President Boris Yeltsin said yesterday the Russian economy had failed to emerge from crisis and called budgetary discipline, the elimination of economic corruption and tax reform the keys to a turnaround.
Russia has entered the year 1997 with a heavy burden of problems. The situation in the country is extremely difficult and concerns the economy, he told a joint parliamentary session in his annual state-of-the-nation address, his most important policy statement since his re-election last June.
Yeltsin, slamming officials for not resolving severe wage arrears and nonpayments on the eve of nationwide labour protests, said he would announce cabinet changes soon but gave no details.
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Rumours point to reformer Anatoly Chubais coming in as first deputy prime minister to head the economy, but Chubais told reporters Yeltsin had not yet taken a decision.
Yeltsins one positive note on the economy was his forecast that gross domestic product (GDP) would grow by at least two per cent this year, the first growth since reforms were launched in 1991.
The economy, battered by five years of reforms, shrank six per cent in 1996 despite hopes that recovery was imminent.
We are stuck half way, having left the old shore; we keep floundering in a stream of problems which engulf us and prevent us from reaching a new shore, Yeltsin said.
Tax reform is this years key economic task, he said, adding: We need to get to the point where arrears and nonpayments stop being a major problem in the economy.
He said society was tired of waiting for tax reforms and that high brackets were suffocating industrial enterprises.
But privileges would not be granted, he warned.
We will force everyone to pay taxes enterprises, famous politicians and businessmen, he said, adding he would assume personal control over the preparation of the 1998 draft budget.
Russia has eliminated hyperinflation and won international credibility from borrowers with a debut Eurobond last November.
But it is paralysed by crippling salary and pension arrears, hundreds of major industrial enterprises teeter on the brink of collapse and tax revenues are well below target.
Yeltsin said nationwide protests and strikes planned for March 27 were justified and called the actions an alarm signal.
There is not enough money for the most basic things and big sums are going for purposes other than intended ones, he said, adding that the treasury, not commercial banks, should handle disbursement of budget funds to prevent misuse.
Prices charged by natural monopolies for gas, electricity and rail transport were unjustifiably high, Yeltsin said, adding that the state would increase control over these sectors.
The International Monetary Fund, vexed by Moscows revenue shortfalls, is delaying a decision on the latest tranches of a $10 billion three-year loan crucial to bolstering reforms.