Yeltsin Demands Action on Economy
By David Hoffman
Yeltsin and Prime Minister Sergei Kiriyenko used some of the toughest language of recent months in an appearance before government bureaucrats and members of parliament to unveil yet another plan to shore up Russia's hemorrhaging state finances, which have triggered investor panic and flight. Russia has also been buffeted by the Asian financial crisis and a collapse in world oil prices.
Many of the proposals outlined today were not new, but the tone was apocalyptic. "If the state does not learn to collect taxes," Kiriyenko said, "it will cease to exist." Among other things, Kiriyenko announced that Russia could get by with only one type of strategic nuclear missile in the future rather than three. Yeltsin warned of "dangerous" social tensions over unpaid wages.
Kiriyenko vowed to crack down on illegal alcohol imports, cancel tax breaks, allow regions to raise their own levies, slash tariffs from the energy and transport monopolies, shift the burden of taxes from industry to consumers and cut state spending further.
The tough talk came as Russian officials continued negotiations with the International Monetary Fund on a $10 billion to $15 billion stabilization package to bolster Russia's depleted hard-currency reserves, which stand at about $15 billion, including gold.
The government today reiterated its determination to defend the current exchange rate of six rubles to the dollar, with Central Bank Chairman Sergei Dubinin insisting that devaluation "could only do harm."
Dubinin's comments reflect the view among Russia's economic reformers that the single most important accomplishment of recent years has been stabilization of the ruble and taming of the hyperinflation that followed the collapse of the communist economic system. They fear that devaluation, by raising the price of imported food and other foreign goods, would restoke inflationary fires.
But there is a growing sentiment here that market realities may force a devaluation of between 30 and 40 percent. Andrei Illiarnov, a respected economist, said in a radio interview Monday that it would be futile to borrow billions of dollars from the international financial institutions to prop up a ruble that is "doomed for devaluation."
Illiarnov and others say that the current exchange rate cannot be sustained with so many investors pulling their money out of Russia, exchanging rubles for foreign currencies in the process. They argue that the economic costs of defending the ruble -- maintaining interest rates at sky-high levels and draining the central bank of hard currency -- are simply too high. And they note that devaluation would provide a big boost to Russia's struggling oil and gas industry.
Stanley Fisher, deputy managing director of the IMF, met today with Anatoly Chubais, Yeltsin's point man for international financial organizations, to iron out differences that have held up release of the next installment of the IMF's current three-year, $9.2 billion loan agreement with Russia.
Chubais told reporters that, as part of a new stabilization package, Russia may seek to borrow not only from the IMF but also from commercial banks and the European Bank for Reconstruction and Development.
In his speech, Yeltsin threatened to act unilaterally if parliament balks at enacting his government's economic recovery proposals. As president, he has the power to impose legislation until parliament acts, although his decrees often go unenforced.
"The price of delays and procrastination, squabbles and quarrels is too high today," Yeltsin said, demanding that all the legislation sought by the government be passed before parliament leaves for summer recess. "If not," he added, "different kinds of measures will be taken," a clear reference to decrees.
"Shame!" came a catcall from the audience. "Who is the master here?" was another.
After the speech, Alexander Shokhin, head of the pro-government Our Home is Russia party, promised to support rapid action on the package in the State Duma, the lower house of parliament.
But Communist Party leader Gennady Zyuganov, head of a legislative faction that has opposed most of Yeltsin's initiatives, complained that the president had presented a stale menu of ideas. "The materials are prepared by the same people, same faces, same approaches," he said. "The same lack of soul, pain, sympathy and compassion."
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