Yeltsin Overrules Finance Minister by Ordering Corporate Tax Relief

Seeking electoral support from factory owners, President Boris N. Yeltsin won a face-to-face showdown with his finance minister Friday and ordered a dose of corporate tax relief that the minister warned will “wreck Russia’s budget.”

Yeltsin issued the directive during an open meeting with the industrial and political elite of this Volga River port city, capping a day of populist pledges in his uphill race to win reelection against a Communist rival.

The tax relief, which appears to undercut his budget-balancing commitment to the International Monetary Fund and some of his other pledges to voters, was the only thing he could do on a glorious spring day to gather applause from Yaroslavl’s 627,000 citizens.

With election day looming six weeks from Sunday, Yeltsin has picked up his pace, scheduling 16 more campaign trips, including one to war-torn Chechnya.

On Friday morning he waded vigorously into a gathering of several hundred people around a stone statue of their city’s founder, 11th century Prince Yaroslav the Wise.

Moving counterclockwise, he worked the uninspired crowd with 30 minutes of handshakes, promises and gruff humor. He trotted out a bride and groom, in formal wedding attire, and gave them a $20,000 home loan repayable in 25 years at no interest--a deal now widely available under a government program.

He pledged to raise retirement pensions, get a telephone for a woman who has waited eight years, “flog” bureaucrats caught taking bribes, pay half of the $100,000 renovation bill on a cultural center for the city’s Muslim minority and restore to the elderly poor savings wiped out by inflation.

“It’s a mistake and will be corrected,” he told a woman who complained about her $42 monthly retirement income. “A law [raising the minimum pension] will be passed by summer.”

“By then we’ll be dead,” she said.

“You’ll live to see it,” Yeltsin assured her.

As for his own health, the 65-year-old leader, who was hospitalized twice for heart trouble last year, said: “I’m energetic . . . ready to fight the Commies.”

Russia’s first democratically elected president trails Gennady A. Zyuganov, the front-running Communist Party boss, in some polls and has drawn even with him in others. As in previous campaign stops, Yeltsin on Friday sharpened the outlines of a come-from-behind strategy.

He attacked the Soviet past as repressive. He admitted the pain of his free-market reforms and the errors of his own administration. And he promised, with some disregard for the facts, that everything is being fixed.

“There is not enough discipline and order in the army,” he told the worried mother of a draft-age teenager, “but I’ve signed a serious military reform, and we’re going to carry it out.” Later he said there is no more fighting against separatists in Chechnya.

Neither assertion could be further from the truth: Yeltsin has signed no such reform, and the Chechen war is raging into its 17th month.

What does appear true, at least here, is that the administration has caught up in its race to pay months-long backlogs of overdue wages to public employees. That achievement was aided by a $10.2-billion IMF loan granted to Russia in March in return for higher taxes and a balanced budget.

But the fragility of the achievement was illustrated Friday afternoon, when Yeltsin came under pressure from Communist-era factory owners at their meeting in the governor’s palace here.

Pleading poverty, they pressed for a return to a tax-relief scheme that was in effect for 18 months until February and exempted 30% of their profits from collection of overdue taxes.

Denouncing their arguments as “fairy tales,” Finance Minister Vladimir G. Panskov, who canceled the scheme during Russia’s talks with the IMF, stood up three times during the meeting to argue against readopting it; many in business had used it to pay no taxes at all, he said.

Panskov said the scheme, rather than stimulating factory production, would only “deprive public employees of their salaries and pensioners of their pensions,” hurting the very voters Yeltsin had appealed to that morning.

“Does any of you know another way out?” Yeltsin asked executives around a long conference table.

After an awkward moment of silence, a voice in the rear shouted: “No!” and Yeltsin ordered Panskov to write a decree easing their tax burden.