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Strategies & Market Trends : Investment in Russia and Eastern Europe -- Ignore unavailable to you. Want to Upgrade?

To: Rob Shilling who wrote (360)	7/20/1998 3:41:00 AM
From: djane	Read Replies (1) \| Respond to of 1301

Yeltsin Signs Land-Tax Decree To Secure International Aid [Info on strong interest in Eurobond placement] interactive.wsj.com By MATTHEW BRZEZINSKI, July 20, 1998 Staff Reporter of THE WALL STREET JOURNAL MOSCOW -- Rebuffed by Russian lawmakers, President Boris Yeltsin Sunday signed a decree raising land taxes, part of an "anti-crisis" program the government had promised to implement to secure a $22.6 billion assistance package led by the International Monetary Fund. The IMF board meets Monday in Washington to decide whether to release a first tranche of around $5.6 billion to help Russia out of its financial hole. The severity of the country's financial crisis was highlighted by the release Friday by the State Statistical Bureau of new figures showing a 0.5% decline in gross domestic product in the first six months of the year -- weaker than the 0.2% contraction over the year through May. Before breaking for summer holidays Friday, the Communist-dominated lower house of parliament, the Duma, approved a sales tax and several other reforms in a special three-day sitting last week. But lawmakers rejected the land tax and a raft of other proposals. Austerity Plan The stonewalling has effectively left the government of Prime Minister Sergei Kiriyenko with the burden of enacting most of the austerity plan needed to put Russia's fiscal house back in order. Mr. Kiriyenko estimated Saturday that reforms approved by the Duma would provide only around a quarter of the sum desired by the government to satisfy the IMF. He said they would represent $4.5 billion out of $16.5 billion in new tax revenue and budget cuts desired by the government. Mr. Kiriyenko said it was distressing that the measures passed by parliament largely benefit regional budgets, and raise only $480 million in additional funds for the Kremlin. "Unfortunately ... this means we'll have to solve some of our problems by decree," said Mr. Kiriyenko, referring to President Yeltsin's constitutional right to enact measures without parliament's consent. The IMF has said it will accept this method of circumventing the Duma. Messrs. Yeltsin and Kiriyenko will now have to push through over $6 billion in spending cuts in Russia's already gaping and torn welfare net. They also will have to push through contentious income-tax reforms. Tax on Imported Goods The young prime minister wasted no time over the weekend in starting to raise extra money on his own. Saturday, he introduced a 3% tax on all imported goods. Armed with a presidential decree, Mr. Kiriyenko also moved to consolidate the government's control over revenues from the cash-rich alcohol industry. Still, it was unclear if the steps will be sufficient to prod the IMF to give Russia a first payment of $5.6 billion this week. Fund representatives in Moscow have declined to comment ahead of the IMF board meeting Monday. Russia's chief debt negotiator, Anatoly Chubais, is scheduled to fly to Washington Monday to plead Russia's case before the board. He is also expected to meet with U.S. Treasury Secretary Robert Rubin and his deputy for international affairs, Lawrence Summers. Russian stocks continued their IMF-fueled rally. The benchmark Russian Trading System Index climbed 6.6% Friday to finish the week up 31% since the announcement of an international rescue package for Russia last Monday. The Kremlin should get a clearer picture of investor confidence Monday, as it launches what is expected to be the biggest international offering in Russia's postCommunist history. Lead manager Goldman, Sachs & Co. is expected Monday to announce the result of Russia's debt-restructuring program. The plan allows investors to exchange a minimum of $2 billion in ruble-denominated Treasurys, better known as GKOs, for dollar-denominated Eurobonds with maturities of seven and 20 years. Russia wants to retire as much short-term domestic debt as possible to avoid a repeat of its current cash-crunch. Traders in New York and London said investors were so excited about the Eurobond bond placement that a gray market for it has already developed. The bond has yet to be priced, but it will offer an interest rate of at least 8.375% above yields paid on U.S. Treasurys, according to early indications from syndicate officials. The total value of the Eurobond debt-swap is expected to range from $4 billion to as much as $8 billion, traders said. Return to top of page \| Format for printing Copyright c 1998 Dow Jones & Company, Inc. All Rights Reserved.