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. Last Updated: 07/27/2016

IMF Delay Stings Premier to Action

Prime Minister Viktor Chernomyrdin promised to step up his war on tax evasion Friday, admitting that a decision by the International Monetary Fund to delay a $10 billion loan program was "a bad mark" for Russia.


"Russia is fulfilling all its pledges to the IMF, except for tax collection," he was quoted by Agence France Presse as saying at a summit meeting on economic cooperation in the Black Sea region.


He said the emergency tax commission, set up by President Boris Yeltsin, intended to dismiss the management of enterprises that failed to pay off tax arrears, but he promised to try to keep the workforce intact.


But Chernomyrdin said that a new emergency tax commission to boost revenues had already made some headway.


Out of an original list of 17 companies facing bankruptcy announced two weeks ago, 11 quickly paid their arrears. Another two others -- oil companies Purneftegaz and Tatneft -- acted after a public threat by the commission of being taken to court, Chernomyrdin said.


According to the prime minister, the example showed "irresponsibility and simple lack of discipline."


"Once they were seriously asked to account, once they sensed some real danger, they moved [to pay] at once," the prime minister said.


Chernomyrdin also said that the tax commission was behind the dismissal of the first deputy of the Russian Customs Committee, Viktor Kruglikov.


Chernomrydin cited "violations in granting customs privileges" committed by Kruglikov. "It is impossible to evade personal responsibility when financial and payment discipline is concerned."


The IMF announced Thursday it would delay the disbursement of a $340 million tranche loan payment to Russia, sending a strong warning that it would not turn a blind eye to the country's disastrous revenue performance.


The IMF has given Russia a three-year $10 billion loan but has tied monthly payments to Russia meeting strict conditions on stabilizing the country's financial system.


While chief of presidential staff Anatoly Chubais admitted the economic situation was almost out of control, he dismissed the doom and gloom predictions of economic collapse in the coming months.


"The situation will be dramatically changed," he said. "There will be no financial disaster in this country."


Chubais said in St. Petersburg on Friday that the government finally came to an understanding of "what we must do now to improve the situation."


"Maybe it's what we should have done a long time ago -- use power," Chubais was quoted by Interfax as saying.


Chubais said the pressure on tax-payers will come from the Prosecutor General's Office, Federal Security Service and other traditional Russian power structures.


"This power will be used in full volume to make sure the Russian taxation legislation is strictly implemented," Chubais said.


However, despite the IMF's criticism of the government's failure to improve tax performance, Central Bank chairman quoted by Prime-Tass news agency as saying Friday.


Sources close to this week's negotiations between the IMF mission and Russian government said Friday the fund officials were dissatisfied with the "absolute cumulative revenue figure," which Russia failed to meet this month.


"October revenues have not really improved over September to make one optimistic about the whole situation," one official said, without disclosing the target figure.


He said in the coming months, the Russian authorities would have to show a "strong and sustainable improvement in revenue collection" to get the IMF to approve the disbursement of the next tranche of the loan.


The other two issues that raised concern at the IMF -- the introduction of import quotas for foreign alcohol and the slow pace of opening up the T-bills market for non-residents -- were subject for "low-key reasonable discussion," that could be delayed for January.


Analysts said that without the IMF money for this and future months and with no improvement in revenue collection, the Russian government faced two choices -- the politically unpopular measure of cutting deeper into spending or else covering the gaping deficit with extensive borrowing on the domestic market, another fiscally unsafe alternative.


Andrei Neshadin, executive director of the Expert Institute of the Russian Union of Industrialists and Entrepreneurs, said the threat of bankruptcy procedures against some of the bad debtors, like the car manufacturer Moskvich, was unlikely to yield any cash for state coffers.


"They won't get any money. Who would risk buying a bankrupt plant?" he said.


But Viktor Levashov, director of the Institute of Social and Political Studies, said the emergency tax commission "for the first time kick started the mechanism of real tax payment" in Russia.


He said the influence of Chubais, a tough administrator widely known for his ruthless attitude to bad tax debtors, would be a strong factor in the government's tax crusade but would meet with fierce resistance from regions and companies.


"There is no doubt that any forceful collection of taxes, like this emergency one, will spin off separatism in the regions," he said


Already, leader of the autonomous republic of Tatarstan, Mintimer Shaimiyev, has publicly criticized the government's actions and said they would not have any consequences in the republic.


Among the first companies the tax council targeted was Tatarstan's major truck plant, KamAZ, hit by a huge fire three years ago and exempted from taxes for three years to rebuild its damaged engine shop.


Andrei Illarionov, director of the Institute of Economic Analysis, said the current budget crisis was owed largely to massive tax privileges and exemptions issued by the government earlier this year.


However, he questioned whether the presence of powerful industrial lobbies and corruption among the officials could seriously upset the promised tough measures against tax dodgers.


"The state is not a single entity -- it has been privatized in the sense that the officials are being used to further private interests of specific private groups," Illarionov said."This is the biggest obstacle not only to reforms but also to any purposeful government policy," he said.