability," extra zeroes on banknotes will have to be cut off. But this will not happen before 2011 - the ministry predicts that by that time inflation will drop to 5.8%.
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
