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Russia: Duma Examines Austerity Program, Government Targets Gazprom

Moscow, 2 July 1998 (RFE/RL) -- As Russia's State Duma continued to examine the government's anti-crisis program, readers who bothered checking comments on the parliamentary debate were probably very confused.

Moscow's two main financial papers, "Kommersant Daily" and "Russky Telegraf," carried diametrically opposite front page comments on the response to Prime Minister Sergei Kiriyenko's pledge yesterday to deputies to "work together with the government, in order to save the Russian economy.

"Kommersant daily" wrote that the Duma "de-facto approved the government program," aimed at improving tax collection, introduce drastic cuts to Russia's budget, and, ultimately, overcome the country's financial crisis, and help obtaining fresh credits from international financial institutions. But, "Russky Telegraf," wrote that "deputies do not believe in the financial crisis," and that they "did not meet the government program with understanding."

Each interpretation, say observers, could be correct.

Deputies did not outright refuse, as some analysts had forecast, Kiriyenko's plea for cooperation. At the end of yesterday's session, deputies had examined 11 of the more than 20 draft bills presented by the Duma. But, only nine bills were approved, four of them only in first reading, leaving analysts to worry that a mixed commission in charge of reviewing them would change some of the key fiscal measures the government is anxious to see approved.

And, deputies in the Communist- and nationalist-dominated Duma made abundantly clear in their speeches, and with their votes, that parliament had no intention of supporting the government and especially President Boris Yeltsin, by approving measures that they said would damage the interests of citizens - and, particularly the influential energy monopolies and the powerful regional administrations.

Deputies rejected, by a vast majority (331-40), one of the most important measures the government is counting on to assure tax revenues and end the practice of barter that plagues Russia's system of payments in the industrial and retail sectors. The draft was aimed at introducing the payment of VAT and excise taxes at the time of delivery of goods, rather than when industries are paid for them in cash, something that in many cases never occurs.

For instance, gas giant Gazprom and electricity monopoly Unified Electricity Systems (UES) argue they cannot pay their taxes on time and in full, because they do not receive payments at delivery.

Many deputies close to Gazprom's position said, in the Duma corridors before the vote, that the government measure was aimed at breaking-up Russia's so-called 'natural monopolies,' adding they opposed this, because they felt the government was simply complying with requests made by the International Monetary Fund (IMF) for the release of an emergency bail-out package.

Gazprom head Rem Vyakhirev has lobbied intensively and successfully for the Duma support, but the government is continuing efforts to bring him and his company under control.

Until last week, the cabinet had been unsuccessful in its efforts, and a Gazprom shareholders meeting last Friday approved Vyakhirev's re-appointment as company chief executive.

But, today, following yesterday's negative vote in the Duma, Kiriyenko told a cabinet meeting that the government might interrupt an existing trust agreement, under which a 35-percent stake in Gazprom is managed by Vyakhirev. Speculation has widely circulated in Moscow in the past few days that the government would call an emergency shareholders meeting, hoping new leadership loyal to the Kiriyenko's team could emerge.

Itar-Tass news agency said Kiriyenko has ordered the Tax Service to seize Gazprom property, and quoted Fuel and Energy Minister Sergei Generalov as saying the decision was motivated by Gazprom's failure to pay more some 2,400-million rubles it still owes to the budget.

However, Deputy Prime Minister Boris Nemtsov, who today chairs a meeting on Gazprom, said, "if Gazprom will pay its taxes, everything will be all right."

Kiriyenko today said that, in one of the next meetings of a cabinet emergency commission, he will examine, in detail, the debt situation of UES, whose chief executive, Anatoly Chubais, is also the Presidential special envoy in talks with the International Monetary Fund on an emergency loan to Russia of up to $15 billion.

Kiriyenko yesterday warned Duma deputies that failure to approve urgent legislative measures could have dire consequences for the Russian economy. Kiriyenko said that "the world financial crisis, losses in the balance of payments, and difficult social and financial conditions do not allow us to postpone taking decisions." He added that "avoiding taking decision is also a decision." He said the government's task is to "match budget spending and revenues by November 1." And, in a statement that failed to produce the desired effect on deputies, but sent a negative message to jittery market operators, Kiriyenko added that the government "is short of some 4000- million rubles each month." Kirienko also said that Russia this year already paid 36 percent of its budget to redeem its securities market debts. He said that the government "has to pay off 31,000-million rubles every month, or one-and-a-half times more" than it collects in monthly revenues.

An analyst (anonymous) tells RFE/RL that "the government, after obtaining only a hesitant response from the Duma this week, simply cannot wait until deputies cut its emergency program in the conciliatory commission and then adopt part of the package at mid July." According to the analyst, "this would simply not be enough, for the markets, where investors are fleeing on a daily basis, and particularly for the International Monetary Fund, that has expressed the intention of giving an emergency bailout to Russia, together with other international financial institutions, but that needs to see that the government is acting tough to implement its program."

The markets, most analysts in Moscow say, are convinced Central Bank reserves can not last long, without an IMF bailout, aimed at stabilizing the markets, and, they say, investors want to see a commitment to the release of the money now. Some Russian commentators - realizing the difficulty the government faces in pushing through its plan - cite a President, who says that "there is no crisis" in Russia; powerful 'oligarchs,' who want mainly to protect their interests; parliamentary deputies in no hurry to approve long-needed measures; and, international financial institutions understandably needing guarantees that credits will be well used, as warnings of economic doom and growing social unrest that could sweep away this government, the President, and, ultimately, kill prospects of economic reform.