Johnson's Russia List

#4308
18 May 2000

davidjohnson@erols.com

[Note from David Johnson:

  1. AP: Nick Wadhams, Kasyanov Turns To Reviving Economy.

  2. gazeta.ru: Kasyanov Approved Despite Lack of Policy.

  3. BBC MONITORING: RUSSIAN PRIME MINISTER ADDRESSES STATE DUMA PRIOR TO HIS CONFIRMATION.

  4. BBC MONITORING: RUSSIAN STATE DUMA QUESTIONS PREMIERSHIP CANDIDATE.

  5. Itar-Tass: RUSSIAN DUMA FACTION LEADERS DISCUSS NEW GOVERNMENT POLICIES.]

*******

#1

Kasyanov Turns To Reviving Economy

May 17, 2000

By NICK WADHAMS

 

MOSCOW (AP) - Lawmakers swiftly approved a tough, polished economist as

Russia's new prime minister on Wednesday, backing President Vladimir Putin's

plan for modest market reforms that emphasize gradual growth over radical

upheaval.

The vote endorsing Mikhail Kasyanov came after a short and cautious speech in

which he said the best way to get the economy moving is to cut taxes and

clean up corruption while making sure impoverished Russians aren't

overlooked.

Observers say Putin will concentrate on strengthening the state and leave

Kasyanov to focus on the economy.

How much Kasyanov will attain isn't clear. His political experience is

limited, and Russia's problems are immense: poverty, crime, plummeting public

health, unemployment, ineffective laws. Analysts say Kasyanov is likely to

focus more on day-to-day economic projects than structural reform.

Kasyanov enjoys broad political support: In Wednesday's vote in the lower

house of parliament, the State Duma, 325 lawmakers voted for him, well above

the 226 needed. Fifty-five opposed Kasyanov and 15 abstained.

The vote contrasted with the emotional, protracted squabbling between the

Duma and former President Boris Yeltsin, and demonstrated how strong Putin

has become.

``We now have the conditions for successful development under conditions of

political stability,'' Kasyanov told legislators. ``It doesn't make sense to

carry out reforms without public support.''

Several lawmakers grumbled about approving Kasyanov before Putin makes his

economic plans known. They worried that Kasyanov was linked to powerful

businessmen and political insiders who played a prominent role under Yeltsin.

``We are in a difficult situation, having to approve a prime minister but

unaware of what program his Cabinet is going to implement,'' said Nikolai

Kharitonov, leader of the Agrarian faction. ``There are many questions about

how close (Kasyanov) is connected to the former president's 'family.'''

Shortly after the vote, Kasyanov went to the Kremlin to discuss the

government's plans with Putin. They agreed to restructure the Cabinet,

reducing the number of ministries and cutting some government personnel,

Kasyanov said later.

Observers say Putin, who easily won election March 26, will concentrate more

on strengthening the state and leave Kasyanov to focus on the economy.

``Putin will not have the time to deeply get into economic problems,'' said

Andrei Ryabov, an analyst with the Carnegie Foundation.

Russia is struggling to shed the failed Soviet system of central planning and

the flawed market reforms of the past decade, when corruption and insider

dealing often derailed efforts to build a market economy. Still, much of the

economy has been privatized - an estimated 70 percent of the country's

workers are employed in the private sector.

The economy has grown slightly in recent months thanks mostly to high world

prices for oil and other commodities, but is structurally unsound. The tax

system is confusing, investors have few rights, and there is deep resistance

to allowing individuals to own land. Russia's legal system barely works and

graft flourishes.

Kasyanov called for reducing taxes, saying private businesses must allowed to

thrive and that the country's bad banks must be weeded out.

``The removal of obstacles hampering free initiative immediately brings

fruit,'' he said.

Few expect immediate or drastic changes from the 42-year-old Kasyanov, who is

seen as a methodical technocrat.

Analysts said Kasyanov's main jobs will be sustaining minimal economic growth

and making sure tasks like the payment of pensions and wages go smoothly.

He will also likely seek a way to alleviate Russia's huge foreign debt and

re-establish relations with foreign lenders destroyed by a 1998 financial

collapse.

*******

#2

gazeta.ru

May 17, 2000

Kasyanov Approved Despite Lack of Policy

By Leonid Sborov

The State Duma has approved Mikhail Kasyanov’s appointment with 325 votes

for and 55 against. 15 abstained. The deputies liked Kasyanov’s speech.

Admittedly, the prime minister confessed that he still had no finalized

economic program. But this did not seem important. What is important is

trust.

Kasyanov began his speech by reporting the results of his 4 month period

as first deputy prime minister. The Russian economy has been experiencing an

upturn in recent months. He emphasized that industrial output rose by more

than 10% in the first quarter. Capital investment increased by 8%, the

inflation rate last month did not exceeded 1%, and the Central Bank’s hard

currency reserves, currently $17.6 billion, reached their highest levels

since the August 1998 crisis. “As a result of energetic measures taken by the

government” the real income of the population grew by 8%, and the real salary

­ by 25%. Kasyanov drew special attention to the fact that “the economic mood

of the people is growing steadily”, despite the fact that poverty remains

“the acutest problem ­ the income of over one third of population is beneath

below the poverty line.”

We cannot ease the pace of reforms, or else we shall end up standing

in one place and eventually stagnate. Reforms must be energetic, consistent

and balanced…We now have good prospects for ensuring the country's steady

development and conditions for a long period of political stability, he said.

Kasyanov also said a few words about the difficulties. Many problems

cannot be solved quickly, warned Kasyanov. The labour capacity in Russian

industry amounts to only 10-25% of that of the industrially developed

countries, and that is one of the main reasons why Russia is lagging behind

the rest of the world.

As a head of government should, Mikhail Kasyanov dwelt on all spheres

of life of the state: he spoke of various issues ranging from taxes and

regional disparities to the payment of  wages on time.

Judging from his speech, Kasyanov has done his homework. Thus, when a

answering a question from an Agrarian Party member as to whether or not the

government  plans to introduce standard import duties, Kasyanov asserted: “I

do not support the idea of introducing a uniform import duty. It would be

absurd if custom duties were the same for diggers and chicken legs. I think

custom officers are able to tell one from the other.”

It is curious that upon his appointment as first deputy prime minister

only four months ago, Kasyanov was not really fluent in economic language.

Still, his ability to say what the deputies want to here does not mean

that the Prime Minister already has his own economic program. He honestly

confessed to the deputies that he still does not have one.  

At the same time Kasyanov emphatically distanced himself from German

Gref. Kasyanov  stressed that he had no idea why Gref is so confident that

only his program would be implemented by the government.

“We receive many programs, but I have not yet read Gref’s,” said

Kasyanov and added that the finalized program would include the ideas of a

range of authors. Kasyanov promised the program would be published at the

beginning of June.

I hope that during my mandate I can put to good use my experience and

professional skills to implement solutions that I already envisage for the

tasks that have been discussed today, said Kasyanov.

As a result Russian Parliament confirmed Mikhail Kasyanov as a prime

minister by 325 votes. The leader of the Agrarian party Nikolai Kharitonov

said the result was not a reflection of the deputies’ personal respect for

Kasyanov. The deputies respected Putin’s choice and want to demonstrate their

confidence in the new Russian President. “Today the question of confidence

has gained a key meaning in Russian policy.” Evidently, in the economy is

well.

*******

#3

BBC MONITORING

RUSSIAN PRIME MINISTER ADDRESSES STATE DUMA PRIOR TO HIS CONFIRMATION

Text of report by Russia TV on 17th May

Prior to the vote confirming him as Russian prime minister, Mikhail Kasyanov

addressed the Russian State Duma. He summed up his work in government so far,

noting economic achievements. He listed areas for improvement, such as

supervision of banking and natural monopolies, and reform of the armed

forces. He also called for a more logical distribution of social security. In

conclusion, Kasyanov said that reforms would continue and must not lose pace,

but warned against introducing changes that Russia was not ready for. The

text of the address, broadcast on Russia TV on 17th May, follows:

Prior to the vote confirming him as Russian prime minister, Mikhail Kasyanov

addressed the Russian State Duma. He summed up his work in government so far,

noting economic achievements. He listed areas for improvement, such as

supervision of banking and natural monopolies, and reform of the armed

forces. He also called for a more logical distribution of social security. In

conclusion, Kasyanov said that reforms would continue and must not lose pace,

but warned against introducing changes that Russia was not ready for. The

text of the address, broadcast on Russia TV on 17th May, follows:

[Acting Russian Prime Minister Mikhail Kasyanov, addressing the Russian State

Duma] Gennadiy Nikolayevich [Seleznev, State Duma chairman], deputies, the

president of the Russian Federation has placed great confidence in me by

putting forward my candidacy for the agreement of the State Duma for the post

of prime minister of the Russian Federation.

In the last two days, I have been holding very interesting and extremely

useful meetings with State Duma deputies' groups. A lot of the comments and

proposals have already been noted by the government for them to be studied

and their possible implementation requested.

I am sure that as a result of these meetings mutual understanding has

improved considerably between the government and deputies on the requests and

proposals which were made.

Permit me first of all to give a brief report on my work in the post of first

deputy prime minister, and briefly describe the situation in the country.

During the first months of 2000, there has been a consolidation of positive

tendencies which occurred in the economy and the social sphere in 1999.

Industrial output has increased by over 10 per cent in the first four months

of this year in comparison with the same period in 1999. For the first time

in a decade, investment in the basic capital has been growing steadily. Over

the first quarter of 2000 it has grown by approximately eight per cent.

Efforts undertaken have allowed for wage arrears in the country to be

considerably cut. As you know, it is a long time now since the federal budget

had wage arrears. The efforts undertaken in the first quarter of 2000 let us

cut and largely do away with regional budget arrears. Enterprises' debts have

been decreased as well. Thus, the issue of the fiscal imbalance, very acute

some time ago, can be regarded as resolved at present. The government no

longer needs to resort to mass borrowings to cover the necessary budget

spending.

As a result of energetic measures, the federal budget's obligations are being

implemented completely. Barter relations are gradually being replaced by a

normal circulation of money. Despite the economy being saturated with money,

inflation is going down and its average monthly level has been lower than one

per cent over recent months.

Capital outflow tends to be on the decrease. The Russian Central Bank's gold

and foreign exchange reserves increased by 5bn [dollars] in the first four

months of 2000, thus amounting to 17.6bn US dollars. For the first time over

recent years the reserves have covered more than the critical minimum -

approximately four months' imports of the Russian Federation. This index is

one of the signs of the balance of payments.

The rouble-to-dollar rate has become stable in real terms and is being

consolidated. Nevertheless, further consolidation of the rouble or its sharp

reinforcement is not in the interests of Russia's economy at present.

According to preliminary estimates, the real income of the population has

grown by over eight per cent from the beginning of 2000, whereas the real

earnings have surpassed the relevant level of 1999 by about 0.25 per cent.

The economic mood of the population is steadily improving. Representatives of

various industrial and social circles are looking ahead with more and more

optimism.

However, so far these successes are based on a fragile economic foundation

and they are not irreversible. I must say that we have not fully overcome the

aftereffects of the [1998 economic] crisis. We are witnessing profound

trouble in the economy and the social sphere. First and foremost, poverty is

a most acute issue. This embraces the low standard of living of the

population, the majority of which, over a third to be exact, has an income

lower than the subsistence minimum. The existing social security model does

not make it possible to guarantee elementary living needs for the have-nots.

Over the last decade the GDP per capita has decreased by 40 per cent. It is

several times lower than that in developed countries. Revenue is being

distributed extremely unevenly among branches of industries and regions. This

is aggravated by unequal access to free benefits and social aid. Poverty is

the main reason for many other social and economic diseases. The inability to

start up the engines of demand, which is one of the sources of economic

growth, is the most serious obstacle to the stable growth of the Russian

national economy.

Poverty and low standards of living are in their turn the result of the

technological backwardness of Russian industry, the cultural level of labour

and the undeveloped structures of the market economy.

More than 70 per cent of technological equipment is over 10 years old. Labour

productivity in industry is 10-25 per cent of that of developed countries. It

is even lower in farming.

The growing investment in fixed assets that is happening today is obviously

not enough for a total renewal of completely worn-out capacities. The level

of foreign investment in the Russian economy is still too low and is mainly

limited to the primary sector. The quality of most products remains low. Only

a small variety of Russian-made products can compete with the world's best

samples. Thus raw materials dominate the export quota.

Due to the crisis in the banking system and the lack of market development,

the mechanism by which enterprises can attract money for investment is

paralysed. There is no reliable infrastructure for people to save and get

interest on their money, and that is the basis of any investments.

Uncertainty also badly affects investments. Firstly, this has to do with

property issues and unequal access of different economic entities to

resources. The competition mechanisms also work poorly.

The institutions of civic society are also in deep crisis. Quite often legal

mechanisms either do not function at all or play an auxiliary role. The moral

foundations of society are shaken and impede the establishment of normal ways

of business turnover and responsible partnership between the private sector

and the state.

The growing demographic crisis is the most striking concentrated example of

Russia's current existing problems. The mortality rate is twice as high as

the birth rate in Russia. The majority of the Russian Federation's

constituent parts have a natural decrease in population. If before it was

compensated for by migration, firstly from CIS countries, now this

compensation is almost zero. The demographic problem has become especially

acute from a geopolitical point of view as vast regions of Russia become less

and less populated.

The current demographic tendencies may end in 8-10 years with the number of

workers in the new generation too small to provide even the existing level of

benefits in the existing pension system for the people of my generation.

I think that the roots of all the problems that I mentioned are in the public

sphere. Quoting a well-known literary hero who said "collapse happens mainly

in people's heads", I think that a straightening of the distorted moral

foundations and norms of behaviour is possible only as a result of long,

honest cooperation between the state and society. Thus one should be aware

that many problems could not be solved quickly even if huge material and

financial resources, a necessary amount of which we lack today, were applied.

At the same time, I want to stress that we do not have the right to condemn

people again to hardships for the sake of a brighter future. All credits the

population has given to the state have been exhausted.

In spite of this, we now have a good chance of ensuring the development of

the country in a long period of political stability.

We can and must work for the future with a distinct vision of the further

goals and steps to be taken. Due to the experience of recent years, we know

that the solving of the serious problems which have accumulated can bear

fruit only if the undergoing reforms are based on consensus among all

branches of power with the support of the majority of the population.

Opinion polls have revealed that the trust in state institutions is gradually

being restored.

It is obvious that the Russian economy has appropriately reacted to market

impulses. The positive dynamic of many indices which can be observed shows

that the Russian economy is viable. We are confident that removing numerous

obstacles that hinder the economic initiative and normal business will

immediately produce real results.

In any case, measures aimed at improving the investment climate and creating

a fundamental basis for economic growth are among our main priorities. We

have already embarked on this work. This is even more important since the

advantageous situation on the world market may deteriorate overnight. But in

many cases no additional resources are needed to carry out reforms - it is

quite sufficient to apply political will to ensure the discipline of the

implementation of laws and adopted decisions.

An obvious imbalance that emerged in the past years is a contradiction

between models for the development of the financial and the real sectors of

the economy. Unlike normal economies, in Russia trade turnover and cash

circulation still exist in isolation, as if by themselves. The most important

task is to attract the resources involved in the financial circulation to the

real sector of the economy, by getting capital interested in that.

Unfortunately, one of the most sensitive elements of uncertainty is hiding in

the banking sector, which, on the contrary, should be a standard of

reliability and trust. Undoubtedly, this is the sector in which elementary

order should be restored in the first place. Otherwise, Russian banks will

continue to be the centre of financial scandals, real or ungrounded ones.

Banking supervision should be toughened and banks and bankers with a bad

credit reputation should be sieved out. The state should encourage the

creation of guarantee mechanisms for insuring long-term operations of the

private sector. What is meant here is the development of the mortgage

mechanism, a real pension reform, insurance of bank deposits. Thus the state

and society are being linked together by common interest.

The government is finalizing the drawing up of schemes so that the state can

take part in risk sharing when carrying out investment projects in the real

economic sector. Thus, by removing factors of uncertainty, one can raise

promising projects that the private sector is still not strong enough to

implement. Apart from anything else, we are talking here about an

infrastructure revolution, I would put it this way - we are entering the 21st

century with the communications of the 19th century.

Meanwhile, the unique geographic position of the country is one of its most

important resources. At present transport flows, against logic, are bypassing

our country and we are losing billions of dollars in transit payment and

taxes every year. Russia will not become a European country unless we are

linked to Europe by modern communications. The implementation of the

Moscow-Minsk-Berlin motorway draft project will become the most important

foundation for further economic integration between Russia and Belarus within

the framework of the union state. It is obvious that in order to improve the

efficiency of participation in international labour division, the export

infrastructure, in particular the Baltic pipeline system and also modern

telecommunications networks, should be developed as soon as possible. The

upgrading of communications should play its role in creating a really Russian

market. At present the sales of many enterprises are limited by the

boundaries of their Region or area. Certainly this is not enough. Tough and

energetic measures are needed to remove artificially erected interregional

barriers that prevent the mobility of capital, goods and services.

We have got so used to the idea that Russia is so rich in natural resources

that we can afford any waste. Unfortunately, a careful analysis shows that if

we continue economic growth and at the same time maintain energy consumption

at the existing level, we will unavoidably face a deficit and shortage of

energy resources. Therefore the government will give the most serious

attention to the state of the fuel and energy balance and will encourage the

saving of resources.

The most important tool in this policy is efficient state control over

nationwide natural monopolies that are the basis for ensuring the operation

of the single economic system of the country. Improving the efficiency of

these enterprises and their transparency will be under careful day-to-day

supervision.

Apart from risk sharing with the private sector when implementing complicated

projects in the real sector, the state should coordinate the actions of

entrepreneurs, by providing information and expert assistance. We must do

everything possible to encourage non-raw-material exports and to ensure equal

competition conditions for the national business in the international arena.

This direction will undoubtedly be a priority. In particular, this applies to

the military-industrial sector where we still have technologies of the world

level. Upgrading the structure of this most important state sector of the

economy is long overdue. There have been numerous cases of Russian

enterprises in the military-industrial sector losing the possibility of

winning international tenders, as a result of competition with each other. At

the same time, if these enterprises joined their efforts and minimized their

losses, the Russian brand name would be beyond competition.

In particular, I want to touch upon agriculture. For us it is obvious that

this most important sector of the national economy needs serious support. One

must admit that the current model of agricultural production and its

organization is not efficient, and aid that is currently being provided does

not produce any real results.

We need in the immediate future to unite the experience of scientists and

those with practical experience in agricultural production to draw up an

economic model of agricultural production that can be applied in our country

and to draw up a form of state support. If farmers have confidence that they

can earn by selling their crops, there will be an opportunity to open up the

potential of having a profitable agricultural business on the basis of market

mechanisms.

As regards macroeconomics, one can hardly avoid noticing the necessity to

develop and encourage small businesses which provide jobs and a decent source

of income for a growing number of Russian citizens.

It is necessary [to remove] the practice of restricting licensing and easy

registration for small and medium-sized businesses and cut the number of

agencies supervising them. Strictly combating the influence of criminal and

corrupt structures on such businesses should be the basis of the politics

executed by power agencies at all levels.

However, the main headache for manufacturers today is the tax burden. As you

know, the government is currently working on diminishing this burden and

simplifying the tax system. This work is being done ahead of the schedule

already drawn up. Executive bodies are now studying attentively the

amendments introduced by State Duma deputies from various factions. The

essence of many such amendments coincide with the government's vision of tax

reform. We hope for active cooperation, and hope that in the near future the

necessary tax system decisions, which could soon result in a decrease in

taxes paid by enterprises, will be taken.

A crucial decision has been taken to raise the issue of cancelling turnover

taxes, the most painful for the economy. The task has been set to decrease

the taxing of the payroll fund to 35 per cent. Our calculations show that

these measures will assist in enlarging the tax base and will not result in

cutting federal or regional budgets.

In spite of significantly better collection of income [as received;

presumably means taxes], we have to stick to the strictest fiscal discipline

and increase the efficiency of spending budget funds.

With the best will in the world, we are not capable of solving at once all

the problems that have accumulated in the course of the years. Thus,

resources should be regrouped and concentrated in key directions so that

priority tasks can be solved. Apart from other things, state expenses may

indirectly initiate impulses for economic activity.

In this context, one should mention defence expenditure. Experience shows

that in order to strengthen the army, it is vital to concentrate efforts on

equipping it with new state-of-the-art hardware. Spending on maintaining the

army is currently increasing significantly. This is a tendency which prevents

the correct reform of the armed forces. This all-purpose hardware is being

produced by Russian military-industrial complex enterprises, but it is often

being exported.

Another example is social security. Two thirds of social allowances are

currently being paid to homes which do not need society's support. The

redistribution of this assistance and prioritizing in directing revenue to

families with the lowest incomes may not only let us start resolving the most

acute social problems but also give real support to the demand for

locally-made products. To ensure that social security reaches its destination

a family should become a unit for social calculations and taxation. All

social benefits should be calculated by family.

Pension reform is of the utmost importance. We are currently paying a lot of

attention to increasing pensions, however, demographic tendencies are

implacable and alongside the existing distribution system it is time to start

creating savings plans within the mixed pension system.

The world has already entered the information age when knowledge is acquiring

an essentially important role. We have not yet lost the strengths of our

education system and the advantages of the domestic research school. Yet we

are very close to losing our position on the advanced frontiers of science.

Developing education spheres, as well as encouraging fundamental research and

applied projects in modern technology should be regarded as the most

important directions of investment in the country's future.

It is obvious for me that our society will never find the right path without

realizing true values in the upbringing of young people based on the

landmarks of world civilization. Our young people should not only receive an

up-to-date education, but also an appropriate upbringing in the best

traditions of domestic culture.

Civil servants put the state policy into practice. Our important task is to

create an efficient system of civil service. Recent experience has shown that

we cannot save on civil servants' payments. It inevitably results in

corruption and expansion of the civil service. We should overcome these

tendencies, these negative tendencies inherent in our state machine,

increasing civil servants' payments, creating an open and differentiated

system of payments for private - [corrects himself] honest labour and raising

the moral authority of the civil service, as well as creating an atmosphere

of intolerance to official corruption in society.

In accordance with the strategy set by the Russian Federation president, the

government will give its utmost attention to the strengthening of the power

of the courts, especially within the system of arbitration courts. This will

allow for a stable balance of property and a straightforward legal practice

of application of the law. Naturally, we should increase responsibility for

influencing a court decision, no matter where it comes from, as well as its

consistent implementation.

Respected deputies, these are the tasks in front of the nation and ways of

resolving them as I see it. I am fully aware of the huge responsibility the

Russian Federation government should accept to overcome the social and

economic dynamics of the last decade, to make recent changes irreversible and

create the foundation for steady economic growth and the improvement of the

well-being of the nation.

By no means should we lose the momentum of reforms, as in that case we will

again be running on the spot and will become mired in stagnation in the end.

Nevertheless, the experience of reforms in Russia over the past years has

shown that it makes no sense to implement measures which will later be

rejected by unprepared social institutions and will take distorted forms in

the long run. This will not only discredit reforms but also distort their

contents. This will help prepare public opinion and provide understanding of

and support for the reforms by the population and nongovernmental

organizations.

Nevertheless, as I have already said, we cannot afford to run on the spot.

There should be a balance of energy and consistency in implementing reforms.

In conclusion, I would like to stress that our biggest mistake would be

believing for certain which way would be best. Even the strongest and the

most professional of governments will not be able to resolve national tasks

without the support of the whole of society. The State Duma deputies elected

in a democratic way reflect the whole range of social interests. Your help

will mean to us that society supports the chosen direction of development.

Meetings and consultations I have had with State Duma factions have vividly

shown that we can rely on the intellectual and professional potential of the

deputies' corps. Certainly we shall have arguments and make compromises, but

I hope that we shall completely agree on the fundamental issues of the

development of Russia as an advanced modern state which will take the place

it merits in the world community.

Thank you.

*******

#4

BBC MONITORING

RUSSIAN STATE DUMA QUESTIONS PREMIERSHIP CANDIDATE

Source: Russia TV, Moscow, in Russian 0600 gmt 17 May 00

[Gennadiy Seleznev] Deputies, please sign up for questions to the premiership

candidate...

First question, Deputy Alksnis. I will remind you, one question, and a

precise, clear and short answer. Viktor Imantovich.

[Alksnis] Mikhail Mikhailovich [Kasyanov], yesterday, 17th May [as received],

`Rossiyskaya Gazeta', the official organ of the Russian government, published

an appeal signed by a member of the editorial board, a Mr Kuznichevskiy, in

which Sergey Baburin proposed that the independence of Belarus be annulled.

This calls into question the creation of a Union of Russia and Belarus. But

if it had appeared in a National Front of Belarus publication it would be

understandable. But since the government of the Russian Federation is a

founder of the newspaper, the question arises whether the government intends

to turn away from the creation of a unified state.

[Seleznev] Mikhail Mikhailovich, please.

[Kasyanov] I think the answer to that question is obvious. I can only confirm

that the union treaty has come into force, and together with our Belarusian

colleagues we are actively developing mechanisms for accelerating not only

the programme of measures for creating a unified state but also the

acceleration of this programme [as said]. In this respect I can point out two

fundamental things to be done: signing an agreement on unifying customs rules

and norms, and the tax law. This will become the basis of accelerated

integration of our two states into a unified state. So I have no grounds to

say that there is any other approach by the authorities, by government, to

implementing the union treaty...

[Butkiyev] Vladimir Anatolyevich Butkiyev, using Grebenek's card. Mikhail

Mikhailovich, I represent Magadan Region in the State Duma, and undoubtedly

the first thing that worries me is the government's position on retaining

state support, state guarantees, privileges and compensation for inhabitants

and workers in the Far North. On 12th April, unfortunately, a draft budget

was adopted under which certain laws on social guarantees were suspended,

including the law on privileges for northerners. Today all the inhabitants of

the Far North are terribly worried about the attempts to remove from the

state budget the responsibility for providing for additional coefficients,

and paying for travel on holiday. Without these it will simply be impossible

for northerners to live there...

[Kasyanov] I understand the question and the concern is clear. The first

thing I have to say is that it must be understood that today, unfortunately,

all the social laws adopted by parliament were adopted as a reflection of the

disappointment of deputies who saw what was happening in their regions. Many

laws on social privileges were adopted. And their volume is such that for

them to be implemented the federal and regional budgets would have to be

doubled. We have that as an objective to achieve in a few years. But today I

do not think it would be correct to on the one hand promise the public a

volume of privileges which the government cannot meet, and on the other not

implement them because there are no resources.

[Speaker] Gennadiy Vasilyevich Kulik, your question.

[Kulik] Mikhail Mikhaylovich, having listened carefully to your very short

speech am I right to understand that you are an advocate of those cornerstone

points in the action plan that have been publicized, in particular a single

rate of income tax, the termination of the road fund together with the

transfer of financial responsibility for road construction to the budget and

a rise in excise duties on petrol - primarily for private use - by way of

compensation, a single rate of import duty and a number of other provisions?

Is this right or is the issue still open?

[Kasyanov] There are two points to be distinguished here. First, as regards

the action plan, the government at present has no action plan yet. We await

word from its various developers. We have been supplied with preliminary

programmes by various political groups, in particular the Strategic Studies

Centre, set up for the specific purpose of work on the fundamentals of the

action plan. We shall have those materials by the end of May. Therefore, the

government in its new make-up will already be able to examine the action plan

as a whole in early June.

As regards the specific taxation points you have raised, the government has

already drawn certain conclusions. The fact is that we cannot put off our

decision until later in June simply because on 1st June the government will

already have approved the main indicators of the 2001 budget. If we are to do

it on schedule as is the requirement of the law, I believe that a draft law

on the 2001 budget must be submitted by the government to the Duma by 8th

August. That is why we cannot wait.

In answer to your specific question, as before I favour the termination of

the road fund as a separate entity. It does not mean, however, that road

construction expenditure must fall. All it means is that the budget and

expenditure must be made more effective, open and transparent. The matter was

also raised by the previous government. We also asked that this be done last

autumn, when I as finance minister presented the budget in the Duma. As in

all other cases, our approach will be to do away with the interconnection of

revenue and expenditure. That practice is wrong. That practice was is use in

those years when we failed to keep within the budget, as a way to safeguard

particular expenditure. We are fully within the budget for the second

consecutive year now. So there is no need to tie revenue to particular

expenditure.

As regards lower taxes, as I indeed mentioned in my speech just now taxes

must be lower, primarily the turnover tax which must go. There are ways to

compensate for that, which will be looked at here in parliament. A lot can be

said on the subject in technical terms. There are various possibilities. I am

sure that the State Duma budget committee will discuss it in detail.

As for a single rate of customs import duty, no I do not subscribe to that

point of view. I cannot see how it is possible to compare a single customs

duty on the import of, say, giblets and excavators. I think that the customs

will be able to tell the difference between the forms which various products

take. But to unify or cut the number of tariffs from several if not tens of

thousands to a single-figure number - perhaps five, six or 10 which is

subject to further discussion - in order to simplify the system and make

customs inspections more effective is a must...

[Speaker] Thank you. Yuriy Vasilyevich Nikiforenko, your question.

[Nikiforenko] Thank you. Mikhail Mikhaylovich, in the past few days meetings

were held in the State Duma, in parallel with yours, by [Strategic Studies

Centre head] German Gref, who is by now well known as a shadow prime

minister. He said on TV yesterday that his programme would also be that of

the government. Is this so or did Gref exaggerate? Second, what is your

attitude to land, in particular agricultural?

[Kasyanov] I do not quite understand what the basis of German Oskarovich's

[Gref] confidence in respect of the programme is. In his capacity as head of

the centre, German Oskarovich organized work, organized the economists he

leads to work at the request of the government on various areas of economic

reform. In particular as regards the taxation matters on which I have

commented, I am familiar with them and have already discussed them with his

experts and him personally. As for the other points in the programme, the

Strategic Studies Centre programme will be presented to the government for

examination. It will be examined in early June. At present I cannot say to

what extent the government will make use of that programme within a programme

of its own because I have not read it yet.

[Speaker] Thank you. What about the land?

[Kasyanov] Yes, the land. It is an issue of crucial importance. That issue

was looked at in detail in the course of our discussions with the State Duma

factions and groups of deputies. Since we believe that the issue must be

tackled without delay, we are ready for a compromise on the timescale for the

examination of its various elements. First of all, we shall ask the State

Duma to pass the law on the turnover of land with the exception of

agricultural land. I realize that the issue of agricultural land is the most

sensitive in Russia at the moment. What we now need is immediately to begin

detailed discussions and consultations on the issue, for it not to be delayed

and for a balanced solution to be found that would suit society as a whole...

[Speaker] Depuy Yegor Kuzmich Ligachev.

[Ligachev] Mikhail Mikhailovich, I listened to your speech with close

attention and a particular interest. I would like to ask you one, as you call

it, key question, I would say a cardinal, a fundamental question. That's what

I think, anyway. The question is as follows: do you think that our state can

be strong - people are talking about this nearly everywhere, and we support

this - can our state influence economic and social processes if it owns only

15 or a maximum of 18 per cent of major property? Besides which, we hear from

various quarters that we still have plenty to sell, and so the proportion of

state property will be still less. What ways do you see towards the economic

strengthening of the state? Thank you.

[Kasyanov] Yegor Kuzmich, the answer to that question should be long and

systematic. I will respond to the first part of your question. First of all,

of course the state holds more than 15 per cent of property, much more, and

not all that property is being used effectively. There is a whole range of

companies, small companies, which belong to the government entirely, which

were inefficient both in Soviet times and in recent years. But there are

strategic enterprises, where the state has to have control, in any case and

at any stage of development, since the state is responsible to the public for

security, including energy security, food security, ecological and so on. In

order to carry out these functions and the state's responsibilities to the

public it has to have levers to manage and influence certain industries in

these strategic sectors, transport, energy and so on. The government, the

state has to have part ownership as well.

As for inefficient enterprises, which are obviously inefficient, they have to

be sold into the hands of efficient private owners, but sold openly and at

prices which truly reflect the ownership of that property. And that is one of

the bases of the further reinforcement of the market and dividing the

functions of state regulation and free enterprise, whose basis has already

been laid down in Russia...

[Speaker] Deputy Oleg Vasilyevich Sheynin.

[Sheynin] Mikhail Mikhailovich, last year the Russian government introduced

into the State Duma a new draft Labour Code. This draft is causing great

concern to a significant portion of society, since on a number of points its

conception impinges on a number of human rights, including the right to an

eight-hour working day. Will the government insist on the adoption of this

document at the first reading, or is it actually possible that it will be

recalled?

[Kasyanov] I will say frankly that I do not know this document very well, and

the instances you just mentioned, but in the near future we have to review

the list of all the priority laws we are asking the State Duma to see before

the end of the spring session. At first sight it seems to me that this code

will not make it into the priority list for this month, since as I said in my

speech, the main thing for the government at the moment is tax changes, in

order that next year's budget can be adopted in a new form. So I can ket you

know later about the government's opinion on this issue...

[Speaker] Viktor Ivanovich Ilyukhin.

[Ilyukhin] Mikhail Mikhailovich, as you know the military-industrial complex

(MIC) plays a uniquely important role in the life of the country. But today

the MIC has found itself without an owner to take care of it. Do you think it

is necessary to set up a ministry for the defence industry?

[Kasyanov] I think that this idea has come up before, of a separate ministry,

and it has been examined, but as I understand it the main point was

concentration of effort and day-to-day control and care for the problems of

the MIC, and this issue will be addressed within the structure of the new

government. And here of course all efforts have to be concentrated as I said

in my speech, that we have inefficient expenditure which does not relate to

making the best of future prospects. A little is being spent on rearmament

and a lot on maintaining the army. So in this context I think there is scope

for a more effective use of resources for production...

[Speaker] Deputy Vladimir Nikolayevich Yuzhakov.

[Yuzhakov] Thank you. Mikhail Mikhailovich, I completely support your

thinking and your concern that our civil servants should be provided for

properly, that is one of the main conditions for avoiding corruption. I am in

complete agreement with you on that. But there is another side to it. Do you

intended to prepare measures for reducing the numbers of civil servants? Do

you intend to develop measures to make the maintenance of the civil service

more economical and do you have plans for making it more effective from the

point of view of carrying out its tasks? Thank you.

[Kasyanov] That is a separate issue for the attention of the future

government. The current government has already addressed this issue... I

think that the first steps will be taken with the new government structure.

Even if only in the territorial structures. Because we are already having a

reselection in the regions: people just don't know how many representatives

of the federal authorities there are. There are up to 50 representations of

various ministries, departments and committees. People are not coordinating

between themselves...

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#5

RUSSIAN DUMA FACTION LEADERS DISCUSS NEW GOVERNMENT POLICIES

ITAR-TASS

Moscow, 17th May, ITAR-TASS correspondents Olga Bondareva, Ivan Novikov,

Diana Rudakova:

The deputy groups in the State Duma today set forth how they

envisaged the activities of the future government headed by Mikhail Kasyanov

during the debate on Kasyanov's candidacy for the post of prime minister.

The head of the Unity faction, Boris Gryzlov, underlined his conviction that

"in the near future the government will become the guarantor of the economic

stability of the country". In his words, the programme of the Cabinet of

Ministers proposed by Kasyanov is "rational both from the point of view of

economic policy and from the point of view of state building".

For his part, the head of the CPRF [Communist Party of the Russian

Federation] faction, Gennadiy Zyuganov, said he was of the opinion that the

government as yet "does not have a real programme for the revival of the

country" and urged the cabinet to study carefully the experience of former

governments, singling out the period when it was headed by Yevgeniy Primakov.

He also believes that if the version of the programme of the head of the

strategic research centre, German Gref, is adopted it will lead "to a

complete catastrophe". In his words, the course of the new government "should

be qualitatively different".

The deputy chairman of the State Duma, Vladimir Zhirinovskiy (LDPR) [Liberal

Democratic Party of Russia], proposed the introduction of "an economic

amnesty", which would allow the return of "many billions of capital taken out

of Russia", and for that "it is vital to rehabilitate those holders of

capital responsible for its outflow abroad". Zhirinovskiy also called on the

future Cabinet of Ministers to activate external economic ties with southern

countries, above all with the Middle East, urging Kasyanov "to give the

Ministry of Foreign Affairs and relevant structures the task of working on

that issue".

The head of the Fatherland - All Russia faction, Yevgeniy Primakov, noted

that the programme of the future government should be directed towards the

resolution, in the first instance, of the problems of the military-industrial

complex, the agroindustrial sector, science, culture and education. Moreover,

in his opinion, it is essential to examine privatization issues from the

point of view of improving the work of the enterprises themselves, the

effectiveness of universalization and review of forms of ownership and also

the inadmissibility of the monopolization of the market.

The Union of Right Forces faction, according to State Duma Deputy Chairman

Boris Nemtsov, fully supports the government position on reducing the tax

burden. However, members of the faction did not receive replies to a question

relating to Chechnya or on the possible introduction of a 12-year education

system and on land ownership. The issue of the freedom of the press was also

raised.

The deputy head of the Yabloko faction, Sergey Ivanenko, noted in particular

the need, above all, for a sharp reduction in taxes and simplification of

procedures, the creation of a transparent banking system that would stimulate

the real economy and provide for industrial growth, the protection of private

property, the development of free trade, honest competition, small and

medium-size business and demonopolization.

Nikolay Kharitonov, head of the Agroindustrial group, believes that the new

government is facing many questions to which there are no simple answers. He

warned that "for the people of Russia land has never been just a commodity

and that conflicts over the land issue must not be allowed".

The head of the Regions of Russia deputy group, Oleg Morozov, noted that

Kasyanov must in the near future submit a report to the Duma containing the

economic and social targets of the new government.

Gennadiy Raykov, head of the People's Deputy group, called for "the

unification of the efforts of all the branches of power to resolve

socioeconomic tasks" as "much depended" on deputies, as "they adopt laws".

******