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. Last Updated: 07/27/2016

Duma Nixes Budget, Calls for New Draft

Russia's parliament asked the government Wednesday to rethink its 1997 spending plans, injecting new uncertainties into an economy already facing huge cash problems.

The State Duma, the lower house of parliament, rejected the draft 1997 budget by 262 votes to 83 and asked the government to come up with new ideas.

"The government of the Russian Federation is asked to change the basic parameters of the budget," a Duma resolution said.

The vote by the opposition-dominated lower house was not a surprise. But it will nevertheless be a blow to the government, which must persuade the International Monetary Fund that 1996 spending plans are on track and those for 1997 are realistic.

An IMF mission was due to arrive in Moscow on Wednesday to look at Russia's economic figures and decide whether to hand over the latest tranche of a $10 billion three-year loan.

"The figures on money supply are still pretty good, but the big problem is on the fiscal side," said one Western economist. "The IMF is going to be looking at all that very closely."

Many analysts see tax collection as Russia's most pressing economic problem but are unsure if urgent government action to resolve the issue will work.

President Boris Yeltsin, waiting for doctors to set a date to operate on his heart, told the government last week to set up an emergency commission to work out what to do about vast corporate tax arrears.

Some Duma deputies had highlighted unrealistic revenue forecasts and inadequate provision for social needs when they rejected the 1997 budget. Grigory Yavlinsky, the leader of parliament's biggest liberal faction Wednesday described the draft as "a budget of crisis and debts."

"They will not be able to make a better budget than the one they have now in one month, or even in two," said a document signed by economist Yavlinsky, who heads the Yabloko faction.

"The absence ... of any sort of well-considered suggestions on the tax system and on the whole income side of the budget does not allow it to be improved significantly."

But Finance Minister Alexander Livshits said a new draft budget could be even tighter.

"We will reduce incomes, spending and maybe the deficit," Livshits said after the vote. "We are being asked to meet the president's budget outline and that has a deficit of 3 percent [of gross domestic product], while we have 3.3 percent."

Parliament had initially voted on the draft budget last Friday, but it delayed for several days a decision on whether to reject the draft outright or set up a conciliation commission to rework the figures.

"I think a lot of Duma members are right to be skeptical about the government's revenue projections," the economist said.

?Economics Minister Yevgeny Yasin cited a host of mostly gloomy economic figures at a press conference Wednesday, saying tax collection remains sluggish and predicting a mild seasonal upturn in inflation.

Tax collection rose to 61 percent of projections in the first nine days of October, up from 50 percent in September, but Yasin said the overall picture was little brighter.

Monthly inflation in October is expected to be 1.5 percent, the highest since May, Yasin told a news conference. Seasonal price pressures also are likely to push up November's rate, he said, although the overall downward trend in inflation remains on track. Yasin also said capital flight, which spiraled ahead of the summer's presidential elections, had not yet been reversed.

But he said production, so far down 6 percent in 1996, might improve in the remainder of the year.