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Russia: OECD Cautious About Economy

Moscow, 8 October 1997 (RFE/RL) - Top officials from the Organization for Economic Cooperation and Development wrapped up two days of talks in Moscow yesterday sounding a cautious note on the Russian economy. But they indicated membership in the exclusive club of rich nations remains a distant prospect.

OECD Secretary General Donald Johnston, on his first visit to Russia, announced a series of policy recommendations that were presented to Prime Minister Viktor Chernomyrdin as part of a review of the economy to be published later this year.

Johnston told a new conference that the results of the review show what he called "the extraordinary progress" that Russia has made in stabilizing its economy and bringing down inflation. But he added: "It is also clear that much work remains to be done in Russia."

He stressed that adoption of the government's 1998 budget plan and draft tax code currently before the State Duma are key to putting the economy back on its feet. Both bills face an uphill struggle in the opposition-dominated State Duma.

Johnston declined to give a timetable for Russia to begin membership negotiations with the 29-member OECD, saying it would depend on the pace of reforms. But he said Russia's eventual entry into the organization remains a "shared goal" of all member states. He noted that the OECD devotes one-third of its resources for non-member countries to Russia, a sign that its membership bid is taken seriously.

Russia formally applied to join the OECD last year, but the list of countries knocking at the Paris-based organization's door is long. The OECD has brought Hungary, Poland and the Czech Republic into its ranks, but it is facing the growing pains of expansion, including pressure to cut costs.

Russia is eager to join the OECD as part of its efforts to integrate with the world economic community. But it is not clear that Russia stands to gain much beyond the symbolism of being part of the exclusive club. The organization was set up after World War Two to channel Marshall Plan aid to Western Europe, but it is now primarily a think tank and forum for exchanging policy ideas.

Based on a summary of the OECD's review of the Russian economy released Tuesday, membership could be several years away. It says that despite achieving relative macro-economic stability through strict monetary policies, the Russian government needs to tackle structural reforms, slash subsidies, and establish a firmer legal basis for bankruptcy and tax collection.

A summary of the review said: "Tax reform is among the utmost of priorities." It added that: "Current measures that often force insolvent enterprises to pay tax arrears before wages represent a clear violation of federal law and should be discontinued."

And after two years of predicting that economic growth is around the corner, OECD officials are couching their forecasts in more cautious terms.

Val Koromzay, deputy director of the OECD's country studies division, was perhaps the most blunt: "Mea culpa (my fault)," he said, "We got it wrong."

He said the economy appears to be stabilizing, referring to statistics showing Russia's gross domestic product bottoming out in the first half of 1997.

Koromzay said the government's forecast of two percent growth in 1998 is realistic, but noted doubts about the reliability of Goskomstat's statistics.

"We are sure the numbers are wrong...but it is not clear there is a systematic bias," he said.

The OECD also criticized Russia's privatization process, which has been shrouded in controversy after leading bankers clashed over recent sell-offs. It said: "Measures are needed to ensrue greater transparency in privatization tenders, preventing collusion, bid rigging, and the organization of auctions by affiliates of potential participants."