Vi, short-term looks positive. WSJ article on "surprise" passage of national sales tax by Duma
July 16, 1998
Russian Lawmakers Back Sales Tax,
Key Part of Economic Austerity Plan
Associated Press
MOSCOW -- The Russian parliament agreed to a national sales tax
Thursday, giving the government a surprise victory in its effort to pass an
economic austerity plan demanded by international lending agencies.
Parliament's lower house, the State Duma, adopted the tax law on a third
reading late in the evening after Finance Minister Mikhail Zadornov
chastised the legislators for risking the loss of international loans.
Hours earlier, the Duma had rejected the sales tax and a land tax measure,
casting doubt on whether the government could win passage of its
economic program.
The board of directors of the International Monetary Fund meets in
Washington on Monday to consider the financial bailout for Russia. The
agency has made it clear that it wants the economic austerity program
passed before it begins disbursing cash.
The international loan agreement would bring $17 billion in new funds this
year and next to help stabilize financial markets.
The Duma also adopted a bill setting forth the general principles for tax
collection and gave initial approval to an amendment on the personal
income tax law.
Thursday's marathon session was supposed to be the last day of a
two-day special session called to consider the 20-point economic plan.
But the Duma adjourned late in the evening and said it would return
Friday.
The upper house of parliament, the Federation Council, said it would meet
"as long as is required" Friday to act on bills approved in the Duma.
Russian stocks, which made gains of about 28% earlier in the week,
dropped 4.8% Thursday when profit-taking increased after the lawmakers
initially balked at tax reforms. The markets had closed by the time the
sales tax was approved.
The Communists and nationalists in parliament generally oppose spending
cuts and tax hikes, arguing that such measures will hurt ordinary Russians.
But after the Duma rejected the sales and land tax, Mr. Zadornov
appeared and warned of the consequences of their actions.
"The key points which should lead the country out of crisis have not been
supported by you," he said.
It was not clear how influential his remarks were. The Duma has a history
of rejecting government proposals on early readings, and then relenting on
the final reading. President Boris Yeltsin has hinted that he would shove
through the measures by decree if lawmakers rejected them.
The IMF and others do not want to release the loans until they are
convinced Russia is serious about financial reform, but the Russian markets
are likely to crash if assistance doesn't arrive soon.
The Communists are wary of the loan package, saying it could saddle
Russia with debt it cannot afford to repay. But Russia already must pay off
billions of dollars in short-term debt that will be due in coming months, and
it probably can't meet the payments without the new loans, analysts say.
When combined with already-negotiated loans, the package totals $22.6
billion spread over this year and next.
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