YASIN ISSUES INFLATION WARNING.

Russian economics minister Yevgeny Yasin said that July consumer-price inflation is expected to be 0.7 percent (8.7 percent, at an annual rate), a continuation of the slowdown seen in the first half of the year. But he warned that inflation could accelerate again if structural problems affecting the budget are not resolved soon. He stressed above all the problem of low tax collection (that is, a high rate of tax avoidance and tax evasion). Because tax rates on the large and medium-size firms that the tax inspectorate can identify are high, the incentive to avoid (legally) or evade (illegally) taxes is strong. Yasin implied that the avoidance and evasion was takes the form of companies diverting activity to smaller, unregistered or less easily monitored businesses. Given the tax rates, he said, the government should be collecting taxes equivalent to 45 percent of GDP, which he described as a "normal European" level. Yasin said that, in reality, taxes collected are equivalent to only 28-30 percent of GDP. Because of this shortfall (given government spending), the government has to continue issuing large volumes of Treasury bills, keep interest rates high and constrain the private sector investment the country needs. Yasin stressed the urgency of collecting taxes more efficiently. He implied that the urgency of this administrative improvement was such that it would need to come ahead of the radical reform of the structure of tax bases and tax rates that is also needed. (Interfax, July 31)

Security Council Membership Formalized.