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Russia: Government, With Yeltsin's Backing, Moves Swiftly To Reverse Crisis

  • Floriana Fossato

Moscow, 29 May 1998 (RFE/RL) -- Russia's new government is moving skillfully, with the backing of President Boris Yeltsin, in a bold attempt to reverse the financial crisis that this week produced panic on its shaky markets and risked producing an economic chain-reaction, with ominous political implications.

However, economic analysts say jittery investors are inclined to wait for more indications that the government's last bold declarations will be matched by facts, proving that Prime Minister Sergei Kiriyenko's team is stronger than past cabinets, and is able to maintain its budget commitments and set a new course.

Yeltsin today held an unscheduled meeting Kiriyenko to discuss the latest developments on financial markets. Following the meeting, Kremlin spokesman Sergei Yastrzhembsky quoted Yeltsin as saying he was "satisfied" with the "calm and adequate way" the government is handling the crisis.

Russia's financial markets this week plunged into their worst crisis in recent years. Share prices fell nearly 40 percent since the beginning of the month, and yields on government bonds soared to about 90 percent at the peak of the crisis Wednesday. Economic analysts said than that the market was overheated by panic-stricken investors, fearing ruble devaluation.

Central Bank Deputy Chairman Sergei Alexashenko said the markets, that are, in his view, "unfortunately more prone to believe in negative forecasts" about Russia. And, forecasts of a possible devaluation of the ruble led to Moscow rumors that some of the powerful business magnates, who had opposed Kiriyenko's appointment, including Commonwealth of Independent States (CIS) Executive Secretary Boris Berezovsky, could be trying to exploit the situation -- to turn the economic crisis into a political one.

Yeltsin this week devoted a considerable amount of attention to the issue of the influence that media have on Russia's public opinion through the coverage of events. Yesterday he urged executive of the three nationwide television channels -- the fully state-owned VGTRK, the partially state-owned ORT and the privately-owned NTV -- to support the government. Today, he repeated, during his traditional weekly radio address, that he has no intention of infringing on the media's independence and rights. However, Yeltsin said that "open cynicism, forgetting one's professional ethics, and irresponsibility" were not included in the concept of a free press.

Television executives had expressed concern this week, after Yeltsin criticized the powerful media owners as the "worst censors" of Russia's media today. And, Yeltsin's has indicated he was unhappy with the coverage of last week's blockade of key railway lines by striking miners, which observers say further contributed to investor discomfort -- despite the skillful way with which the government handled the episode.

Yeltsin's strong backing of Kiriyenko's economic team, mostly untested since being appointed last month, has contributed to an improvement in the psychological situation, and indicates the situation is moving toward stabilization.

The public endorsement of the Russian government's team handling of the economic crisis from top US administration officials and International Monetary Fund Managing Director Michael Camdessus yesterday also appeared to have a positive effect yesterday.

The IMF Moscow office today said it will recommend that the Fund's board release the frozen installment of a $1.1 billion loan. The IMF Moscow office said it welcomes a statement by the government, promising to crack down on tax defaulters and boost revenue collection by speeding up the sell-off of state assets. The IMF office said that, on the basis of this latest package of government measures, it will recommend its board release a $670 million loan installment, frozen since the beginning of the year.

However, economic analysts maintain that, with relatively low state currency reserves and little confidence, the government should seek additional financial support, which could promote a quicker rebound.

Several top Western investors yesterday met deputy Prime Minister Viktor Khristenko. Following the meeting, the investors gave positive marks to the government's effort to stabilize financial markets, saying that the government has responded with all the means at its disposal to strop the economic crisis and is now discussing pulling together a stabilization fund for the ruble, based on a number of public and private creditors.

The government today outlined ways in which it plans to reduce spending this year by about $7 billion dollars. The government said it would seek to collect next month nearly $1 billion from about 20 top industrial corporations, which, so far, have failed to pay their taxes. Reports say that the three major tax debtors, gas giant "Gazprom," the energy monopoly Unified Energy Systems (UES) and the Railway Ministry, during talks with top government officials, have all promised to start paying their standing debts today. Reports say "Gazprom" alone owes $700 million in taxes.

Yeltsin today fired the head of the tax service, Aleksandr Pochinok, and replaced him with former Finance Minister Boris Fedorov, currently a member of the State Duma. The decision was partly attributed to Pochinok service's failure to improve tax collection since the beginning of the year. More firings are expected.