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Kremlin Will Decree Russian Fiscal Reforms

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TIMES STAFF WRITER

After the parliament failed to approve much of its financial austerity program, Prime Minister Sergei V. Kiriyenko said Friday that the Russian government will move quickly to adopt the rejected measures by decree.

Although the government has pushed all week to force the Duma, parliament’s lower house, to adopt a series of painful tax hikes and budget cuts, Kiriyenko revealed that decrees enacting the same proposals have already been drafted.

“We are ready for this,” he said after the Duma adjourned. “The government is ready to assume the responsibility for passing these measures. Unlike the state Duma, we can’t go on vacation and forget about the program.”

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The willingness of Kiriyenko and Russian President Boris N. Yeltsin to adopt the remainder of the tough fiscal program by decree would appear to guarantee approval of at least the first $5.6-billion installment of a $17.1-billion loan agreed to earlier this week by the International Monetary Fund and other lenders.

By squeezing major concessions out of the Communist-controlled Duma, the government also has managed to spread the blame for the coming austerity measures, including a 5% sales tax on consumer goods and cuts in aid to families with children.

While parliamentary approval of the entire fiscal program would have ensured broader public acceptance, government officials say they have sufficient legal authority under the constitution to enact the measures by the decree of the president or the Cabinet.

“Governmental resolutions will be worded in approximately the same way that they were presented to the state Duma and were voted down,” Kiriyenko said.

Referring to a controversial measure opposed by the Duma that would broaden Russia’s value-added tax, the prime minister said: “A draft resolution on this has already spent some time on my desk, and we were just waiting for the state Duma’s final decision.”

Kiriyenko predicted that Duma deputies, while unwilling to pass the measures themselves, will not object to the government acting unilaterally or try to overturn the decrees when they reconvene later in the summer.

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“They clearly realize that these measures are inevitable and need to be implemented, but they would prefer not to have to bear political responsibility for them,” he said.

Russia’s economy went into a tailspin with the Asian economic collapse last fall and the plunging world price of oil, a major Russian export.

As Russia’s stock market collapsed and investors pulled out, the government spent an estimated $10 billion from its reserves propping up the ruble. Russia added to its problems by taking out high-interest, short-term loans that it could not afford to pay back.

This week, the IMF, the World Bank and Japan rode to the rescue with the offer of a $17.1-billion bailout on the condition that the government enact the austerity program it had proposed in parliament.

The IMF board is scheduled to meet in Washington on Monday and consider immediate payment of the first $5.6-billion installment of the new loan.

This put the Duma in a predicament: It has not wanted to solve the fiscal crisis by raising taxes, cutting government spending or borrowing money from abroad. Instead, many deputies have favored devaluing the ruble. The government has refused to do this, arguing that devaluation will only worsen the country’s fiscal problems.

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Despite its misgivings, the Duma ultimately approved 14 of 26 measures proposed by the government, including the sales tax that will finance local and regional governments.

Kiriyenko estimated that the measures that lawmakers passed will produce about $4.5 billion in new revenue or spending cuts--slightly more than a quarter of the $16.5 billion proposed in the austerity package.

Some economists predicted that the government will issue only enough decrees to bring the total package to about $11 billion. This amount, along with the foreign loans, they said, should prevent any further economic collapse for as long as 18 months--taking Russia through next year’s parliamentary elections and nearly to the next scheduled presidential election in the year 2000.

“I am sure that now Russia will not be rocked by major political catastrophes and cataclysms until the next presidential election, which must make our president pleased enough,” said Nikolai P. Shmelyov, deputy director of the Institute of Europe.

Investors appeared to agree: With the day’s developments, the Russian stock market continued its dramatic recovery by rising 6.7% Friday. Since Monday, the day the IMF bailout was announced, the market has increased by 31%, according to the Russian Trading Service index.

For many Russians, Friday’s debate in the Duma was overshadowed by the burial of Czar Nicholas II and his family in St. Petersburg, much as earlier debates were obscured by broadcasts of World Cup soccer games.

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“Frankly, I was not paying much attention to the Duma today,” said Valentina M. Ivashkevich, 70, a Moscow drugstore manager who spent much of the day watching the royal funeral on television. “I don’t understand how the Duma or anybody else could work today. As to the budget problems, we have lived with them for the last seven years. I’m sure it could wait another day.”

Alexei Kuznetsov of The Times’ Moscow Bureau contributed to this report.

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