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Russia: Chernomyrdin Applauds Economic Recovery

Moscow, 9 January 1998 (RFE/RL) -- Prime Minister Viktor Chernomyrdin says the economy is firmly on the road to recovery in 1998, pointing to promising year-end figures capping Russia's first year of economic growth since reforms began.

In remarks broadcast on Russian television yesterday, Chernomyrdin told a cabinet meeting that gross domestic product grew by 1.2 percent in December 1997 compared to last year, while industrial production rose 3.2 percent.

GDP was up 0.4 percent for the year, according to preliminary figures, said an official from the State Statistics Committee, Goskomstat. Officials declined to provide annual figures for industrial production.

It is the first time Russia has posted economic growth since the collapse of the Soviet Union. In 1996, GDP fell 6 percent following several years of sharp decline.

Many economists have noted that the economy is indeed recovering. Al Breach from the Russian-European Center for Economic Policy says: "The economy is picking up and is picking up quite fast in certain sectors... it will grow faster than it did last year."

The cabinet will meet with President Boris Yeltsin on February 26 to account for the results of 1997 and outline plans for this year. The meeting, at which many expected a cabinet shakeup, had been scheduled for last month but was delayed when Yeltsin came down with what his aides said was a severe cold.

Chernomyrdin gave the cabinet until mid-February to finalize a restructuring plan to promote economic growth next year. He said the government is forecasting growth of 2 percent and inflation of 5 to 8 percent in 1998. The government already pushed down inflation in 1997 to 11 percent, below its targets for the year and less than half the rate in 1996.

Despite these encouraging signs, Chernomyrdin said the figures fell short of expectations. The government had been targeting 2 percent growth in 1997.

Chernomyrdin blamed budgetary problems, particularly low tax collection, for putting a brake on growth. Improved tax collection will be the top priority for 1998, he said, adding that a new version of the tax code will be submitted to the State Duma, parliament's lower house, by the end of the month.

But the fate of tax reform, considered crucial to sorting out Russia's budget problems, remains uncertain. The government's original tax code proposal got bogged down in the Duma last year as deputies put forward some 4,000 amendments to the draft.

Hampered by dismal tax collection rates, Russian authorities scrambled during the last few weeks of December to fulfill a promise to pay off all wage arrears by the end of the year. The government started 1998 with a clean slate, Chernomyrdin said, having transferred 15 trillion rubles ($2.5 billion dollars) to regional authorities to eliminate the wage backlog at the end of the year. The government did not need to borrow to raise the cash, he said, because tax collection in December was up.

The prime minister said the Central Bank and the government had successfully defended the ruble during the recent turmoil on world markets. But he said the government would aim to return rates on treasury bills to pre-crisis levels by April or May. T-bill rates jumped to more than 40 percent late last year from around 18 percent before the market upheaval. Deputy Prime Minister Boris Nemtsov said earlier this week that the government aimed to reduce rates to 15 to 18 percent in 1998 in an effort to encourage lending to the economy. As he put it: "With yields of 30 percent, no one will invest in the real sector or in the economy," he said.

The rise in rates has essentially increased the government's cost of borrowing. Many economists say that unless rates come down, the 1998 budget will run into trouble as the government is forced to find extra funds or sequester spending to cover higher debt servicing costs.

Nemtsov has said economic growth in 1998 hinged on "major structural transformations," citing the need to slash taxes and introduce a means-tested system of social benefits. He said the government is targeting 4 percent growth in industrial production in 1998.