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Russia: Federation Council Approves Putin-led Reforms

After weeks of wrangling, Russia's regional leaders today gave in to a Kremlin plan that will reduce their powers. During the same session of the Federation Council, regional representatives barely put up a fight before adopting a Kremlin tax reform that could reduce their economic power. RFE/RL Moscow correspondent Sophie Lambroschini reports.

Moscow, 26 July 2000 (RFE/RL) -- By approving a law removing them from parliament and by adopting a new tax code, Russia's regional officials today submitted to the inevitable. In so doing, they gave up the idea of a last stand in a protracted conflict with the Kremlin over President Vladimir Putin's large-scale centralization plan.

The law was adopted after little more than an hour's debate. The Federation Council was slightly more resistant when it came to the discussion of the tax code, which lasted into the afternoon.

The tax reform that was finally adopted could undermine the governors' economic power by reducing their financial resources. Tax and revenue distribution was always at the heart of their tug-of-war with federal authorities.

The bill overhauling the Federation Council passed by a vote of 119 to 18, with four abstentions and 35 members absent. Russia's 88 governors and presidents, as well as 88 regional assembly heads, agreed to give up their seats in the upper house, an important political platform with the power of approving presidential decrees -- including sending Russian troops abroad. After a gradual rotation to be completed by 2002, they will be replaced by representatives appointed by the regional officials. Today's bill was the result of a compromise with the State Duma over a harsher proposal made by Putin two months ago. Federation Council speaker Yegor Stroyev, who met with the president yesterday, made clear that any further fight was useless. He said: "We all know the bill will be passed."

That was an apparent reference to a constitutional provision allowing a bill to be passed in spite of an Federation Council veto if the Duma overrides the veto by more than 300 votes. So far, all three laws implementing Putin's vast centralization plans have been adopted by the Duma with more than 300 votes.

Chuvash Oblast President Nikolai Fyodorov, a strong opponent of the reform, argues that the changes only strengthen the president's powers at the expense of parliament and the regions. But even Fyodorov says the governors cannot resist a movement that is approved by a Russian society that is longing for a strong hand.

"I must conclude, unfortunately, that we all aimed for and tried to build a state with the rule of law. But it turns out now that society -- or at least the prevailing atmosphere -- is such that the will of the emperor, the will of the president, is law."

Putin argues his reforms are aimed at strengthening the rule of law and preventing regional separatism. He says the changes will put an end to local fiefdoms where governors have passed unconstitutional laws and substituted domestic for federal powers such as the police and the courts.

But many governors argue that, on the contrary, they helped to save Russia from disintegrating into civil war by intervening when the federal government did not do its job. For example, they cite their actions after the August 1998 financial crisis, when some governors imposed illegal price controls over basic products and limited exports out of their regions as a way to lessen the blow of a tumbling ruble.

Most analysts say the real issue is regional economic power, which the Kremlin-proposed tax reform adopted by the Federation Council reduces by centralizing taxes. Both bills approved today are part of a larger tax reform that introduces unprecedented measures such as the world's lowest income tax, a flat 13 percent rate. The new tax legislation, cutting into the regions' tax allowance, has already been adopted by the Duma. It reduces the part of the taxes collected which the regions may keep for themselves. For example, the regions now receive 15 percent of the collected value added tax, or VAT. The new bill transfers total control of VAT over to the federal government. Another measure, hailed by businesses but criticized by the regions, is the planned elimination of a 4 percent turnover tax that was mostly spent in the regions.

Russia's 19 "donor" regions -- those that give more to the federal budget than they get -- are especially critical of the reform. These relatively affluent areas, which include Moscow and oil-producing regions, feel they will unfairly share their economic wealth with poorer areas under the principle of tax redistribution. But many poorer regions feel they can only win from a reform that could increase tax distribution in their favor.