Yeltsin takes risk on crisis budget

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The Independent Online
WITH THE International Monetary Fund cracking the whip over his hefty shoulders, Boris Yeltsin declared yesterday that Russia's financial turmoil had reached "alarming proportions" and was causing "extreme social tension".

His remarks are his bleakest assessment to date of a fiscal crisis which has seen investors fleeing Russia in droves, halving the value of stocks, and driving up the cost of government borrowing to astronomical levels.

Yesterday Mr Yeltsin and his Prime Minister, Sergei Kiriyenko, sought to convince the IMF that Russia is deserving of more help - namely, a $10-15bn stand-by fund to support the rouble - by unveiling a package of austerity measures designed to avert catastrophe.

Mr Yeltsin also appealed to his many foes in parliament for their support, underlining his words with dire warnings about the consequences of squabbling with the Kremlin.

He appeared to hint that if the Communist-dominated State Duma - with whom he regularly battles - fails to pass his fiscal proposals, then he would introduce his measures by presidential decree. Speaking at a rare joint meeting of government and parliamentarians, the president said the crisis is "so acute that there are social and political dangers".

Some proof of this came yesterday with further protests in the Far East by miners, who have been staging protests over unpaid wages and job losses. While some of the causes for Russia's problems were not of its own making, many were, said the president.

"A great deal of the fault lies with us. We have lost momentum in reforming the economy. The situation with payment of wages, pensions and welfare has deteriorated again."

However, the Kremlin's crisis plan - which was spelt out by Mr Kiriyenko - had a familiar ring and will be greeted with cynicism by many Russians.

It includes a simpler tax code and a crackdown on Russia's army of tax dodgers. There would be budget cuts, lower interest rates - now at 60 per cent - less government borrowing, and new regional sales taxes.

The state would raise money by taking control of alcohol production and running lotteries. As he outlined his strategy, the prime minister painted a grim picture of a government engaged in a desperate weekly juggling act - issuing debt to raise funds to pay debt. In the next six months alone, Russia must roll over a breath-taking 189bn roubles - $30bn - to redeem short-term high-interest treasury bills.

As this spiral gathered momentum, worsened by Asian jitters, other problems have also bitten hard. Russia has lost billions of dollars of revenue because of the drop in world oil prices from $15 to $9 a barrel. The price is nearly half the sum that the government was depending on when it drafted this year's budget.

Russia wants the IMF's billions as a "stand-by facility", whose mere presence will restore market confidence in the rouble. Above all else, it has been battling to defend the currency, mindful that its collapse would almost certainly bring a return to runaway inflation, destroying one of the few achievements of the transition from Soviet central planning to a market economy.

A collapse or devaluation would increase the cost of imported consumer goods, cranking up the level of popular unhappiness and doing a lasting political damage to the Kremlin two years before the presidential elections.

A team from the IMF is in Moscow at present, partly to discuss handing out a $670m tranche of an existing loan.Although an IMF team has been wrangling with the Russians over its austerity measures - it has, for instance, been demanding greater efforts to increase its dismal tax revenues - the fund seems set to agree to offer more support in the end.

But its officials will certainly need more convincing evidence that Messers Yeltsin and Kiriyenko can translate grand words into deeds.