Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Chernomyrdin Stresses Need to Take on Debt Crisis

Unravelling a tangle of corporate debt is Russia's top economic priority and holds the key to future reform, Prime Minister Viktor Chernomyrdin said.

In an interview published in the Rossiskiye Vesti government daily on Wednesday, Chernomyrdin said Russian industry's problems were linked to the crisis over massive debts and unpaid bills -- put at 112 trillion rubles ($48 billion) at end-June.

"In a word, the main issue of current policy is discipline in payments and normalizing the accounting system in the economy," he said. "If we make progress here, we will be able to speak about reform reaching a new frontier."

Many enterprises in Russia have stopped paying suppliers and their own employees in the hope the government will step in.

"This (non-payments) is the Gordian knot of our economy. It cannot be cut immediately. We need coordinated, well thought-out action across the whole front of economic reform," Chernomyrdin said.

Western bankers and analysts view the non-payments crisis as a key stumbling block on the road to reform. They caution that if the government pumps in cash to solve the problem, inflation would rise and economic stabilization would be threatened.

A government commission under First Deputy Prime Minister Oleg Soskovets has been charged with sorting out the crisis and Chernomyrdin said it had already made progress.

He said the main sectors of industry, including transport, energy and metallurgy, should agree on joint action to stabilize prices in the second half of this year and settle mutual debts. But the government's strategy remains controversial.

Central Bank Chairman Viktor Gerashchenko told a conference last week the government's anti-inflation measures, which have brought monthly price rises down to 4 percent in August from 22 percent in January, had worsened firms' financial positions.

Calling for steps to prevent a further fall in production, he said, "Even the toughest measures by the Central Bank cannot compensate for weaknesses in government policy, which stands behind the non-payment crisis."

Izvestia newspaper Wednesday said a new presidential decree, which could appear any day, would freeze wage bills and other payments to employees of companies with mounting debts.

The paper quoted President Boris Yeltsin's economic adviser Alexander Livshits as saying regulating incomes "does not accord with the tasks of economic reform and is hardly appropriate in conditions of free prices."

But Labor Minister Gennady Melikyan told Itar-Tass news agency the decree would help cut debts. Sanctions would only be applied to those companies which increased their indebtedness.

The government has so far resisted calls for hand-outs from leaders of industry and, despite fears closing companies could spark unemployment, has sharpened bankruptcy laws.

Chernomyrdin said lists had been drawn up of insolvent firms and the Federal Bankruptcy Agency had become more active. "A series of decisions have been taken which have allowed us to improve the situation without leading firms into bankruptcy," he said. Simply being placed on a "black list" sometimes forced enterprise managers to make essential decisions, he added.

Chernomyrdin said the government was "creating conditions and prerequisites for the transition to a new stage of reform when priority will be given to supporting investment."

He said the government planned to amend tax laws over the next three to four years to cut the tax burden on enterprises. Laws were also being finalized on securities, stock markets and joint-stock companies to cope with "ever more frequent cases of abuse," the premier said.