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. Last Updated: 07/27/2016

BUSINESS WEEK IN REVIEW: june 29 to july 4

Austerity Plan

The State Duma moved ahead this past week with the first parts of the government's emergency economic legislation, which are intended to ward off looming economic collapse and help persuade the International Monetary Fund and financial markets that Russia is getting its house in order. The program includes legislation to raise more budget revenue, reduce tax evasion and lower some taxes to spur growth.

On Friday, the Duma approved part of a long-awaited tax code, but rejected a 5 percent sales tax for local governments. The state, which is trying to improve dismal tax collection, is going after Gazprom, UES, the Norilsk Nickel metals producer and other companies for back taxes.

The new code, passed by a vote of 315 to 16, defines the rights and duties of taxpayers and the government and streamlines the number of taxes to 28 instead of the current 44. Actual tax rates are to be included in another section that must be passed separately.

Gazprom Raid

The government claimed victory over Gazprom on Thursday and said Russia's natural-gas monopoly had agreed to pay billions of dollars in back taxes after officials threatened to seize its assets and strip chairman Rem Vyakhirev of key powers. Gazprom is the world's largest natural gas producer and Russia's most crucial taxpayer, representing a staggering 25 percent of the nation's tax revenue.

But the company, unable to collect cash payment from its customers, has a tough time paying taxes and owes an estimated 12 billion rubles in back taxes.

Ruble Warning

A top government official on Monday acknowledged for the first time that a currency devaluation could be imminent. Finance Minister Mikhail Zadornov told the State Duma's budget committee that "if tax collection does not improve by a third (in coming months), there will be a devaluation."

Central Bank chairman Sergei Dubinin reiterated the Kremlin's stance that devaluation is not in the cards. "The government and the Central Bank have enough instruments and strength to avoid devaluation of the ruble," he said.

Markets Down

The Moscow Times Index of 50 leading shares closed down 10.96 for the week at 110.20 despite a 9.10 percent increase on Friday. Investors continued to be in a bearish mood while monitoring events in Russia. The market weighed news of tough government actions against tax debtors and the parliament's passage of the main part of an important tax code over the pullout of Royal Dutch/Shell from a key privatization tender.

Shell Pulls Out

Oil multinational Royal Dutch/Shell said Friday it was pulling out of a consortium tender for a stake in the Russian state oil company Rosneft, dealing a fresh blow to the government's efforts to raise much-needed cash. Shell blamed the depressed outlook for oil prices and difficult financial circumstances in Russia for its withdrawal from the tender. The move threw the auction into doubt for a second time.

Tokobank Plan

Bank of Moscow, slated by Central Bank to help troubled Tokobank back on its feet, said Friday it was pulling out of the rescue program as the necessary investment turned out bigger than it had expected. The Bank of Moscow said that after an analysis of Tokobank's balance and off-balance liabilities, it realized that the necessary investment was more than three times higher than had been stated to its shareholders.

On Thursday, Tokobank's shareholders voted for a new $5 million share issue, which was to be sold to the Bank of Moscow. The Central Bank placed Tokobank under receivership May 8, citing poor management and liquidity problems.

Miners Protest Again

Russia's coal miners again last week protested to force companies to pay them back wages. Thousands of miners blocked vital parts of the Trans-Siberian Railroad, and in Chelyabinsk, 23,000 miners refused to show up to work for the day. For the past three weeks, hundreds of striking Vorkuta miners have been camped out at the White House government building. The miners, many of whom have not been paid for over a year, have been a steady reminder to the Kremlin of the country's economic failures and the discontent of many Russians in the far-flung regions.