MOSCOW -- Hoping to lure billions of dollars of cash out from under the nation's mattresses and into the state budget, the government yesterday issued Russia's first post-Communist savings bonds.
The issue of 1 trillion rubles -- $223 million -- worth of one-year bonds carries a promise to pay 25 percent interest in just the first quarter. The small face value of the bonds -- the equivalent of $20 to $100 -- is aimed at private citizens.
However, the appeal of such high interest rates and easy access has to be weighed against the vast public skepticism of the government and the banking system.
There are reasons that $7 billion to $20 billion -- by government estimates -- sits wadded up in people's homes and not in savings accounts or in investment instruments, said Yevgeni Gontmakher, a Gaidar Institute economist and former social policy adviser to President Boris N. Yeltsin.
"Our population doesn't trust our government, and our people have no financial culture," he said.
Russians often were sold government bonds during the Soviet era, but most were never redeemed. So parting with money to bank or invest requires a huge leap of faith here. Getting it back is no easy trick. Bank management often decides on a whim not to allow withdrawals on a given day, checks are not used here, there are virtually no ATMs for domestic banks, and banking scams and bankruptcies rock the nation practically weekly.
Moreover, the inflation that wracked the first years of Russian democracy withered ruble bank accounts. The ruble savings that would have bought a car in 1992 barely buys a kielbasa today. So converting rubles to dollars and smuggling them away in the house has been the primary inflation hedge here.
Even physically, the new post-Communist banks that have sprung up -- 800 of them in Moscow alone -- look a little shady. Typically bank branches are not the marble-columned bastions of public trust, but cubbyholes along dark corridors where admittance is determined by guards carrying automatic weapons.
Even so, yesterday's bonds had some takers.
At least 100 people had signed up and left money for bonds just at Orgbank's branches around Moscow yesterday, said Lev Lipkansky, director of the private bank's bond division.
Considering that the government can't even deliver the actual bond certificates until Monday, the willingness of citizens to put money down ahead of time shows an encouraging amount of confidence in the government, he said.
People are just so desperate to find a safe place to keep their money that the new concept of bonds that have interest-bearing coupons redeemable quarterly will lure plenty of pensioners and other people with less than $100 to invest, said Klara Zastenker, an Orgbank branch manager.
Asked if she really thinks that the government will pay its obligations this time, she said the government has had a good record with its treasury bill payments, but the bonds are "an untested technology."
Yelena Gonchar, a gold mining company financial officer, stood in line yesterday to put $600 of her own into bonds and $1,000 entrusted to her by colleagues. Her company also has invested $200,000 in the savings bonds.
"A culture of trust is just being formed," said Ms. Gonchar, who said she remembers the unpaid bonds that her parents were forced to buy during the Stalin era. "There are employees of my firm of the older generation who can't be convinced that it's not enough to just put money in the bank or in the house but they have to make money work.
"Russia's the kind of a country where there's risk with everything you do. So we don't have any choice but to trust the government," she said. "It is a gamble."
The Yeltsin government is gambling, too, in its effort to gain public confidence in order to cover its deficit, said Mr. Gontmakher. In promising 102 percent annual interest on the bonds, the government is betting that inflation will drop to less than 2 percent a month from its 10 percent-a-month clip in the first half of the year, he said.
If the government can't pay off the bonds as promised, it would sour public confidence not just in the economy but in elected officials themselves. And parliamentary elections are scheduled in December, presidential elections in June.