News Brief No. 97/5

News Brief: Camdessus Praises Russian Stabilization;

April 2, 1997

Michel Camdessus, the Managing Director of the International Monetary Fund, says that the achievements made in the last few years in the Russian economy are impressive. He highlights three key problems that need to be addressed.

In a speech prepared for delivery at the Moscow Institute of International Affairs on April 2, he says, "Inflation has been cut...and the exchange rate has stabilized." "Central planning has been abolished and...two-thirds of the economy is now in private hands;" "trade barriers have been reduced, and the ruble trades freely and can be readily converted into foreign exchange."

Camdessus notes that "some people would point to the mass of unpaid wages and pensions, collapsing public services, the decline in production, protest in the street and the atmosphere of increasing lawlessness and say: ‘This is not progress, this is crisis.’" To them Camdessus would reply, "it is a crisis that has to do, in part, with the role of the state. The state of crisis is a crisis of the state." He adds, "nobody has put that in a more striking way than the President himself; I quote his address: ‘the state interferes in the economy where it shouldn’t while where it should, it does nothing.’"

Camdessus says there are three key problems concerning the state that have to be addressed: growth; the non-payment of taxes; and corruption.

Camdessus says that Russia’s economic growth can be accelerated if the government completes the institutional reforms on which a thriving market economy depends. These include: "a simple and transparent regulatory system;" "an effective legal and judicial system that protects property rights, enforces contracts, and helps create an atmosphere of law, order, and personal security;" and "a tax system that is simple and broad-based, with limited exemptions and fairly low and uniform rates."

Camdessus stresses that the government must have "the revenues to meet its obligations to workers, pensioners, and all who depend on government services." He says, "...priority must be given to changing the attitude toward the non-payment of taxes, beginning with the largest tax delinquents...There is an urgent need to broaden, simplify, and update the tax system and tax administration. Over the medium-term, the goal must be to build a tax-paying culture based on voluntary compliance with transparent laws that are consistently applied."

He says that an important element in the strategy to fight corruption is "to refocus the state’s role in the economy on its basic tasks--among them, guaranteeing a level playing field. This means removing unnecessary government regulations and controls, strengthening the legal system and the enforcement of contracts, reforming the tax system and the civil service, and establishing an arms-length relationship between business and government. In so doing, the government will also eliminate many opportunities and incentives for corruption," Camdessus states.

Camdessus says that the future of Russia lies in the hands of its people and leaders. However, he says, "this is also the time for us, in the international community, to go ahead with our support for the completion of your reforms--by continuing our uncomplacent but friendly and constructive dialogue on policies; by extending, when needed, our technical assistance; and by resuming our financing and risking our resources once again in support of your economic program." Camdessus calls on the Russian State Duma "to pass laws for the market economy, to ensure that the government’s budget is realistic and ambitious on both the revenue and expenditure sides, and to lead a responsible debate in the country about economic policies and propriety in public life."