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Russia: Government Still Divided On Fiscal Policy

  • Floriana Fossato

Moscow, 27 November 1998 (RFE/RL) -- Today's meeting of the Russian government was important for the country's 1999 budget, for future talks with the International Monetary Fund (IMF), and also for Prime Minister Yevgeny Primakov's political future.

The cabinet meeting focused on proposals for 1999 tax revenues. Opening the session, Primakov called it "extraordinary" and "crucial." First Deputy Prime Minister Yuri Maslyukov said that, if the government was able to reach a consensus on fiscal measures, it could then discuss the entire draft 1999 budget on Monday (Nov. 30).

Approval of the draft, in turn, would enable the government to present a united front in talks with IMF Managing Director Michel Camdessus, who is due in Moscow on Tuesday (Dec.1). Camdessus' two-day visit was scheduled in response to an appeal from Primakov, who is increasingly worried about Russia's continuing economic crisis.

Ahead of today's session, however, many analysts said the government still appeared deeply divided on fiscal policy.

Finance Minister Mikhail Zadornov has proposed reintroducing export tariffs on crude-oil and natural-gas exports, as well as cuts in profit and value-added taxes and increases in some import duties. Zadornov's proposals are seen by many in Moscow as, at least in part, an attempt to obtain the IMF's favor.

But Deputy Premier Maslyukov -- a former member of the communist faction that dominates the State Duma -- as well as the powerful Russian oil and gas lobby have already expressed their strong opposition to Zadornov's proposals. Maslyukov yesterday described the proposed reintroduction of oil and gas tariffs as "unprofitable" for Russia. He said he favors instead taxes on the export of scrap metal, timber, raw leather, and oil seeds.

Earlier this year, influential oil and gas exporters sought Zadornov's dismissal from the government. Their negative reaction to the finance minister's ideas remains unchanged, and Zadornov's position now appears very weak. In addition, Tax Service Head Georgi Boos -- who is seen as close to Moscow Mayor Yuri Luzhkov -- has his own fiscal proposals, reportedly quite different from Zadornov's.

Today's cabinet meeting thus undoubtedly again displayed the differing positions on economic affairs held by Russia's rival political groups. In the past, those differences made it impossible for the Primakov government to present a united front in talks with the IMF on the resumption of lending. A major IMF loan was suspended after the August 17 devaluation of the ruble and the government's default on some debt payments.

An IMF mission left Moscow this week. Maslyukov, who led the Russian side at the talks, told a news conference that the IMF was "not happy with the way we plan to change our tax system." He admitted that prospects for future talks are, in his words, "not very promising."

Camdessus' arrival in Moscow could give Primakov a chance to persuade the IMF to release a $4.3 billion tranche of its loan. But the strong evidence of Government disunity on economic matters is unlikely to strengthen Primakov's position in his talks with the IMF chief.