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. Last Updated: 07/27/2016

Yeltsin's Move: Good News For Economy

The bundle of new economic decrees that President Boris Yeltsin issued this week represents a significant and welcome shift in the country's approach to solving its deep financial problems. With his package of six measures, Yeltsin appears to have moved from the Soviet approach to industrial production problems -- reviving industry with cheap state credits -- to a decidedly free-market mechanism: tax breaks. After years of complaints from foreign and domestic businesses, Yeltsin appears to have realized that the burdensome tax system has done as much to destroy the industrial base and stifle growth as the breakdown of the command economy. The two-year federal profits tax holiday and further breaks for another two years that Yeltsin ordered may not send the multinationals rushing into Russia. But these tax changes do send the right signal, namely that the country values foreign investment and understands their difficulties with the present tax system. In calling for a reduction of basic taxes on businesses by 10 to 20 percent, Yeltsin may bring at least some tax-dodging businesses back into the legal fold. As these companies grow, net revenue to the federal budget could even increase. If ever there was a place to show the efficacy of the controversial Lauffer curve -- which says that budget revenues will increase as tax rates decline -- Russia is it. Yeltsin's order to the Central Bank to resolve the inter-enterprise debt issue may not yield a solution, but it does help to focus on one of Russia's most pressing problems. The president was also right to take the lead in an area he has generally left to his prime minister, and to chastise Viktor Chernomyrdin for moving too slowly on reforms. Chernomyrdin and his ministers have spoken too long about their intention of cutting taxes on businesses without ever acting. There are, of course, problems with these decrees. As has been the case with many presidential orders, it is unclear which of the measures take effect immediately and which the State Duma must approve. Their enactment will also demand a series of instructions from the relevant government agencies, raising the question of whether policy will be carried out in the way it was originally intended. Last year, for example, Yeltsin ordered the Central Bank to resolve the inter-enterprise debt issue only to have the problem escalate. These problems notwithstanding, Yeltsin's forceful moves this week offer hope that he has shifted his focus from the Kremlin palace intrigues that have dogged his administration during much of the year and finally is placing emphasis where it belongs -- on the economy.