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Russia: Regions Are To Blame For Wage Arrears

Washington, 7 March 1997 (RFE/RL) - An advisor in Russian President Boris Yeltsin's office on regional affairs says regional and local authorities are the "main" cause of the wage arrears currently plaguing the Russian economy, not the federal budget.

Alexei Lavrov says most regional authorities are pursuing either non-reformist economic policies or no clear policy at all, trying to keep control over the local economy to postpone unpopular but unavoidable decisions. As often, he adds, the regional officials "just don't know what and how to move reforms forward."

Lavrov told a seminar at the Center for Strategic and International Studies in Washington Wednesday that the situation is apt to worsen in the near future because of the "growing political power of regional authorities and especially of the governors."

Lavrov says that when discussing the Russian economic situation, people often forget that there are two levels -- and most of the attention is focused on the federal budget and policies.

However, he says, the regional budgets are becoming like a black hole which absorbs increasing amounts of money without clear responsibility or clear results.

Nobody knows exactly what is going on in public finance in the regions, he says. There are lots of hidden revenues, hidden spending, financial abuses and corruption.

Instead of dealing with their problems, he says, the regional authorities blame Moscow and demand more and more money.

Lavrov ticks off a list of areas where he says regional authorities are blocking reforms and sinking the economy:

Privatization: Regional authorities tend to drag their feet on privatization of state enterprises, but most often "try to push shareholders out of newly established joint stock companies to form sort of semi-public companies to help the former socialist managers keep control."

Price controls: The federal government has no price controls except on natural monopolies, but "in every Russian region we see 50 to 60 prices of consumer goods and services under the control of regional and local authorities."

Cutting subsidies: There continues to be a growth of subsidies at the federal level as a percentage of the economy, but they are increasing even faster in the regional budgets. In 1995, for example, regional subsidies provided 10 percent of total agricultural production, but in some regions that now exceeds 20 percent, he says.

Housing reform: Three years ago Moscow set 1997 as the year in which people should pay at least 60 percent of the real cost of housing and public utilities, but in most regions housing continues to be "heavily subsidized," forcing private enterprises to pay instead of the people using the services.

Tax reform: There is "disorder" throughout the Russian taxation system, but it is only partly at the federal level, he says. "Since 1994, regional and local authorities have introduced dozens of new taxes, most of which suppress economic activity and are inefficient."

The threat by the governor of Irkutsk to withhold federal tax revenues for one month because of money owed the region is "only an attempt at blackmail," says Lavrov, but not taken seriously in Moscow. While the governors have some influence on the system, he says, they generally cannot stop payments from going to Moscow. Only in Tartarstan, Bashkorstan and Yakutia do the regional authorities have tax and banking autonomy that could withhold money, he says.

Lavrov says the Russian federal government must introduce a system of monitoring the economic policies of the regions, becoming "a kind of IMF (International Monetary Fund) to regional authorities, guiding and encouraging them to follow more reformist policies."

He also says the federal government should stop giving unconditional grants to regions and should instead target all federal aid. For example, he says, in housing reform, there might be a "kind of insurance" tied to moving ahead, offered to the regions to get them through the most difficult stages of housing reform.

"If we are going to have real economic reform in Russia, we must compel regional authorities to be more reformist than they would probably prefer to be under present conditions," says Lavrov.

Asked to rank the regions of Russia on how good or bad they are on reforms, Lavrov says he goes more by feeling than by statistics:

Reformist regions: Nizhniy-Novgorod, Moscow, St. Petersburg, Samara, Perm, and Novgorod.

Reformist to some extent: Krasnoiarsk, Tuman, Yaroslavl, Vologda and Komi Republic.

Intermediate reformers: Ulianovsk, Rostov, Ivanovo, Vladimir, Sverdlovsk and Cheliabinsk.

Anti-reformist regions, forming a so-called red belt south of Moscow, are, in Lavrov's ratings: Briansk, Smolensk, Belgorod, Tambov, Lipetsk, Volgograd, Krasnodar, Omsk and Amur.