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Russia: The IMF, Taxes And The Budget

Moscow, 22 April 1997 (RFE/RL) - A delegation from the International Monetary Fund (IMF) has arrived in Moscow to review Russia's economic program, as the government announced it had nearly doubled its collection of taxes this month. But Russia is unlikely to pull itself out of the deepening budget crisis any time soon.

Tax authorities announced yesterday that collections reached 84 percent of targets for the first half of April, the highest level this year. Word of improved revenue collection should revitalize this week's talks with the IMF, which has suspended several installments of its 10.1 billion loan to Russia, citing concerns over poor tax collection.

First Deputy Prime Minister Anatoly Chubais announced last week that Russia faces what he called a "monstrous budget crisis," because tax revenues reached only about 40 percent of forecast levels for the first three months of this year. Low tax collection has been blamed for the mounting wage-and-pension-arrears crisis, which has afflicted millions across the country. An increase in revenue should strengthen the hands of the government, which is bracing itself for a battle with the opposition-dominated State Duma over plans to cut spending.

The government's revenue crisis has only been made worse by the IMF's refusal to release monthly loan payments for this year (January-March), totalling nearly 1 billion. Although IMF Managing Director Michel Camdessus said during a visit to Moscow this month that the fund was likely to resume lending this year, the money has not been forthcoming.

A key factor preventing the funds from flowing is the lack of an agreement on an economic policy program for 1997. The IMF has been pressing Russia's new Cabinet to draw up more realistic revenue targets. While Camdessus said an agreement was reached in principle, analysts say there may be haggling over the numbers.

This week's IMF visit is indeed likely to be more about style than substance. IMF Moscow office chief Martin Gilman said yesterday he expected all "unresolved and not vital" aspects of the program to be clarified during the delegation's visit. At the same time, Chubais will be in Washington for most of this week, attending the annual World Bank and IMF Spring meetings.

Chubais, however, has indicated that he wants to scale back the role of the IMF in the Russian economy, saying he does not expect Russia to continue borrowing after this loan. Many analysts have noted that IMF funds, despite being available at low interest rates and relaxed repayment schedules, may have become too politically costly for the government as it seeks to drum up support for sensitive reforms in the Communist-dominated State Duma. One such area is a new tax code, which the government submitted to the parliament last Friday.

The government has turned successfully to international markets to make up for the revenue shortfall, raising $2.2 billion with two Eurobonds over the past six months. It plans to issue two more Eurobond offerings this year. Although the Eurobond funds come with no political strings attached, they are contributing to what many are calling a looming debt crisis, which could hit Russia in about two years.

The Eurobonds, however, have been a crucial way for the government to fill yawning budget holes. Difficulties in fulfilling spending targets have come center stage, because the 1997 budget -- for the first time -- requires the government to seek Duma approval for spending reductions when revenues fall below 90 percent of targets.

The budget requires the Cabinet to draw up proposals to reduce spending, across the board, except for protected items, which include education, health, and internal debt. The government was required to submit a plan this week, but it has delayed discussion of the spending cuts in the Duma until May 21.

Prime Minister Viktor Chernomyrdin is reported to have asked for the postponement to give the Cabinet more time to prepare the new spending proposals. A Cabinet meeting scheduled Friday is due to approve the new projections.

The Duma is expected to use the debate on spending cuts to lash out at the new Cabinet, which is likely to face an uphill battle to defend its plan. Duma Chairman Gennady Seleznyov has suggested the government simply print 30 trillion rubles to pay off wages arrears.

The government has dismissed such proposals, saying such action would only make the situation worse. Chubais, for his part, has said the cuts are essential if the government is to live up to its responsibilities. As he put it: "The government will say what it can do -- and do it."