Chernomyrdin eyes 'dictatorship' to save economy

PUBLISHED : Saturday, 05 September, 1998, 12:00am
UPDATED : Saturday, 05 September, 1998, 12:00am

Acting Prime Minister Viktor Chernomyrdin has outlined a series of reform proposals for Russia that could result in a currency board-type system for the rouble and place the country effectively under an 'economic dictatorship'.

'I am ready to take full responsibility,' he said yesterday in a speech to the Federation Council, parliament's upper house.

'From January 1999, the country moves to economic dictatorship,' he said.

'The choice is either the abyss of hyperinflation or the mobilisation of control over the economy.' Mr Chernomyrdin, who warned that some measures would be painful, said priority would be given to the development of the country's goods and services.

'Our actions will be unpopular,' he said, but allow us to do something which would move the country away from the borderline between life and death.' Mr Chernomyrdin said the rouble should be tied to Russia's foreign exchange and gold reserves in what would effectively represent a currency board system.

He said Russia should also raise its foreign-exchange reserves and gradually release funds to help pay for mounting wage arrears and pension costs, 'We will strictly tie the monetary mass to the gold and foreign reserves of the central bank,' he said.

'At that stage, of course, prices will rise,' he said, 'but that way, every rouble will be backed by gold and foreign-currency reserves.

'In other words, the rate will be unbreakably stable.' But Mr Chernomyrdin suggested that the rouble should be floated too, in what was interpreted by analysts as a possible precursor before the currency is set within a board.

He also said tough bankruptcy regulation was needed to bolster the credit quality of businesses.

In addition, he said support measures should be set up for domestic industry and tax regulation should be improved.

He said a flat-rate income tax level of 20 per cent should be imposed on everyone, except for the very poorest. This would replace a sliding scale system that includes a top rate of 35 per cent.

'This could be the last chance to build a normal economy in Russia,' he said.

The proposals represented a last-ditch attempt by Mr Chernomyrdin to present a viable economic programme to the opposition in the Duma, parliament's lower house, and win support for candidacy to be prime minister.

In the first vote, he was overwhelmingly rejected by the Communist Party-dominated Duma. He garnered only 94 of the 450 votes in parliament, far short of the required 226 votes needed for him to become prime minister.

The Duma is to debate on Monday whether to confirm Mr Chernomyrdin as prime minister.

Market reaction to the reform proposals was mixed yesterday. The rouble fell further, but the stock market strengthened.

On the Moscow Interbank Currency Exchange, the rouble was set at 16.99 to the US dollar, down from 13.4608.

The Russian stock market's benchmark RTS Index rose 1.69 per cent to close at 61.434 points.

Mohamed El-Erian, a Salomon Smith Barney strategist, said the proposed reform package would be viewed 'either as defining a policy approach based on an initial bout of inflation followed by stabilisation centred on a currency board or merely confirming an inevitable march back to the systems of the past.

'But for now it is just a wish list subject to grim economic, financial and political realities,' he said.