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Russia: Stepashin's Ability To Fix Economy Questionable

Moscow, 20 May 1999 (RFE/RL) -- The State Duma's approval yesterday of Sergei Stepashin as Russia's prime minister has ended, for the moment, a government crisis that began last week when President Boris Yeltsin sacked Yevgeny Primakov.

Yeltsin said he fired Primakov as prime minister to re-invigorate Russia's faltering economy.

However, it's not clear how effective Stepashin will be with reforming the economy, since the former interior minister has no formal background in economics.

Much will depend on the new cabinet and the economic team that Stepashin assembles. Stepashin says the first cabinet appointments could come as early as next week.

So far, Stepashin has sent mixed signals concerning his economic priorities.

On the one hand, he says he'll make sure a package of stiff economic measures requested by the International Monetary Fund prior to the release of a $4.5 billion loan is passed by parliament. Even before the Duma approved him yesterday, Stepashin warned deputies he would seek a vote of confidence from the Duma if deputies reject the package.

Acting Finance Minister Mikhail Zadornov says the Duma will start considering the measures this week. The package aims to increase Russia's tax base, include raising taxes on alcohol and gasoline, as well as reforming the banking system. Stiff opposition is expected to the alcohol tax rise.

On the other hand, Stepashin says his new cabinet will also try to protect citizens from the impact of the IMF measures.

He says the government must create "social cushions" and any measures have to be aimed at only those with "fat wallets."

With only 13 percent of the population earning more than $100 a month, though, it's hard to see though how Stepashin will be able both to satisfy the IMF and protect citizens from economic hardship.

One plan might be to limit the new tax on spirits to only the most expensive brands of liquor. It's unclear how the IMF would react to that idea.

Meanwhile, in a move seen supporting the IMF proposals, Russia's central bank this week revoked the licenses of 12 failing banks, including Menatep. Before last year's financial crisis, Menatep was Russia's seventh largest bank in terms of assets. Central bank officials say another five banks will lose their licenses soon.

In a sign of relative optimism about the economy, the OECD said in a recent report that the situation of Russia's economy is "perhaps a bit more encouraging than in late 1998."

Higher world oil prices and a weaker ruble have helped Russian companies boost output.

The health of Russia's economy depends largely on commodities, in particular oil. Since last December, oil prices have risen more than 40 percent. The prices of other commodities have also risen or are holding stable.

Russian oil producers are reportedly reviewing their plans for the year in the hope a recent decline in output can be reversed. The question remains whether the upward trend in prices is sustainable.

Former Central bank Deputy Chairman Sergei Alekashenko says though that whatever external factors might be helping the economy or whoever Stepashin chooses for his cabinet, the basic tasks for the economy remain the same:

"Anyone leading the government now, independent of the composition of the cabinet, will have to solve the same problems. The main one is strengthening the federal budget. This includes a range of connected problems. They are: to increase tax collection; keep on track with negotiations on foreign debt restructuring; keep on track with IMF negotiations; restoring the financial markets. I would add two more that in the short term should be considered a priority for the government, jointly with the Central Bank. [They are] working on restructuring the bank system, dealing with its re-capitalization and a more long-term goal that should have been addressed long ago, which is attracting foreign investment and solving issues linked with this, like strengthening the legislation to protect property and fighting for the protection of small investors. There are questions that were on the agenda one to two years ago and that, unfortunately, remain unsolved now."

Few in Russia truly believe that Stepashin can fix the country's economic problems and stimulate a recovery. His appointment, for many, appears to have fulfilled political -- not economic -- goals.

Communist leader Gennady Zyuganov spoke for many when he said "the new government has no guarantees it will be able to accomplish anything while the main 'destroyer' (president Boris Yeltsin) is sitting in the Kremlin."