Gasping spell…. Last week, Russia’s financial fortunes paused in mid-plummet. The ruble recovered from 6.4 to 6.1 to the dollar. Annualized yields on short-term government securities settled at around 54%. The stock market, now half of what it was six months ago, lost another 10% of its value but seemed to steady at week’s end.
Whether markets now move up, down, or sideways seems anybody’s guess. Like the onset of the crisis, this hiatus has no obvious proximate cause. The short-term measures the government announced at the end of May have not yet taken hold. Western governments and international financial institutions have put up words but no money. The political situation and the prospects for reform are just as cloudy now as three weeks ago, when the crisis began.
The government’s May 29 “Immediate Measures to Stabilize the Financial Market” called for collecting $830 million in overdue taxes from 20 companies by the end of June. That deadline may be hard to keep. So may be the year-end deadline for raising $15 billion through the sale of government shares in oil company Rosneft, telecommunications holding company Svyazinvest, and eight other firms. Other measures, like $7 billion in spending cuts and $1 billion in new revenue from taxes, the Duma must approve. These will be even harder to carry off.
Outside aid so far is just rhetorical. Neither President Boris Yeltsin’s visit to Bonn, nor Prime Minister Sergei Kirienko’s trip to Paris, nor the Washington visit of former Deputy Prime Minister Anatoly Chubais, produced new money. In a statement as hedged as the Hampton Court maze, the International Monetary Fund said: “If it is judged appropriate and necessary, additional financial assistance could be made available in the context of further policy measures.”
Those measures, according to a confidential Fund letter reported in the New York Times, include tax reforms to raise revenues and lower the fiscal deficit from 6.8% to 2.5% of gross domestic product next year. Finance ministers of the Group of Seven agreed to support additional IMF lending in the range of $5 billion – $10 billion if necessary, but whether they believe it necessary they would not say. Loan disbursements to Russia by the IMF already total about $11.5 billion since 1994.
One clear response to the crisis has been a purge of the federal tax office. Former finance minister Boris Fedorov, named to head the tax office at the end of May, announced the firing of several subordinates for corruption. The head of Goskomstat, the State Statistical Office, is in prison, accused of cooking the books for many of Russia’s largest firms to hide their revenues and lower their tax liability. The country’s top prosecutor told a television audience that over twenty officials in the statistical office were involved in this massive fraud. The firings and arrests may improve Russian creditworthiness in the long run, but in the short run they do not inspire confidence in the reliability of balance sheets or financial statements.
Bureaucratic arrests and purges also do not address Russia’s fundamental problems, which are more political than criminal. The truth is that in Russia there is no democratic consensus for reform. The Duma, the body of government which best represents popular sentiment, is strongly socialist. A clear majority of Duma deputies want their market economics dosed with plenty of state intervention, regulation, and support. In the executive branch, a fitful tendency toward macroeconomic orthodoxy is constantly distorted by political claims from powerful regional interests and financial-industrial conglomerates – crony capitalism.
President Yeltsin himself seems to have no economic policy and no interest in building public support for any consistent course of action. His program is revealed in his erratic behavior, his dismissal of any official who displays independent political ambition, and his coy cynicism about standing for re-election. For the president, it seems, the exercise of power is an end in itself.
In the Duma: Foreign Minister Yevgeny Primakov, Defense Minister Igor Sergeev, and other top national-security officials held a closed-door meeting with parliamentary leaders to discuss ratification of the U.S.-Russian strategic-arms limitation treaty, START II. Duma President Gennady Seleznev said debate would not begin before September… Deputies voted 309-0-1 to prohibit any president in his second term from seeking reelection. The constitution already bans a third term, but President Yeltsin hints that because his first election predates the constitution, he could still run in the year 2000. Yeltsin is unlikely to sign the measure if it reaches his desk. A parliamentary commission to hear impeachment charges against the president may be named June 19.
Stepping out: General Aleksandr Lebed, newly elected governor of the enormous Krasnoyarsk region in Siberia, took office June 5. Boris Berezovsky, the financier and media magnate who is said to have contributed heavily to Lebed’s campaign, attended the inauguration. Lebed immediately announced plans to cut staff sharply and raise the pay of those that remain. On June 10, he came to Moscow to take his seat in the Federation Council, the upper house of Russia’s parliament. Lebed says he wants to be deputy speaker of the Council and president of the Siberian Accord, a regional economic association.