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. Last Updated: 07/27/2016

Yeltsin Set To Boost State Role In Market


A Page 1 article Wednesday headlined "Yeltsin Set to Boost State Role in Market" should have said that President Boris Yeltsin has addresed the Federation Council once previously, in 1994.

President Boris Yeltsin intends to call for a strengthening of state control in the economy when he delivers a speech to the upper house of parliament Wednesday morning, Kremlin sources said.

But economic analysts said Yeltsin would not backtrack on his proclaimed commitment to a free market economy, suggesting that his speech would simply call for more effective use of the economic controls the government already has.

An unidentified Kremlin source, quoted by Interfax, said Yeltsin would tell the Federation Council that the free market alone cannot provide economic growth and that the government plans to take key areas of the economy under its control.

"The head of state believes that only the state can be a motor for economic growth, which will lead to an improvement in the lives of Russian people," the source said. "The market in itself is not a panacea for all problems. In any civilized society the mechanisms of market and state control work hand in hand."

The source was not identified, and the presidential press service would not immediately confirm the information. But the same information was passed on to a number of news agencies, suggesting the leak was orchestrated by the Kremlin.

The source added: "Boris Yeltsin, while noting that at the dawn of reform the free market was the only force capable of overcoming the deep crisis, also underlines that for a transition to stable economic development and to a civilized market, economic freedom is not enough."

Yeltsin's visit to the Federation Council on Wednesday will be the first time that he has visited either house of parliament to address legislators since he become president in 1991.

According to the source, Yeltsin's speech will also include a warning to Russia's major banks to obey the law. Several banks have recently clashed with reformers in the government over state property sell-offs.

"The head of state ... has intended for a long time to see that these rules are carried out without questioning by everyone, big business, middle-ranking entrepreneurs, small business and the state itself," the source was quoted as saying. "After all, this is what society demands, it is the condition for long-term economic growth."

Those comments were echoed Tuesday by First Deputy Prime Minister Anatoly Chubais. In Hong Kong for meetings with World Bank officials, Chubais said he supported consolidating the role of the state in the economy. "That's why for the last half a year, the Russian government made a lot of important steps trying to rebuild its role under the complete market environment," Reuters quoted Chubais as saying.

Chubais pointed to the government's efforts to tighten its control over gas monopoly Gazprom and electricity provider Unified Energy Systems companies in which it holds major stakes as an example of this approach.

"It actually sounds rather alarming," said an analyst with a London investment bank when asked to comment on the leaked information. "It is inconsistent with what Chubais and [First Deputy Prime Minister Boris] Nemtsov have been doing. That is, opening up the economy."

The analyst, who did not want to be identified, added: "If the leaks are anything to go by, [the markets' reaction] will be negative."

Other observers, however, said the leaked details of the speech did not signal a change in economic strategy. Rory MacFarquhar of the Russian-European Center for Economic Policy said Yeltsin was merely calling on the government to redouble its fight against insider privatizations, tax evasion and graft.

"This is a statement of the reformers' outlook towards the government that if it is going to do something, then it should do it well," he said.

That perspective, he said, was nothing new. Yeltsin made similar comments in his state-of-the-nation address in March. "This is clearly a speech written by Chubais rephrasing what the government's intentions have been for the past few months and what they are now."

David Boren, vice-president of economic and market analysis at Solomon Brothers investment bank in London said the speech was designed to assuage the parliamentary opposition ahead of key debates on Russia's 1998 budget and new draft tax code.

Legislators in the State Duma, parliament's lower house, have called on the government to exercise greater economic oversight. Earlier this year, the regional leaders who sit in parliament's upper house, the Federation Council, passed a non-binding resolution calling on the government to increase its role in the economy.

"It is pretty clear that at this stage, the principal preoccupation of the government and of Yeltsin's advisers is to get approval from the Duma for the budget and the tax code," said Boren. "I would be reluctant to conclude that Yeltsin has decided to announce a change in economic strategy in this speech."