Yeltsin Renews Calls For Growth

President Boris Yeltsin called Tuesday for more spending cuts and approval of a long-awaited tax code in an annual state of the nation address which brought some relief to worried foreign investors. The Presidents 30-minute speech, which he delivered standing at a podium before the upper and lower Houses of the Russian parliament, may also calm mounting fears about his health.

Although short on specific details and new policy recommendations, his speech broadly endorsed the governments market reforms and its efforts to cope with hostile conditions in world markets sparked by the Asian crisis.

However, he balanced his calls for fiscal austerity with an insistence that the government produce economic growth this year.

 

Western economists and the Russian central bank have warned that, because of higher interest rates, significant growth is unlikely this year. The Presidents continued calls for growth may inspire fears that the leadership is unrealistic in its ambitions for the economy. The Presidents generally reformist line was good news for Anatoly Chubais and Boris Nemtsov, the two first deputy Prime Ministers who have been undermined by a series of cabinet changes over the past few months.

Their rivals had hoped Yeltsin would use his speech to deliver a final blow to the two young ministers.Instead, he offered them qualified political support. Yeltsins strongest new initiative was to order the government to prepare a new plan for slashing federal expenditures by the middle of May.

It is time to learn to do what any good housewife knows, the president said. To spend money economically, rationally, to live according to ones means. Touching upon another preoccupation of the business community, Mr Yeltsin called on the government and parliament to ensure the passage of a crucial tax code this year. His push for fiscal austerity appears to be an effort to respond to the complaints of rating agencies and foreign investors who have called for spending cuts in reaction to the rising cost of borrowing and poor tax collection. Mr Yeltsin continued his theme of fiscal sobriety with a call for a realistic budget in 1998. Higher borrowing costs and compromises last year with the parliament have distorted the draft 1998 budget, which has not yet been passed into law. The finance minister has attacked it as impossible to fulfil. Although the budget is already under discussion, nevertheless it should be made realistic this year, by adopting amendments, Mr Yeltsin said. He also spoke out against the culture of barter and non-payment which threatens to paralyse the Russian economy, personally charging Mr Chubais with resolving the problem. It would have been naive to hope for a lot more, said Roland Nash, an economist at the Moscow investment bank MFK-Renaissance Capital. It was pretty positive, although he did not really sort out the dichotomy between growth and a secure financial system, which requires some austerity now. Editorial Comment, Page 27 Yeltsins endgame, Page 26 Copyright Financial Times Limited 1998. All Rights Reserved.