By IPS Correspondents
MOSCOW, Oct 6 1998 (IPS)

Russia’s newly formed government is considering a package of economic reforms reminiscent of Soviet- style central planning and citizens fear hard times, regardless of whether the new plans are implemented.

The anti-crisis package, outlined last week by First Deputy Prime Minister Yuri Maslyukov, contains measures to combat capital outflow. These include steps to force Russian exporters to convert three-quarters of their currency revenues to roubles at fixed rates, and banning individuals from taking more than 3,000 dollars in cash out of the country.

Under the plan Russians no longer will be able to buy cash dollars at exchange booths. “The measures to restrict capital flight and tighten controls on foreign currency could spark the re- emergence of a currency black market,” says Oleg Ostroukhov, senior researcher with Moscow’s Institute of World Economy and International Relations.

The high percentage of hard-currency earnings that exporters are forced to convert back into roubles at fixed rates would only spark offshore tax evasion, and the state coffers would eventually suffer, he argues.

The package of measures was discussed on Oct. 1 by the government’s newly-formed presidium, which includes top ministers and regional officials. Government spokesman Andrei Korotkov confirmed that Yuri Maslyukov, the Communist first deputy Prime Minister for economic strategy, had worked out an economic plan that would become the basis for a government programme to be unveiled on Thursday.

In the Soviet era, Maslyukov chaired the State Planning Committee, and is widely thought to be in favour of strengthening government control over the economy. Reports in the Russian media have speculated that he plans to set up a state bank for reconstruction and development based on nationalised private bank assets. These fears, however, have yet to materialise.

Maslyukov’s plan also involves simplifying the tax system, with VAT cut from 20 percent to 15 percent from Jan. 1, 1999, while income tax rates would be set between 12 percent and 30 percent. As a result of the economic crisis, tax collection has fallen by 50 percent.

Former tax chief Boris Fyodorov, a member of sacked premier Sergei Kiriyenko’s cabinet and seen as a reformer, said the government should move to boost tax collection and radically cut spending. But other experts argue that Russia’s ailing economy and poverty-stricken people have already been taxed as much as possible. In one case, tax inspectors in Onega, a town in the far north of Russia, sent revenue demands to several dozen dead people.

Maslyukov’s plan also calls for annulling Aug. 17’s so-called ‘Default Manifesto’ – the decision to devalue the rouble, freeze payments on Russia’s treasury bill debt and place a moratorium on repayments of certain private debt.

“Russia has to respect all its financial obligations,” Ivan Grachev, deputy chairman of the Property, Privatisation and Economic Activity Committee of the State Duma, told IPS. “Though it provides some immediate relief from the debt burden, default could prove much costlier in the longer term.” The plan said that the government should index pensions, welfare benefits and the minimum wage, as well as form a centralised insurance fund for bank depositors.

The programme echoes the economic recovery plan, outlined in July, of the previous Kiriyenko government, which included lowering tax rates for all income brackets, introducing a single VAT rate of 20 percent and tightening state control over the lucrative alcohol market. However, some Russian businessmen have given a cautious welcome to Maslyukov’s plan, which they believe will help to defend domestic industries from the inflow of imported goods.

“The government should now encourage investment in domestic manufacturing and hi-tech sectors,” said Andrei Tulupov, executive director of Soliton-NTT, a private hi-tech firm. The development of import-substituting sectors could save a lot of much-needed currency for the state coffers, he argues.

“The programme consists of market changes, but with a strengthening of government regulation so that the economy turns its face towards the people,” Prime Minister Yevgeny Primakov told reporters. “There will be no draconian measures of currency control — we just need to stabilise the exchange rate of the rouble,” he said.

With the economy in a tailspin, the majority of Russians (62 percent) support Primakov as prime minister and blame the country’s deep economic crisis on President Boris Yeltsin, according to a recent opinion poll.

Yeltsin sacked Kiriyenko on Aug. 23 and first tried to replace him with another former premier, Viktor Chernomyrdin. The Communist-dominated State Duma twice rejected Chernomyrdin, and in the end Yeltsin successfully offered Primakov as a compromise candidate.

Primakov’s search for a consensus cabinet has taken longer than expected and has dragged on for more than a month. Despite Primakov’s pronouncements about loyalty to market principles, the new economic plan has failed to allay fears about the fate of Russia’s market reforms.

Some observers argue that the new Soviet-style economic plan would roll back reforms by flooding the economy with newly printed money. Anatoly Chubais, a former first deputy Prime Minister and the mastermind of privatisation in Russia, has warned of an anti- reformist backlash leading to hyperinflation and empty shop shelves.

The fear of inflation is well founded. Since August, prices have risen by 64 percent. Furthermore, many Russian shops have got something of a Soviet look about them as the stream of foreign goods dries up.

“The proposed changes in economic policy could be drastic, and the very existence of private entrepreneurship in Russia could be threatened,” said Andrei Nechayev, chairman of the Russian Financial Corporation and a former economics minister.

“These days, Russian businessmen simply don’t know what to expect from the government – and uncertainty is the worst possible scenario for the market.”

Excerpt: