The government's chief economic adviser, the acting prime minister, Yegor Gaidar, repelled an attack by conservatives who wanted to reduce by half his stiff 28 per cent Value Added Tax. Their aim was to give hard-pressed industries, many of which face bankruptcy, a break.
But Mr Gaidar compromised with the conservatives insisting that a high VAT tax was needed to keep the budget deficit in check, to allow government investments in the ailing industries and to keep a minimal social safety net for the poor. They agreed to a 20 per cent VAT starting next January.
This gives the Yeltsin government the breathing space it needs to show the International Monetary Fund that it can control the conservatives in parliament - at least for now - and deserves to have the IMF Board agree to the first part of the dollars 24bn (pounds 12.6bn) credit package for Russia.
Western bankers will be concerned at the resignation yesterday of the Central Bank chairman Georgy Matyukhin because of the uncertainity over who will replace him - someone committed to the Yeltsin reforms, or a person who could stall them.
A leftover from Communism, Mr Matyukhin at first resisted the Gaidar policy of tight monetary supply and high interest rates. But by the spring he was co-operating reasonably well. In May he submitted his resignation, citing too much political pressure from the conservatives, but was persuaded to stay on. Since then, the Yeltsin government has convinced the IMF that it is worthy of credits, and the battle is now between the largely conservative parliament and the Gaidar reformists to adhere to the strict IMF demands.
The problem for the Gaidar team is that it might be without a Central Bank governor until September because the parliament begins its summer recess today. There will also be a tough battle with conservatives about who should replace Mr Matyukhin.Reuse content