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Friday, July 3, 1998 Published at 14:03 GMT 15:03 UK

Business: The Economy

IMF backs Russian tax drive

Boris Yeltsin tells Gazprom boss Rem Vyakhirev to pay up

The International Monetary Fund (IMF) has backed the Russian government's latest crackdown on tax dodgers. But the IMF's director general, Michel Camdessus, said although the Kremlin's actions were an encouraging sign, they were not enough.

War on tax defaulters. BBC Moscow correspondent, Andrew Harding, reports
He said Russia had to reform its tax system even further if it wanted to get a major new aid package from the Fund.

Russia is hoping for a new IMF loan of $10-15bn, on top of a $9.2bn loan already granted.

Gas tax deal

On Thursday, the Russian Government and the gas monopoly Gazprom had struck a deal on repayment of their huge debts to each other - but only after Prime Minister Sergei Kiriyenko had threatened to confiscate Gazprom's assets. The company had fallen behind with its tax payments.

[ image: Ultra-nationalist leader Vladimir Zhirinovsky outside Gazprom's headquarters, criticising the government's tough line]
Ultra-nationalist leader Vladimir Zhirinovsky outside Gazprom's headquarters, criticising the government's tough line
President Boris Yeltsin has backed his government's tough line. After a meeting with Gazprom's chairman, Rem Vyakhirev, he said the gas monopolist "should break the vicious circle of non-payments." Mr Yeltsin insisted that companies had to make their tax payments in full, "irrespective of whether you have been paid yourself."

Under the deal, Gazprom will have to pay 4bn roubles (about $600m) a month from July 1, four times what it paid in June. The government for its part has undertaken to reduce the debts of government bodies to Gazprom.

However, the head of the Russian Tax Service, Boris Fyodorov, insisted that the order to seize Gazprom assets had not been cancelled, but merely suspended until August 1.

On Wednesday, the Russian government had frozen the assets of Severonikel, a unit of Russia's big metals producer Norilsk Nickel, in a bid to force payment of 250m roubles of tax.

Tax package

The crackdown on tax dodgers is part of an attempt to get a grip on Russia's public finances. The government is facing a liquidity crisis, which lead to fears that it might resort to printing money. This would have caused renewed inflation, and in panic investors fled the rouble, nearly causing the collapse of Russia's financial markets during May and June.

To counter the rumours, the Russian government has vigorously defended the rouble, and has agreed on a stabilisation package. Tax reforms and better tax collection are seen as central to sorting out the budget problems.

On Friday, Russia's parliament, the Duma, passed a key section of the new tax code, and Duma speaker Gennady Seleznyov said the final reading of the new tax bill would be on July 15, just before parliament's summer recess.

Social tensions

[ image: Russia's coal miners, not in the pit but on strike again]
Russia's coal miners, not in the pit but on strike again
The government's financial troubles have caused social tensions across the country. Unpaid miners in Siberia's Kemerovo region reimposed their blockade of the Trans-Siberian railway, which in turn could bring more big losses for Russian firms which depend on deliveries.

The miners had suspended a two-week long blockade in May, after the government had promised to pay them.

Touching the untouchables

Until now, Gazprom had been considered untouchable. Like many big Russian companies, it enjoys huge political influence in Moscow.

Gazprom's bosses argue that the company is itself owed millions of dollars by gas consumers and can hardly be blamed for its tax problems.

But the government is now taking a far tougher line, insisting that Gazprom and other Soviet-era giants like it must be restructured or face the consequences.

Moscow is cracking down on debtors as part of a government austerity package aimed at avoiding financial collapse.

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