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. Last Updated: 07/27/2016

Top Yeltsin Aide Opposes Tax Breaks

President Boris Yeltsin's top economic adviser said Wednesday that, despite government officials' earlier pledges to offer new incentives to foreign investors, he opposed giving anyone preferential treatment when new investment rules are approved in the fall.


"The investment rules must be the same for everyone," Alexander Livshits, head of Yeltsin's group of experts, told a press conference Wednesday. "Giving anyone preference creates a loophole and in the end everyone will slip through it, only with more jostling than if everyone were equal from the start."


It was unclear whether Livshits' statements reflected a change in the government's policy toward foreign investors.


Officials have said that Yeltsin will issue a new package of economic decrees in September. Deputy Economics Minister Sergei Vasilyev said Tuesday that the package, on which the government is currently working, will deal with stimulating private investment.


Prime Minister Viktor Chernomyrdin last month told a conference designed to promote foreign investment that he planned a five-year tax holiday for foreign companies and at least three years of protection against legal changes that would adversely affect their business. Even then, Western business executives doubted that any decision to grant those incentives would be enforced.


During the Wednesday press conference, Livshits at times sounded cynical about the efficiency of laws in modern-day Russia.


"Any exception in Russia gets turned around and used as a general rule," Livshits said.


He said the efficiency of the 23 economic decrees Yeltsin has signed since May depends on the persistence and good faith of ministers charged with carrying them out. The decrees include measures to stem the nation's slump in industrial production, boost construction and improve regulation of the country's burgeoning securities markets.


"The planting is over," Livshits said of the decrees. "Now we have to wait and see what kind of plants sprout from the seeds. Then it will be clear what the government has been busy doing -- conducting reforms or just talking."


According to Livshits, the first results of the barrage of reformist decrees will come in August, when the first insolvent enterprises are auctioned off. He said the federal department for insolvency and bankruptcies was already planning the sale of the first three such factories.


He declined to say which factories those were.


Livshits said that though monthly inflation barely reached 5 percent in June, it was expected to go up to 10 percent in August and September and then drop to 6 or 7 percent by December. He predicted that inflation would be down to 2 or 3 percent by the end of 1995.


"That will be a happy moment that I look forward to," he said. "It will mean that economic stabilization is complete in Russia."


According to Livshits, it was technically possible to keep inflation low at 5 percent a month even now, but several factors prevented the government from trying to speed up reform.


"We are talking about non-political factors that are traditional features of the Russian economy," Livshits said.


One of the factors, he said, is an inflexible labor market where people hang on to their old, state-supported jobs. Even when they find other employment, Livshits said, they hope things will get better in the old workplace and stay on. Laying off these people would cause mass protests, he said.


Another factor is the large number of factory towns that depend on one plant to employ most of their population.


"In scores of these towns, for hundreds of thousands of people, it's either the factory or trying to live off the land," Livshits said.The third factor, which the planned investment decrees are supposed to help change, is a lack of experience in non-governmental investment and competing with foreigners in the domestic market, Livshits said.


"It's something that we can't break down overnight," he said. "It's like a wall we keep running into."


But Livshits was confident that if the government worked consistently to erode these obstacles, the Russian economy was still far from being a hopeless case.


"Russian reforms are like a bicycle," he said. "If you stop pedaling, you fall."