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Analysis From Washington: Undermining Russian Federalism

Washington, 24 April (RFE/RL) - Western pressure on the Russian government to improve the collection of taxes as a precondition for future IMF loans is likely to spark new conflicts between Moscow and Russia's far-flung regions.

That is because many of Russia's regions have not been paying what they owe, and any efforts now to force them to do so will antagonize regional elites and lead some of them to demand greater autonomy.

And such demands could quickly escalate beyond the capacity of the central state apparatus to control.

This potentially explosive cycle was set in motion this week when International Monetary Fund representatives told Russian officials that Moscow must reduce the country's budget deficit by improving and enforcing the tax code.

Now as in the past, the IMF is focusing on the special tax privileges that Russian President Boris Yeltsin has extended to certain large enterprises, such as LUKoil and Gazprom. And the Western agency has demanded that all firms pay what they owe.

But Russian officials have responded that an even greater source of the tax collection shortfall may be the special relationships that Yeltsin has signed with 26 of the 89 regions of the Russian Federation.

Drawn up to calm regional protests and to win Yeltsin political support at key moments in the past, these special accords have given these regions a variety of special tax breaks and in some cases even allow them to withhold funds entirely legally.

Earlier, the tax breaks Yeltsin gave to Tatarstan and Sakha sparked public outrage, but the special favors Yeltsin has extended generally in secret to other regions may be even greater.

Along with the general collapse of the country's tax system, these accords have meant that only eight of the country's regions now pay more to the center than they receive. This represents a decline from 25 such regions in 1994.

If Moscow attempts to reverse this situation and to collect taxes in a universal and fair way, the tax problem is likely to become a political problem as well.

Over the last several years, the central Russian government has tried to force the regions to pay what they owe by withholding governments payments to regions that do not pay their fair share.

But instead of improving the tax collection situation, that policy has only led ever more regions to withhold taxes from the center.

Consequently, an IMF-inspired campaign by the central authorities to collect more taxes from the regions is almost certain to backfire if it is implemented quickly.

Those regions which have special agreements now will view such efforts as yet another example of Moscow failing to live up to its promises.

Those regions which do not have such special agreements now will undoubtedly begin to demand them to the extent that the Russian government is forced to acknowledge the details of the current accords.

Moreover, these regions will see the privileges extended to others as yet another example of Moscow's bad faith with respect to them.

In both cases, such attitudes about taxes are likely to spill over into attitudes about relations between the center and the country's regions.

Yeltsin has worked hard to buy off the regions and to prevent further decay of central authority, but if he now tries to reassert the power of the center in the area of taxes, he will likely find that he will have lost much of what he had gained.

That is not to say that a tougher approach toward the collection of taxes will spark any new drive for secession, but it is to suggest that the IMF in its efforts to improve Russian tax collections now may undermine Russia's first tentative moves toward federalism.