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Russia: Economy Cited As Both Best And Worst By IMF Official

  • Robert Lyle

Washington, 14 April 1998 (RFE/RL) -- A senior official of the International Monetary Fund (IMF) cites Russia as an example of some of the best and some of the worst in dealing with the pressures of a global economy.

Michael Mussa, the fund's director of research, says Moscow's failure to collect taxes, especially in cash, is seriously hurting the country's economic performance overall.

This has been "the source of concern now for almost two years," he told a press conference Monday in Washington in releasing the fund's semi-annual World Economic Outlook.

The report spells out the problem: in 1997, Moscow collected taxes equaling only 12 percent of its GDP (gross domestic product or size of the economy), well below the norm elsewhere. Also, it collected 30 percent less than it had targeted in the budget, and worst of all, a huge 20 percent of the taxes collected were not paid in cash, but in trade-offs and barter.

Mussa says this failure to collect cash revenues is one of the things that has contributed to a system of arrears where the government itself acquires goods and services, but doesn't pay for them. The subsequent buildup of arrears in wages and bills due means people don't pay their taxes, "anticipating they can cut a deal with the government later," he says.

The IMF report says the Russian government's resort to non-cash mechanisms to settle budgetary arrears against the arrears of tax debtors, "severely undermines incentives for paying taxes in cash." And the lack of cash only makes the arrears worse, perpetuating the vicious circle. Said Mussa: "That is not a reliable basis on which to build a market economy."

At the same time, Mussa singled out Russia as a particularly good example of a country which was prepared for global shock waves and dealt with the wave from Asia admirably.

International financial crises, such as that in East Asia, are a bit like the weather pattern El Nino, says Mussa -- you can't change the weather, but if you are strong and prepared, you can usually survive the worst it throws at you.

Similarly, economic policies and financial institutions need to be sufficiently strong, and countries need to be prepared to respond aggressively when the pressures do come, he says.

Russia was among those which quickly tightened monetary policies, raised interest rates and did a number of other things necessary to withstand the pressures of the Asian crisis, he said. The Czech Republic did the same after a first misstep.

But, Mussa went on, there are other global forces which are not so easy to fend off -- for example, when investor attitudes toward a particular country suddenly shift from over-confidently pouring capital into a country to quickly wanting to take that capital out.

This sort of phenomenon is usually triggered by domestic economic weaknesses, he said, but it can also be a side-effect from completely unrelated events. Usually, it's a combination of many such effects. That's when such countries as Russia, which are heavily dependent on foreign capital to finance government operations as well as for equity capital, are still very vulnerable. So long as a country's financial systems need to be rebuilt and strengthened, and its economy is generally weak, said Mussa, it is not really prepared.

Mussa said Russia has had great success in strong monetary policy, which has held inflation down and stabilized the ruble. But her said failure to deal with the fiscal problems soon could undo that success.