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Johnson's Russia List


May 18, 2000    
This Date's Issues: 4308 4309  4310

Johnson's Russia List
18 May 2000

[Note from David Johnson:
  1. AP: Nick Wadhams, Kasyanov Turns To Reviving Economy.
  2. Kasyanov Approved Despite Lack of Policy.


Kasyanov Turns To Reviving Economy
May 17, 2000
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

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

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


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

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


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

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

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

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

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

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.


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

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

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

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

[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...



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

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".



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