|INTRIGUE IN THE KREMLIN|
The Shake-Up in the Russian Cabinet
December 5, 1997
Questions answered in this forum:
Will corruption and crime dismantle reform? Will Chubais' reform programs be maintained by the next administrator ? How did Russia move from state owned business to independent business? Should we invest in Russia? What can the West expect from this cabinet shuffle ? Viewer comments
September 29, 1997:
A new Russian law limits all religions outside the Orthodox Church.
July 22, 1997:
Elizabeth Farnsworth speaks with David Hoffman, The Washington Post's Moscow Correspondent.
May 27, 1997:
Russia agrees to the expansion of NATO.
Browse the NewsHour's coverage of Europe and the Conference of Independent States.
William S. Dick of Seaside, CA, asks:
In an interview on Voice of Russia, new Finance Minister Zadorin comes across as a politician whose position will be less partisan and more apolitical, somewhat like the change heard in William Cohen's statements after being nominated Sec. of Defense. He has already shown himself willing to disassociate himself from his Yabloko party by stating that Russia's financial crisis demands action without the political posturing and maneuvering evident in Chubais' ouster (Yabloko was thought to be one of the main behind-the-scenes proponents of Chubais' 'demise'). What can the West expect from this shuffle as far as concrete measures are concerned? How long will the U.S. and the IMF wait for the Russians to wake up and realize that their bankrupt methods of doing business and playing politics are leading them to perfect conditions for another radical takeover? (I refer to the Russia of summer 1917 and the Weimar Republic)
David McGuffin, Moscow correspondent for Feature Story, Inc., responds:
Chubais' replacement as Finance minister, Mikhail Zadornov, was chairman of the Duma's Budget Committee for a year before taking on his new post and was respected as an expert on budget and economic matters by all factions in Parliament. And he embraces a less is more philosophy towards government, which will please most western governments and investors.
But when Chubais cooked up his deal this week with western banks (see above) Zadornov seemed to be caught unawares and refused to comment whether he even knew about the plan before he read about it in the newspaper. This raises some questions about his autonomy as the new Finance Minister. But generally its too early to say what effect he'll have in the long term at the finance ministry.
As far as the IMF and the United States government "waking up." It can be argued that the IMF has been actively trying to influence how the Russian government runs. Twice in the past year it has withheld 700 million dollar loans to Russia because of the governments real problems collecting taxes.
As for the United States, there has been a lot of American investment into Russia, especially into areas like oil and gas. If you talk to American businessmen working in Russia, they most often talk about the opportunities available here. General Motors for instance has opened one car plant in Russia already and plans two more. One executive described Russia to me as the last great untapped market in the world for the auto industry. And this bullishness seems to remain even the market downturns here after the problems in Asia's economies. So if the business of America is business, America seems to be content to work with the current Russia, albeit with some changes.
Clifford Gaddy of the Brookings Institution responds:
First of all, remember that Chubais, although no longer finance minister, is still first deputy prime minister and is very much more powerful than the new finance minister, Zadornov. Nevertheless, Chubais' scandal-weakened position means that he will find it nearly impossible to push through his preferred versions of (1) next year's budget and (2) a new tax code.
Some people regard failure to pass the tax code as a disaster for Russia. They view it as a "magic bullet" that will solve Russia's economic problems. That much exaggerates its significance. More important is the fate of the budget. Until this year, Russian budgets had been pure fiction. They projected revenues and set spending goals that simply could not be met. Chubais was preparing a pared-down budget that for the first time would start to tell Russians the truth about the limits to government's ability in Russia today. Chubais was promising much less than his predecessors had, but he was prepared to keep the promises he made. This had a chance to change attitudes towards government.
Now, under the pressure of the communists and the Yabloko party, I fear that parliament will once again adopt a completely unrealistic budget. The taxes will not be collected (because they are unrealistically high) and the spending promises will not be kept (because the revenues are not there). When this happens, ordinary Russians will become even more cynical about government and less inclined to be part of the official economy. They will take even more of their economic activity underground (to avoid taxes), or worse---they will refrain from productive activity altogether and retreat into their personal economy.
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