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Wednesday, June 24, 1998 Published at 05:09 GMT 06:09 UK

Business: The Economy

Russia outlines emergency reforms

Premier Sergei Kiriyenko and Russian President Boris Yeltsin

The Russian government has unveiled plans to slash public spending and shake up the country's troubled tax system in an effort to stave off a financial crisis and prevent the devaluation of its currency, the rouble.

Sergei Kiriyenko, the Russian Prime Minister, outlined plans to cut government spending by 42 billion roubles ($6.8bn) whilst increasing tax revenues by 20 billion roubles ($3.2bn).

Alarming economic situation

The reforms were announced after President Boris Yeltsin described Russia's economic situation as "alarming" and set parliament a deadline to back his government's radical economic reforms. He threatened the parliamentarians he would push through the programme "by other means" should they not comply.

Mr Kiriyenko said that failure to adopt the economic reforms could threaten Russia's security and trigger a political crisis.

The move is designed to meet demands from the International Monetary Fund (IMF). Russia is relying on the IMF to help bail out its ailing economy and hopes the reforms will persuade it to give the country extra funds.

Russia has said it needs up to $15bn to rescue its economy.

The IMF is meeting with Russian officials this week to negotiate terms for a long delayed $670m loan whilst trying to thrash out details of the larger rescue package.

The IMF has criticised Russia for not acting quickly enough to restructure its finances.

Boris Yeltsin (in Russian): In spite of the emergency actions taken by the government, the situation remains alarming.
Mr Yeltsin said in a speech broadcast live on Russian television: "Despite emergency measures taken by the government, the situation in financial spheres remains worrying," He said the financial crisis would "require radical measures appropriate to the serious nature of the problem ... which will ease the tension on financial markets."

And he warned parliament that Russia had "no time to lose to implement these measures."

The president's latest comments are a turnaround. Until recently Mr Yeltsin had played down the impact of the turmoil on Russia's financial markets, saying the country could cope alone with the situation.

Boris Yeltsin (in Russian): All laws must be adopted before the vacation, or other measures will be taken.
"All the laws linked to the financial stabilisation programme must be passed before the parliamentary holiday," due to start officially on July 16, Mr Yeltsin added.

The plan will be put before the Russian parliament on Wednesday but could face opposition from Duma, the lower parliament which is dominated by the Communist party.

Communist party chief Gennady Zyuganov said that in urging parliament to approve the package quickly Mr Yeltsin "does not understand what he is saying."

The government is also planning tighter custom controls, a crack down on tax collecting in the liquor industry, and state support for exports.

Yeltsin chairs emergency meeting

[ image: Will economic reforms convince investors on Russia's stock markets?]
Will economic reforms convince investors on Russia's stock markets?
Earlier on Tuesday Mr Yeltsin chaired an extraordinary government meeting is being attended by the president, the prime minister, the entire cabinet and top politicians from both houses of the Russian parliament.

In the run-up to the meeting Mr Kiriyenko had warned that his plans would be tough and unpopular, but have a safety net for Russia's poorest.

He said: "The country cannot live without gathering taxes and cannot spend more than it receives in receipts."

Breathing space needed

The economic reforms are designed to persuade the International Monetary Fund (IMF) to release the additional loans, which it is hoped would give the government breathing space from the daily battles with volatile markets.

The Russian economy has been battered by the Asian financial crisis and the slump in oil prices, one of its main exports.

The stakes are high; new international aid could satisfy edgy markets that Russia will be able to meet debt obligations and put to rest speculation about a rouble devaluation.

Punitive interest rates of over 50% could be slowly brought down.

But failure would erode shaky rouble support and investors would begin to repatriate their money - in dollars.

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