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Russia: Leaders Urged To Deal With Fiscal Problems

  • Robert Lyle

Washington, 27 August 1998 (RFE/RL) -- A senior official of the global organization of commercial financial firms says Russia's rapidly deteriorating financial situation can only be turned around when the country's leadership shows that it is serious about implementing market reforms.

The official, Jeffrey Anderson, told our economics correspondent that Russia's government deficit is far larger than what it can finance from taxes and he said foreign investor's money is no longer available to pay for it.

Anderson is director of the European department of the Institute of International Finance (IIF), the Washington-based organization of over 250 international banks, insurance companies and investment funds.

Anderson says the big challenge is to restore confidence by restoring financial stabilization and that can only be done with a budget which limits expenditures to the revenues available. It also means the Duma must increase taxes and the new government must show that this is "a clear and pressing priority."

In addition to the "very daunting challenge" of getting the Duma behind a serious program of "serious fiscal retrenchment," Anderson says Russian authorities need to address critical reforms and improved supervision needed for the country's banking system:

Anderson says a key part of restoring financial stability is for authorities to look carefully at the supervisory regime it now uses on banks. As importantly, he says, the government must decide on the mechanisms for closing insolvent banks and deciding how their liabilities will be met. There will be costs to the budget in all this too, he says.

Anderson acknowledges that with the forced debt rescheduling of nearly $40 billion of government bonds and notes, along with the tumbling value of the ruble, foreign investors and lenders will stay out of Russia for a long time to come.

However, he says, there are some "clear options" for Russia, one of the most important being to reexamine how it can draw direct foreign investment by private foreign companies and banks that would be interested in buying real assets:

Anderson says Russia does not have a very hospitable environment for foreign direct investment and that there are a number of steps they could take to make the environment more welcoming for this kind of investment. Direct foreign investment has been lagging severely in Russia, he says, and by improving the tax code and changing the attitude toward foreign involvement in energy and banking sectors especially, Moscow might be surprised by the strong interests it might find, especially now that ruble prices would be low.

The IIF official says the answers haven't changed for Russia in several years. What has been lacking is the broad political will to act on the broad range of reforms, from investment climate to taxation to protection of ownership.

"It's a very challenging set of tasks," says Anderson, and will require strong executive action as well as broad political support -- especially in the Duma. At the minimum, he says, "it requires some visible support from the Duma instead of visible opposition."