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. Last Updated: 07/27/2016

Yeltsin Sets Crackdown On Firms Over Debt

President Boris Yeltsin signed a decree Tuesday to crack down on company bosses who are abusing Russia's burgeoning inter-enterprise debt crisis to conceal embezzlement and fraud, top economics officials said.


The decree, which comes into force Jan. 1, will require settlement of all debts within three months of delivery and gives the Federal Bankruptcy Agency the power to collect outstanding funds directly from debtor enterprises.


"These are tough measures and we realize a lot of people will not like them," said First Deputy Prime Minister Anatoly Chubais. "But they will introduce the basic order in financial settlements that we lack today."


Russian companies owe each other 196 trillion rubles (about $57 billion), frequently causing economic activity to grind to a halt and creating social tensions through nonpayment of wages.


But economists say much of the debt is fraudulent, with industrial bosses striking illegal unrecorded deals with each other and pocketing the proceeds.


"We have been seeing a lot of situations lately when the seller only pretends that he sells his goods for money, but he does not really expect to get it," Alexander Livshits, the president's senior economics adviser, told reporters. "The buyer pretends he is going to pay, but indeed he has no such intention."


"The only parties not pleased by this arrangement are the population, the economy -- which has plunged into a severe nonpayments crisis -- and people who are not paid their wages and salaries."


If implemented, the measure could significantly improve the government's ability to collect tax revenues in 1995 and would play a key role in helping Russia stick to its budget targets.


Chubais said a new version of the draft budget, to be presented to the State Duma on Wednesday, envisages that Russia's gross domestic product will be worth some 1,000 trillion rubles, up from 953 trillion rubles in the original draft.


The gap between government income and expenditure in the new version will be 7.7 percent of GDP, compared with the original draft's target budget deficit of 7.8 percent.


"We tried not to cut expenditure but to find new sources of raising revenues," Chubais said of negotiations with a special conciliatory commission on the budget. The commission, containing representatives of both the parliament and the government, was formed after the Duma refused even to vote on the original draft last month.


The new sources of revenue would include drastic curtailments of foreign trade customs privileges widely held by charities, public and private organizations, and the maintenance of import taxes at 1994 levels.


One area of budget financing to be cut, however, would be the government's treasury bonds program. The proposal calls for bond issues to be reduced from 41 trillion rubles to 30 trillion rubles after what Chubais termed "justified criticism" concerning the unrealistic nature of the original program.


The average level of monthly inflation for 1995 is now estimated at 2.5 percent to 3 percent, a significant increase from the original 2 percent target.


Chubais said a recent Finance Ministry prediction that inflation would run as high as 15 percent in January was "mistaken."


In a report released Tuesday, however, the government's Center for Economic Reform argued that the money supply is growing too quickly and is fueling higher inflation. Base money grew by an average monthly rate of 14 percent in the second quarter of this year and 9 percent in the third quarter, the report said.


Inflation rose at a 14.1 percent rate in November and the pattern of high inflation looks set to continue with a 3.9 percent increase registered in the first week of December.


The decree on inter-enterprise debt payment was just one of four signed by Yeltsin on Tuesday.


?A second decree will allow the Securities Commission, headed by Chubais, to award temporary licenses to companies dealing in securities.


All such businesses are obliged by an earlier decree to obtain appropriate licenses by Jan. 1. The new decree, however, would allow the Securities Commission discretion to award temporary licenses valid until March 1.


?A third decree aims to privatize the food-processing industry and encourage primary agricultural producers to buy into these concerns. Livshits and Chu-bais said agricultural producers were suffering from a poor relationship with food processors and that the industry would benefit from improved vertical links.


?A fourth decree will increase benefits paid to 2.5 million World War II veterans.