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. Last Updated: 07/27/2016

Primakov's Plan Has Few Details




With economic statistics painting a dismal picture, Prime Minister Yevgeny Primakov offered a string of familiar promises Thursday to pay off wage and pension arrears and impose state controls on alcohol sales and ruble trading f but no comprehensive program to lift Russia from its crisis.


The proposals came as the Central Bank was reported to have said that the ruble, which rose slightly to 15.6 to the dollar Thursday, could fall below 30 by the end of the year. A drop even to 20 would mean inflation of 290 percent for 1998.


Primakov was appointed prime minister two weeks ago but has not yet formed a full Cabinet. The all-important Finance Ministry remains up for grabs, with some Russian media suggesting it would stay in the hands of Mikhail Zadornov and others suggesting it would go to one of his predecessors, Alexander Livshits.


The new prime minister has said he favors increased government control over the economy but until Thursday had revealed few details. He has been described by Kommersant Daily as studying an economic crisis plan drawn up by scholars at the Academy of Sciences, and by Izvestia as examining the financial and budgetary policies of St. Petersburg.


The Cabinet includes such diverse economic views among its members f ranging from communists to advocates of tight money and free markets f that many observers question whether it can come up with any coherent policy at all.


Thursday's first meeting of the new Cabinet was a chance for Primakov to publicly chart a course for waiting businesses, lenders and foreign governments. He responded by pledging that the government would start paying wages to long-suffering teachers, doctors and other state workers on time as of Oct. 1, and would also begin paying off billions of rubles in salary arrears on that date.


But he did not reveal how quickly people would get what is owed them, saying only that "we will try to complete this process in the shortest possible time."


He also promised that, beginning in January 1999, pensioners and government workers would get "monthly payments intended to compensate part of the losses citizens suffered in connection with the rise in prices and ruble devaluation."


Throughout, Primakov was vague about where he would get the money to pay people.


"I do not conceal that the government made this decision with difficulty," he said. "That is, we are relying on the marshalling and regrouping of what resources we have." He said that the goals were "possible" and "agreed on by all my advisors."


He also said importers would have to sell one-quarter of their hard-currency earnings to the Central Bank and one-half on the open market. The measure is intended to keep the battered ruble from falling further, but could encourage importers to hide hard currency receipts.


Russia's currency has lost more than half its value since the Aug. 17 announcement that the government would devalue the ruble and default on some of its debts.


Primakov on Thursday said that the decision had been made by his predecessor, Sergei Kiriyenko, without Yeltsin's approval f a startling assertion that the president was out of the loop on crucial economic policy-making. At the time, government officials said Kiriyenko had met with Yeltsin on the eve of the move.


Other vows Primakov made Thursday f such as a tougher tax policy and reassertion of government control over the lucrative but largely untaxed alcohol industry f echoed promises made and broken by earlier governments.


The government has made continuing attempts to get control of revenues from alcohol, which provided as much as one quarter of the budget during Soviet times but have fallen to 2 percent, with some 70 percent of sales untaxed. Primakov said he did not intend nationalization of the industry, but "effective state controlof all levels of production and wholesale trade."


As to Russia's never-ending battle with reluctant corporate taxpayers, Gazprom f a high-profile target of such campaigns f announced Thursday that it was unilaterally lowering its tax payments to the government from 3.5 billion rubles to 2 billion rubles, Reuters reported.


The promise to pay wage arrears remains in doubt, since Deputy Prime Minister Alexander Shokhin said it depended on Russia getting the next, $4.3 billion installment of $22.6 billion in emergency loans put together by the International Monetary Fund.


"Of course, the concrete possibilities to pay the arrears will depend also on the fulfillment of associated tasks of our domestic financial and economic policy, including the IMF loans promised earlier, "he said.


With continued IMF support, arrears could be paid "before years' end," Shokhin said. Inflation compensation would not be wholesale indexing, he said, but unspecified partial compensation "to a greater extent to the more needy groups of the population."


Shokhin said the government would introduce new tax measures in the State Duma, which has so far balked at most major tax reforms proposed by the previous governments of prime ministers Viktor Chernomyrdin and Sergei Kiriyenko. Measures would include a flat income tax of 20 or 25 percent.


IMF managing director Michel Camdessus has said the IMF is waiting to see concrete steps to fix Russia's woes before it releases the installment.


Russia is also trying to work out terms of partial repayment for holders of ruble-denominated government bonds, on which the government has defaulted.


Inflation, spurred by higher prices for imported goods due to the ruble's fall against foreign currencies, was 67 percent between Aug. 17 and Sept. 21, Interfax reported, citing a Central Bank report prepared for the Cabinet session.


Prices might rise 4 1/2 times, or 350 percent, if the ruble goes as low as 30, the report said. The ruble traded at about 6 to the dollar before devaluation. Last year's inflation rate was 11 percent.


The Central Bank says gross domestic product, which rose last year by 0.8 percent according to official statistics after several years of decline, may fall this year by 5 to 6 percent, Interfax reported.