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. Last Updated: 07/27/2016

Gaidar Sticks With His 'Shock Therapy'

Acting Prime Minister Yegor Gaidar, refusing to back away from his "shock-therapy" reform program before a hostile Congress of People's Deputies, outlined a series of economic measures Wednesday to spur Russian manufacturing, lending and exports next year.


But however tough a position Gaidar took in his speech, his time in office may be limited. Deputies were due to vote Thursday on the government's economic reforms, and a negative vote could lead to Gaidar's downfall.


"Foot-dragging in introducing structural reforms is criminal", Gaidar said. "Delays in introducing economic reforms drag our economy down in the abyss of underdevelopment".


Gaidar said the country's priority next year would be foreign economic relations and that emphasis would be placed on trade with countries that can pay hard-currency for Russian goods.


He significantly omitted the former republics, with which Russia has had ongoing payment battles, from a list of countries to which Russia would seek to increase exports.


Russia should follow the example of other nations, Gaidar said, and create a system of export credits to support high-tech exports.


"Without opening our economy, without acquiring gradually a place in the world economy, there is no place for us in the future world", Gaidar said.


Gaidar also spoke of the government's plan to give tax breaks to enterprises that make long-term capital investments. The measure would be earmarked for the expansion of production and modernization.


"It is important that this tax break not be used as a means of tax evasion and that we grant this tax break only to enterprises that really invest", he said.


While the government will be providing investment credits of 500 billion rubles for defense conversion next year, Gaidar also announced a plan to offer incentives to commercial banks that make long-term loans.


With inflation spiraling at 25 percent per month, banks have been reluctant to make such loans since interest rates rarely cover the currency's depreciation.


Gaidar's plans would reduce the reserve requirement in the Central Bank of Russia for commercial bank's that make long-term investment loans.


Bowing to the reality that social programs have decreased as companies have privatized, Gaidar said the government plans to invest all dividends from property in federal ownership into social programs.


He also said the federal government will give regions the right to levy taxes on enterprises that cut social programs which the regional governments then have to pay for themselves.