MOSCOW -- The Russian Cabinet Thursday approved a 14 trillion ruble package of subsidies, hand-outs and loans to the country's ailing agricultural sector which critics say could plunge Russia into hyperinflation.
The package show the government loosening its purse strings after the resignation last month of free market reformers Yegor Gaidar and Boris Fyodorov, who championed radical cuts in state spending to reduce inflation.
The aid deal, submitted by Deputy Prime Minister Alexander Zaveryukha at the first session of Russia's reformed inner Cabinet Thursday, amounts to nearly $9 billion and is almost as large as the entire budget deficit for last year.
The decision to give preliminary approval to the package sparked furious responses from economic reformers, who claimed it would send inflation sky-high and wreck the government's achievements in keeping down spending.
'It would lead to a doubling of credit emissions in the first quarter of this year,' said Andrei Illarionov of a government think tank on economic reform, 'and would bring inflation up to 35 percent in April and 50 percent by June.'
Illarionov also warned that the real cost of the handouts would be much higher than the 14 trillion in subsidies, even exceeding sums spent on food imports in 1993.
The total package, he said, including already issued credits for spring planting, would add up to 34.7 trillion rubles ($22 billion) -- 10 times more than the cost of last year's imported food.
But Economy Minister Alexander Shokhin told deputies in the upper house of Parliament Thursday that the government was still committed to bringing inflation down to between 7 and 9 percent by the end of the year -- still higher than the target set by the Cabinet's departed reformers. But government economists are constantly revising their inflation figures upward and most reformers now predict the government's open retreat from tight spending could push the country into hyperinflation.
The government's agriculture rescue package grants massive subsidies to farmers to help pay for fuel, fodder and fertilizer, while providing cheap loans for the purchase of agricultural equipment and earmarking almost 3 trillion rubles for new capital investment in agriculture.
Reformers say more should be done to break up Soviet-era state farms and encourage private enterprise in the countryside, rather than pump more money into the existing, highly inefficient system of collectivized agriculture.
Zaveryukha, who put forth the agriculture rescue plan, is a socialist and former collective farm bureaucrat who represents the Agrarian Party, an ally of the communists.
But Illarionov said agricultural doesn't even need the infusion of cash. He said, 'Agriculture is in a favorable position compared to other sectors of the economy.' He noted that production fell 4 percent last year while industrial output dropped 16 percent.
Shokhin said also that the government was planning to pay out 3 trillion rubles ($1.9 billion) to settle outstanding debts to enterprises.
Meanwhile, the newspaper Izvestia said further spending was in the pipeline, including a 6 billion ruble program to restructure the steel industry and a massive injection of cash to help central Russia.