CAN I BE BLAMED…?

Out of money and out of time, Russia’s government last week took the country’s economic crisis into a new and possibly decisive phase. In a desperate effort to replenish the treasury and enforce the tax code, Prime Minister Sergei Kirienko and tax collector-in-chief Boris Fedorov moved to seize the assets and fire the management of Russia’s largest enterprise, natural-gas monopoly Gazprom. Within hours of its action the government retreated, but lines of battle have been drawn. Billions of dollars are at stake.

The urgency of the government’s actions cannot be doubted. In the past week, the Central Bank again raised its refinancing rate to 80% in an effort to prop up the ruble. Finance Minister Mikhail Zadornov told the Duma’s Budget Committee that unless tax collection increases by at least 30% the ruble will undergo a forced devaluation, bringing with it inflation, the collapse of much of the banking system, and an air-pocket drop in the standard of living. Boris Berezovsky, the billionaire who had called for devaluation last December, warned that the government had no more than three weeks to find a way out of the crisis.

Anatoly Chubais, once bag man for President Boris Yeltsin’s 1996 presidential campaign, is now bag man for a nation. He told the press he is talking to the International Monetary Fund, the World Bank, foreign governments, and commercial banks, looking for $10 billion to $15 billion in new credits. So far, however, his bag is empty.

Cynics say the imminence of a devaluation is inversely proportional to the vehemence of official denials. If so, speculators who are long on the ruble should be uneasy. Central Bank President Sergei Dubinin was categorical. Gold and foreign-exchange reserves are sufficient, he told the press: “There will be no devaluation.” The IMF’s man in Moscow said devaluation is “neither appropriate nor necessary.” And President Boris Yeltsin fatuously topped them all, telling the Duma that “Russia’s economy is not in crisis.”

Many in the Duma’s Communist opposition seem to fear that the country indeed is headed for economic chaos. Much as they want Boris Yeltsin and his government to fail, their politician’s survival instinct – the can-I-be-blamed reflex – has taken over. Thus the Duma has already passed eight of the 21 bills in the government’s “anti-crisis package,” including an increase in the value-added tax from 15% to 20%; a cut in the corporate-profits tax; a flattening of personal income taxes into three brackets (12, 20, and 30 percent); and a 20% tax on interest income and a 5% sales tax, both to be shared with regional governments. The measures already passed in the Duma would raise revenues by an estimated $6 billion a year.

If implemented, these will be important changes, but the crackdown on Gazprom is the biggest challenge to the status quo. Even ardent reformers recognize Gazprom’s unique position. Gazprom employs 320,000 people, had 1997 sales of over $23 billion, and even with all its tax arrears accounts for about a third of all government revenue. Addressing a Gazprom shareholders’ meeting on June 30, Deputy Prime Minister Boris Nemtsov said: “The fates of Gazprom and Russia are inseparable.”

The following day, however, the government was less deferential. On July 1, Prime Minister Kirienko ordered an end to the long-standing agreement that allows Gazprom’s management to vote the 35% of company’s shares that the government owns. Boris Fedorov’s tax police issued an order to freeze Gazprom’s bank accounts and seize its non-productive assets: buildings, computers, corporate jets, and the cars, yachts, and dachas of the company’s officers. Gazprom, said the government, has tax arrears of at least $2.3 billion, pays only about a third of what it owes, and pays most of that in goods and services, not money.

But having bumped bellies, Prime Minister Kirienko and Gazprom Chairman Rem Vyakhirev backed off. Over the course of Thursday and Friday, with Boris Nemtsov as mediator, the government and Gazprom roughed out a truce. According to press reports, the government reinstated its proxy agreement with Gazprom management and suspended its actions against the company’s property. Gazprom for its part undertook to clear its arrears and make regular tax payments of about $645 million a month – provided the government and its agencies pay for the gas they buy from Gazprom. The deal as reported essentially calls for clearing past debts and placing future transactions on a cash basis – an arrangement that Gazprom officials insist will work out to the company’s advantage.

In a country with a rudimentary financial system and a long history of barter economics, moving to what Russians call “live money” will not be easy. The contest between the government and Gazprom is really a struggle to break the vicious circle of payments in kind, bad debts kept on the books, and off-budget and under-the-table transactions that has ruined the lives of millions of ordinary workers, middle-class professionals, pensioners, and others who have no way to pass their losses on. At its heart the contest is highly political, and it is likely to become sharply politicized in the weeks ahead.

NOTES:

* Under the gavel: Bidding starts at $1.8 billion in the planned sale of 75% of Rosneft, the last major oil company still under government control. The auction should go ahead on schedule on July 17, even though Royal Dutch Shell, which had been partnered with Gazprom and LUKoil, has apparently dropped out. An earlier offering with a minimum price of $2.1 billion found no buyers.

* Under the gun: Retired General Lev Rokhlin, who led a Russian assault on the Chechen capital of Grozny, served in the Duma, accused Boris Yeltsin of treason, and founded a political movement for disaffected members of the armed forces, died at age 51 of a gunshot wound to the head. His wife reportedly told police that she shot him with his pistol to end a “hostile relationship.”

* Be labeled, or be liable: The Russian parliament and constitutional court have slapped the Republic of Tatarstan for putting on sovereign airs by enacting a citizenship law that could allow persons not citizens of the Russian Federation to claim citizenship in Tatarstan. Tatarstan is unfazed. Its latest foray into sovereignty is a regulation that requires food, medicine, toys, and most other consumer goods sold in Tatarstan to be labeled in Tatar as well as Russian. If Tatarstan succeeds in enforcing this rule, other ethnic republics are likely to follow.