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Russia: Yeltsin Warns Of Cabinet Shakeup

Moscow, 17 February 1998 (RFE/RL) -- Russian President Boris Yeltsin warned today that there would be a cabinet shakeup if ministers fail to resolve the economic problems facing the country.

In his annual speech to a joint session of parliament, Yeltsin called for the adoption of a realistic budget and passage of tax reform to ensure substantial economic growth this year. Yeltsin has in the past called on the government to guarantee economic growth of 2 to 4 percent this year. As he put it: "If the government is not capable of resolving these strategic tasks, we will have a new government."

The Russian president patted himself and his cabinet on the back for bringing down inflation, stabilizing the ruble and reversing the decline of the economy last year. But he said: "This is no longer enough. We need a steady and qualitative economic growth. We need a growth supported by a mighty influx of investments."

Yeltsin called on legislators to amend the 1998 budget to ensure that it contains realistic revenue and spending parameters. The amendments are due to be submitted today to the lower house of parliament, the State Duma, which is expected to pass the budget in a fourth and final reading soon.

Finance Minister Mikhail Zadornov warned today that Yeltsin could veto the budget bill unless the Duma passes the amendments. It is unclear what specific changes the government is proposing, but First Deputy Prime Minister Anatoly Chubais said the amendments were meant to tighten budget policy and increase revenues in response to the world market volatility. In his words: "If the country pursues an irresponsible financial policy at a time of a financial crisis, if the budget is not realistic, it is a terrible threat to its economy."

The Asian financial crisis has shaken the Russian economy, pushing up interest rates and making it far more expensive for companies to raise funds on international markets. At the same time, investors have been demanding the government cut spending to prevent its budget deficit from expanding. Yeltsin acted to meet those concerns in part today by ordering the government to draw up a program by May to slash government spending. As he put it: "It is time to learn to do what any housewife knows how to do - spend money economically, rationally and live according to one's means."

At the top of the government's agenda this year is tax reform, considered essential if Russia's messy public finances are to be cleaned up and tax evasion is to be eradicated. The government submitted a revised tax code to the Duma earlier this month, after a similar proposal was rejected by deputies last year. Yeltsin urged the Duma to pass the much anticipated tax bill, saying it was the precondition for achieving economic growth. In his words: "It cannot be delayed any further."

The government has made much of a 40 percent rise in tax revenues in January compared to the same period last year, but analysts say the increase is due to a one-off tax payment by gas giant Gazprom.

Yeltsin's push for tax reform comes as the head of the International Monetary Fund, Michel Camdessus, is due to arrive in Moscow today for talks on the organization's $10 billion loan to Russia. The IMF has repeatedly suspended loan payments due to chronically low tax revenues. Yeltsin said he wanted the current IMF loan to be Russia's last.

Among other initiatives, Yeltsin ordered the Economics Ministry to create an industrial policy program by June that would help domestic producers compete with foreign companies.

Reaction to Yeltsin's speech was muted. The markets generally shrugged off the speech, despite Yeltsin's call for driving full-speed ahead with reforms. Some observers said Yeltsin's proposals were reminiscent of past promises that were not kept.