In the third week of financial crisis, Russia’s government has moved beyond denial but has yet to reach acceptance.
Officials issued fewer statements on the order of “no cause for panic” or “the economy is fundamentally sound.” Stop-gap measures have been announced if not yet implemented. President Boris Yeltsin, in fine finger-wagging fettle, said “the time has come to demand and punish” the tax cheats, speculators, and other economic malefactors who have laid the country low. The Emergency Committee for Tax Discipline, now under the command of former finance minister Boris Fedorov, has given a number of firms until July 1 to clear up their tax arrears or face immediate seizure of their assets. The order affects given some ten or a dozen lesser laggards – the Korshunov Ore Works, the Volga Pipe Factory, and the like – but not billion-dollar deadbeats like Gazprom. The government announced plans (intentions, really) to cut spending by 42 billion rubles and raise taxes on land, oil, and certain financial transactions to narrow the budget gap from about 6.8% to around 5% of gross domestic product.
Officials also embarked on a series of publicized high-level meetings to demonstrate activity and bolster confidence. President Yeltsin held a tycoons summit with ten of the country’s leading financier-industrialists. After the ritual blaming was out of the way (the crisis, said the president, was largely their fault), he asked them to draw up an “anti-crisis program” which he will unveil on June 30. President Yeltsin also announced that a “roundtable meeting” between the government and the leadership of both houses of parliament would take place on June 23. But while Yeltsin told the tycoons that “Russia must help itself,” the first reaction was to look to the West for aid. Anatoly Chubais, the twice-fired deputy prime minister who runs the holding company for the country’s electric utilities, met in Washington with U.S. officials, and Prime Minister Sergei Kirienko spent two days in France to drum up support for a G-7 bailout.
The International Monetary Fund gave the government some comfort when it agreed to release on schedule the next $670 million installment of the $9.2 billion credit negotiated in 1996. (Careful readers will recall the credit used to be $10.2 billion. In fact, the credit is denominated in Special Drawing Rights, the Fund’s unit of account. The dollar has gained so much strength in the past couple of years that a pile of SDR’s worth $10.2 billion in February, 1996, is worth only $9.2 billion now.) The United States government issued carefully worded statements that offered conditional support for additional IMF lending to bolster Russia’s foreign-exchange reserves and help convert short-term, high-interest ruble-denominated debt to long-term, low-interest, dollar-denominated bonds. But the IMF officials repeated earlier statements that Russia has no need of additional funds to stabilize financial markets. (Adding insult to injury, the Fund’s pronouncements were datelined Kazakhstan and Kyrgyzstan, where IMF officials had gone to praise relatively successful economic performances.)
Certainly Russia cannot count on large infusions from the IMF. Policy considerations aside, the Fund’s lending in Asia has depleted its resources. The Fund may not have more than $10 billion – $15 billion available for new commitments worldwide, and replenishment of its capital is tied up in a complex legislative battle in the United States Congress.
Before he left for Paris, Prime Minister Kirienko in a televised interview said the economy needs extensive restructuring, in particular to cut the government’s deficit. Expenditures must fall, he said, with the proviso that society’s neediest must be helped and the national security ensured. And revenues must grow, but not through new borrowing, and not by cheating workers of their pay. That, said Kirienko, is just “borrowing that is not formulated in a civilized way.”
Kirienko’s remarks, delivered with the modest honesty that has characterized the young technocrat’s public statements, are the clearest sign yet that the government is coming around to an understanding that the roots of this crisis are structural, not speculative. That understanding as yet is not widely shared. Deputy Prime Minister Viktor Khristenko said again last week that there are no structural causes for the “crisis of confidence.” The parliament, which for over two years has refused to act on tax reform, is another center of willful obtuseness.
At the end of last week, markets steadied. The yield on four-month and twelve-month treasury securities traded in the market fell from 80% to 54%, and the Central Bank reduced its refinancing rate from 150% to 60%. But these are still ruinous costs for a government that must refinance about $1 billion in ruble-denominated bonds each week for the rest of the year. The Russian economy, in its seventh year of reform and its seventh year of recession, apparently faces more of the same.
Ready, steady, start: The Duma agreed to open ratification hearings on the START II treaty on June 9 after all, withdrawing a threatened postponement to the fall. The treaty, signed with the United States in 1993, would reduce the number of nuclear warheads on long-range missiles to around 3,000 – 3,500 on each side. Duma members say they will use the hearings to look at military reform and the relationship between Russia’s conventional and nuclear forces. The United States ratified START II last year, and President Clinton has indicated that Russia’s ratification is a precondition for a bilateral summit.
What part of “nyet”: For the second time President Yeltsin vetoed a land bill passed by both houses of parliament. This version of the bill, which like the previous bill restricts the free sale of agricultural land, was supposedly negotiated with government officials. Somewhere along the way the compromise broke down.
History’s shadow: The Supreme Court rejected a plea from the family of Nikolai Yezhov, the head of Stalin’s secret police from 1936 to 1938, for his posthumous rehabilitation. Historian Robert Conquest estimates arrests during Yezhov’s period in power at 7 million – 8 million, executions at over one million, and deaths in the camps in excess of two million. But his family argued that when Yezhov was himself purged and executed in 1940, he was charged with treason and counter-revolutionary activities, crimes he assuredly did not commit. The Court nevertheless held that as one of the chief perpetrators of Stalin’s terror, he could not be considered its innocent victim. The courts acted differently in a similar case involving a lesser-known torturer. Viktor Abakumov, Minister of State Security from 1946-1951, was himself executed in 1954, under Khrushchev. Earlier this year his sentence was reviewed and posthumously commuted to 25 years’ penal servitude.