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. Last Updated: 07/27/2016

EDITORIAL: Market Fall Tests Mettle Of Kiriyenko




Three weeks after taking office, Prime Minister Sergei Kiriyenko is facing a baptism of fire.


Financial markets have been driven down by a second wave of the Asian crisis. The government is facing a jump in borrowing costs as debt markets grow ever warier of Russia. On the revenue side, the fall in world oil prices is cutting tax collection.


Unless something is done, the budget deficit will grow sharply, fueling fears of a debt crisis. More immediately, if investors lose faith in Russia, they will pull funds out of Russian debt markets and put pressure on the ruble.


Kiriyenko and the other nice guys he has appointed to the Cabinet will have to take some pretty nasty steps to meet this crisis.


Essentially they will have to tear up the 1998 budget that was passed early this year after prolonged battles in the State Duma. Spending will have to be cut by as much as 25 percent.


In fact, slashing spending is quite legal. The flaws in the 1998 budget were already apparent before it was passed. Legislators agreed to an amendment that authorized the government to cut spending, if it had to.


But winning political support for fiscal restraint will be much trickier. The strikes this week by coal miners across the country over unpaid wages are just one example of the pressure that the government will face in cuttingspending.


Received wisdom so far is that Kiriyenko, 35, who a year ago was working for an obscure provincial oil refinery, is a political lightweight. It is already clear that he can expect only limited support from President Boris Yeltsin who generally tries to avoid responsibility for difficult economic decisions. The president is in any case devoting all his attention to the international summit this weekend in Birmingham.


In Friday's first round, Kiriyenko showed that he is willing to face the challenge of selling his austerity policies. His tactical demarche of confronting the State Duma over the coal workers' demands for more funds was cleverly handled.


Rather than the vague and unfulfillable promises that his predecessor Viktor Chernomyrdin typically made in such situations, Kiriyenko stood by his position that no extra money would be spent for the miners, who are in any case not directly on the government's payroll.


Instead, he made a few politically shrewd but costless promises to pay for things like children's holidays, but told deputies that any extra spending would have to be found by cutting bureaucracy.


It is a good start, but Kiriyenko will face some much tougher opponents over the coming months.