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Russia: Austerity Battle Might Trigger Confrontation With Duma

Moscow, 24 June 1998 (RFE/RL) -- Russia's Prime Minister Sergei Kiriyenko today started consultations with parliamentary factions, in a bid to ensure support and swift approval of the government's anti-crisis program (see detailed description in subheading below). The program was outlined at an expanded cabinet meeting yesterday.

The government also formally approved its austerity plan, including cuts in spending of 8 percent and revenue increases of about 4 percent. The plan aims to filling holes in the 1998 budget, restore calm to Russian financial markets, and convince the International Monetary Fund (IMF) that Russia is ready to implement the stringent fiscal discipline measures considered a precondition for negotiations on the Fund's additional financial support.

But measures outlined in the plan cannot be implemented without the support of relative bills, approved by Parliament. Only parts of the anti-crisis plan could be imposed by presidential decree. And, most observers in Moscow are skeptical the government will be able to persuade the State Duma to adopt 20 draft bills related to the plan, before the lower house of parliament adjourns for its summer recess July 15.

According to observers, the time frame set by the Kremlin could lead to a confrontation with the Duma, and possibly to a dissolution of the body, if it fails to give the cabinet the requested support.

President Boris Yeltsin yesterday endorsed the government plan, and told the expanded cabinet session, including legislators and regional and business leaders, that "the economic crisis has become so acute that there are social and political dangers." Yeltsin called on Parliament to adopt the government's plan, and vowed to take unspecified "other measures" if it did not. Yeltsin, in 1993, ordered tanks to pound the parliament building, to dislodge rebellious members of the previous parliament, the Supreme Soviet.

The Constitution adopted after that event gives a president powerful levers to force the Duma to comply with his plans. Yeltsin could dissolve the Duma, or issue laws by decree if legislators block the government's plan. However, the Constitution does not cite the refusal to pass legislation as grounds for dissolving the Duma.

But analysts say that a confrontation could easily be manufactured.

Nikolai Petrov, a senior associate of the Carnegie Centre in Moscow, tells RFE/RL that the time frame proposed by the government for parliamentary adoption of its plan is "not realistic." He added that Yeltsin's "thinly veiled threat to the Duma indicates that we may well be heading for a new fight."

Confrontation between the President and his foes in the Communist and nationalist-dominated Duma is a usual feature of Russia's political life. The Duma opposed the appointment of little-know Kiriyenko to the post of Prime Minister, when Yeltsin sacked former prime minister Viktor Chernomyrdin and his government three months ago. At that time, however, the economic and political situation seemed to be different, and had not reached what Federation Council Speaker Yegor Stroyev yesterday called the "boiling point."

Communist leaders in the Duma have already slammed Yeltsin's performance, while at the same time welcoming some of the points included in the government's austerity plan. Communist Party and parliamentary faction leader Gennady Zyuganov said, "Yeltsin yesterday performed his usual repertoire. He opened the meeting, started threatening the Duma, was rude, insulted us and left." And Anatoly Lukyanov, an influential Communist member who heads the Duma's legislative committee, said that "there was a time when such threats could have influenced the Duma, but not now."

Analyst Petrov of the Carnegie Centre says, "the Duma seems ready for dissolution." According to Petrov, "the situation of growing economic and political crisis now means that the Communists could get benefits from the election, increasing their presence in the Duma, unlike in the spring, when economic forecasts were overall positive, and they would have been disadvantaged in an early election."

Parliamentary elections are scheduled for December 1999.

Petrov said that a possible dissolution could be set up "in a simple way. The government presents the draft bills. The Duma says it does not have enough time to consider, debate and vote on them before the recess. Then the Prime Minister, asserting the Duma is not acting in the requested cooperative way, calls for a confidence-vote in the government. The Duma votes no confidence, and, at this point, a constitutional scenario allowing the president to dissolve it and call early elections is set up."

For the time being, however, deputies seem to have taken time out, to clarify their positions. The leader of the pro-government Our Home Is Russia Faction, Aleksandr Shokhin, has said the Duma will not start examining the government plan before July 1. Shokhin and his faction, closely identified with former prime minister Chernomyrdin, are meeting Kiriyenko today. Shokhin told the Interfax news agency that "part of the government draft bills have a good chance to be approved... but, not all the measures are likely to be approved."

Pro-reform economist Grigory Yavlinsky, leader of the "Yabloko" faction, today said his faction will support all the measures proposed by the government to stabilize the financial situation. However, he added that "the fate of the austerity plan depends more on the government than on the Duma." Yavlinsky noted that the government's ability to implement its plans is not very high, because Kiriyenko and his cabinet "lack the necessary support in Russia's society, as they lack it in the Russian Parliament."

Ultra-nationalist leader Vladimir Zhirinovsky, whose controversial Liberal Democratic party is considered a possible looser in the next parliamentary election, said that "there are plenty of clever things in the cabinet's program. But there is only one question: how to carry them out." Zhirinovsky yesterday called for a five-year suspension of all elections, including next year's parliamentary elections and the presidential election in 2000, so that Russia could concentrate on improving its economy.

Main Points Of Russian Government Anti-Crisis Program

In order to address the 1988 budget deficit, Russia's government has called for spending cuts in the range of 42 billion rubles ($6.8 billion), equaling about 8 percent of total spending, and for increased revenues in the range of 20 billion rubles ($3.3 billion), equaling about 4 percent of total revenues.

To achieve these goals, the government called for easing corporate taxes and introducing a flat income tax. The government program outlines the following measures:

- cut corporate profit tax, starting October 1; - re-schedule previous year's tax debt, conditioned on timely payment of 1998 debts; - create a state holding company to oversee alcohol industry; - shift tax burden on oil industry to consumers, away from crude oil producers and refineries; - reduce tariffs charged on consumers by companies in the energy and transport sectors (Gazprom/Unified Energy Systems/state-owned rail companies/oil pipelines), conditioned on timely and regular payment in cash; - accelerate bankruptcy procedures and criminal investigations for companies with tax debts; - reduce public-sector work force by 20 percent; - reduce agricultural subsidies; - increase revenues from state-owned property, through more efficient management; - improve income tax collection from foreigners and wealthy Russian citizens - allow regional authorities to levy sales tax (5 percent proposed) - speed up privatization of stakes in state-owned companies.

In order to encourage investment, the government will also try to lower interest rates to about 20 to 25 percent.

Prime Minister Sergei Kiriyenko told reporters that the measures outlined above were included in 20 draft bills sent today (24 June) to the State Duma. He said "a certain degree of compromise" with the Duma on the measures "is obviously possible", but added that "the package should be adopted in one piece and not be dismembered." According to Kiriyenko, the adoption and implementation of the austerity plan "is not a question of cabinet survival, but a question of state security, because, if these laws are not adopted, a global state crisis can be expected."