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. Last Updated: 07/27/2016

Economists Welcome Nemtsov's Return




The decision to retain key reformer Boris Nemtsov in the new Russian government under Prime Minister Sergei Kiriyenko is good news for the economy and to investors, analysts said Wednesday.


Nemtsov, 38, appointed deputy prime minister Tuesday, will be crucial to the government's effort to bring order to public finances and spread Russia's economic revolution to its neglected regions.


The appointment of Nemtsov along with another regional high flyer, Viktor Khristenko, clearly heralds an intention to bring the provinces to heel and plug holes in regional budgets through which much-needed federal funds are leaking, analysts said.


"There are a lot of questions with the regions," said Vladimir Drebentsov, an economist with the World Bank. "You will find a lot of things on their expenditure side which are not in parallel with the federal level."


He added that the appointment of Khristenko as deputy finance minister, who handled the tricky brief of financial relations between the center and the provinces in his previous incarnation, was a very positive move.


"When there is a shortage of resources at the local level the federal budget compensates for that by the deficit," he said. "Now the federal government wants to know how the money is spent exactly ... to put the whole budget issue in order."


Analysts have stressed that many of Russia's economic problems lead back to the perennial vicious circle of budget-revenue-debt, and that the main priority of the new government will be to balance the books so it can settle wage arrears, reduce borrowing and hence bring down crippling interest rates.


But they also pointed out that with such a young team with little experience of federal government, getting things done could be a problem.


Yet the presence of Nemtsov will be crucial given the problems the young reformers could have in facing down opposition from regional interest groups and Russia's powerful business barons.


"The fact that he battled with entrenched interests of what really are former Soviet directors was a remarkable achievement as was the fact that he survived that," said Derek Weaving, an energy-sector analyst with Deutsche Morgan Grenfell in Moscow.


Meanwhile, Russia has pledged to rein in the budget deficit in both 1998 and 1999 as part of efforts to persuade the International Monetary Fund to resume loan disbursements, Itar-Tass said.


The budget deficit will be trimmed from 6.75 percent in 1997 to around 5 percent in 1998 and to some 4 percent in 1999, according to the news agency, which cited a financial blueprint drawn up by Russia and the IMF, and signed by the government and Central Bank earlier this month.


The financial plan also commits the government to scrap the controversial mechanism of zachyoty whereby companies can offset their tax liabilities to the central government against federal funds owed them.


It said the government would take firm measures against companies running up large tax debts to the central budget, would boost the powers of tax authorities and would strengthen taxation law, all in an effort to increase revenue collection.


Earlier, Finance Minister Mikhail Zadornov told reporters that the profitability of state securities went up eight points during the monthlong Cabinet crisis. The government will have to find additional funds for meeting its obligations on these papers, he said.


The government also plans to reduce its state debt burden significantly and raise annual economic growth to 5 percent by 2000, First Deputy Finance Minister Vladimir Petrov said Wednesday.


He said state debt and debt servicing, especially foreign debt, would be reduced sharply. Petrov saw the budget deficit falling to 3 percent of gross domestic product by 2000, although 60 billion rubles ($9.8 billion) of planned revenues could be lost this year unless tax collection rates improved.