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Russia: Opposition Warns On Debt, IMF

  • John Helmer

Moscow, 14 April 1998 (RFE/RL) -- A Russian economist opposed to the government has said that the International Monetary Fund (IMF) program for Russia "contradicts the national legislation." Sergey Glazyev, head of the Information and Analysis Department of the Federation Council, says that measures proposed by the IMF make the program "illegal."

Referring to the IMF proposal in this year's program to cut up to 300,000 jobs in education and health care, Glazyev added: "It's not necessary to be an economist to combat such primitive ideas. It means the government is forcing the population to pay for the chaos in government. (Deputy Finance Minister Alexei) Kudrin proposes to cut social expenditures while expenditure on internal debt grows enormously. The Russian government is creating a financial pyramid of debt, and the main taxpayers are so powerful, they don't pay tax. It's easier for the government to cut social welfare, and allow the oligarchy to be relieved of tax."

Glazyev is currently head of the Information and Analysis Department of the Federation Council, and an influential advisor to Council Chairman, Yegor Stroyev. Stroyev, the governor of Orel, has been named by the Communist Party as its candidate for Prime Minister to replace the sacked Victor Chernomyrdin, and instead of the presidential candidate, Sergei Kiriyenko.

While Glazyev and Kiriyenko are both in their 30s, Glazyev has had considerably more experience as a 'reformer' in government. He served for two years as the minister in charge of foreign trade. He was the only 'reform minister' to resign in protest against government policies, and against the disbanding of parliament (the Supreme Soviet) in 1993. Glazyev went on to win a seat in the 1993-95 Duma, where he chaired the Economic Policy Committee. During the presidential election of 1996, he was Alexander Lebed's economic advisor, and served under him at the Security Council.

According to Glazyev, IMF intervention protects the energy and financial sectors by stimulating their revenues, and helping them avoid taxation. The government is willing to go along, he noted, because Gazprom and the banks profit hugely.

He attacks the government's ruble policy for producing an eight fold drop in price competitiveness for domestically produced goods, and for facilitating a massive dependence on speculative foreign capital inflow into high-interest government bonds (GKO's). Debt service, he says, "is now two-and-a-half times higher than tax revenues, and it's growing at 30 percent per annum."

Glazyev proposes to increase budget revenues by imposing taxes on the export of natural gas, and on the import and domestic sale of alcohol. Together, he calculates the measures would add $7 billion to the budget. In addition, "we should tax the profit of the Central Bank." Observing that the government pays the Central Bank to buy GKO's at the market interest rate, and then doesn't reclaim the profit, Glazyev charged the Bank "is out of control. It doesn't declare profit. It pays super-high wages and builds palaces. It refuses to allow the Accounting Chamber to audit its books." All three measures are opposed by the IMF, Glazyev noted.

By blocking simple lending by the Central Bank to the government at 10 percent interest, Glazyev accused the IMF and the Bank of creating a lucrative trade in which the Bank buys GKO's at 30 percent or higher, and keeps the profit. The Federation Council voted last June to order an Accounting Chamber investigation, but the Bank blocked access by the auditors. The Council has requested the Procurator-General to force the Bank to comply with the law.

Glazyev's attack on GKO financing directly threatens the profitability of the banks on whom the electability of government candidates and President Yeltsin depend. But the rising debt, and the start of a new election cycle, requiring higher GKO volumes and interest rates, makes it "impossible to avert a crash of the GKO financial pyramid without restructuring it," says Glazyev.

Only when interest rates have been pulled down, and the size of the debt repayment in the federal budget are reduced dramatically, will it possible, according to Glazyev, to draw investment into reviving domestic industry. Unless this happens, Glazyev predicts no growth and continuing budget crisis to the point where, by 2003, the government "will not be able to afford to service (its foreign debt)."

Referring to the economic policy announced by prime minister-designate Kiriyenko, Glazyev said, "Kiriyenko won't be any different. (This) is a stupid policy which can't lead to any consensus."

A report by the Organization for Economic Cooperation and Development (OECD), issued this month in Paris, warns similarly that "at the higher interest rates, government debt could potentially spiral out of control, particularly if growth in the economy does not pick up."