President Vladimir Putin warned Monday that rising inflation was threatening to devour Russian growth and urged the government to live within its means by balancing budgets and breaking a foreign loan dependency.
Putin delivered his stern belt-tightening message before a full meeting of finance ministry officials that comes amid a dispute between Moscow and the West about repayments of Russia's mountain of international debt.
Following through on a pro-reform state-of-nation address earlier this month, Putin said Russia must engage in serious and permanent structural reforms which could lead to economic growth that does not depend on world market prices on its energy exports.
And he cautioned that inflation was almost double the original government forecasts for the first three months of the year and urgent action had to be taken.
"Inflation is starting to eat up our profits, turning into one of the main threats to economic growth," said Putin.
At 7.1 percent for the first three months of 2001, Russian inflation is far outpacing the 4.1-percent figure for the same period last year and economists warn that the annual target rate of 14 percent was in serious threat.
Much of the rise in prices has been attributed to soaring energy prices -- a double-edged sword that has also allowed Russia to beef up its hard-currency stockpile to post-Soviet highs.
"We must end the situation in which we now find ourselves, being held hostage to our energy producers," said Putin.
And delivering a barb apparently aimed at Prime Minister Mikhail Kasyanov's failure to re-negotiate the schedule of Russia's Western debt payments, Putin said Moscow's current loan load was much too heavy.
"We must strive to reduce our debt, improving its structure and cutting the cost of servicing," Putin said.
He added that Russia must be "very cautious" about taking on future debts from Western creditors.
"Building up debts cannot be a part of our future strategy," he said.
Putin's remarks come just weeks after Russia broke off new loan negotiations with both the International Monetary Fund and the World Bank, arguing that it could do without foreign credits -- and the Western monitoring of Moscow finances that accompanies them.
On a more optimistic note, Putin said that Russian tax collection had improved drastically over the past year, in large part thanks to the government implementing a flat 13 percent income tax last year.
"Nobody expected such good results," said Putin, noting that income tax collection had picked up a massive 70 percent over the first three months of this year compared to the same period in 2000.
Kasyanov for his part assured Putin that Moscow will manage to meet its debt obligations this year, "allowing Russia to join a list of nations that has a manageable debt burden, which will seriously affect the country's appeal to investors."
For the first time in the post-Soviet era, Russia in 2000 finished the year by evening out its expenditures and revenues and has since ratified a balanced budget for 2001.
However the new budget does not include most of Moscow's Soviet-era debt servicing, a sticky issue that was rigorously discussed during Putin's meeting with German Chancellor Gerhard Schroeder.
Germany is Russia's largest foreign creditor, owed some 24 billion dollars. Russia must pay all its foreign creditors more than 18 billion dollars in 2003 -- an amount roughly equal to half Russia's budget receipts.
Schroeder has suggest that Germany was willing to restructure some of the obligations that fall due that year -- MOSCOW (AFP)
© 2001 Al Bawaba (www.albawaba.com)
