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    DEPUTY PM ZHUKOV OPTIMISTIC ABOUT ECONOMIC PROSPECTS

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    MOSCOW, April 6, 2004. (RIA Novosti) - Russia's administrative reform will become a serious instrument for raising the competitiveness of the Russian economy, Deputy Prime Minister Alexander Zhukov said Tuesday at the fifth international scientific conference, Competitiveness and Modernisation of the Economy.

    The deputy prime minister noted that the reform had started with modernising departments, cutting their number, increasing their responsibility and eliminating duplicate functions.

    "Today a new government structure has been mostly formed," stated the deputy prime minister. This structure will consist of three sections - the functions to adopt regulatory acts, to control and implement decisions have been divided.

    The number of state officials has been considerably cut as well.

    The ultimate purpose of these moves is to make the staff of the state administration more compact and effective, said Mr. Zhukov. On the one hand, the authorities should give up functions that they are not supposed to perform in the market economic conditions, and the remaining functions should be performed far more effectively, he explained.

    Mr. Zhukov did not rule it out that Russia's economic forecast might be corrected, and the projected figures increased.

    "Development prospects are fairly optimistic," he said.

    Mr. Zhukov noted that the government had set itself the task of providing the economic growth of 7% annually, increasing real incomes by 40% within three years and reducing inflation by 2% every year to make it 4% in 2007.

    The deputy prime minister noted that the inflation rate of 4% would be comparable to European levels. This will form a macroeconomic basis for sustainable growth, he said.

    According to the deputy prime minister, in the past four years a lot has been done in the country for economic stabilisation.

    "Four years ago, the economy was in such a state that made it difficult to talk about any breakthrough. The task was to stabilise the situation and carry out the necessary macroeconomic reforms to create a normal business investment climate in Russia. This task has been achieved for the most part," said Mr. Zhukov.

    In his estimate, the economic growth rate in the country has stabilised and makes an average of 7% annually. Inflation has also been reduced, and deficit-free budget surplus has been made a norm of state planning, and not an exception. Good currency reserves have been accumulated, and Russia's credit rating - raised.

    This is all true, "let alone the political stability that has been acknowledged by the entire world and that forms prerequisites for stable economic growth," said the vice premier.

    He continued that the reduction of the single social tax and VAT would mark the end of the tax reform in Russia as a whole.

    Mr. Zhukov recalled that the single social tax was to be cut from the current 36% to 26% in 2005, and VAT would be reduced in 2006.

    "In general, this will be the conclusion of the tax reform in Russia, and we will try to preserve the stability of the tax laws in the next few years," said Mr. Zhukov.

    The deputy prime minister added that the single social tax was "the highest and the most harmful law for salaries' legalisation." The reduction of the tax from 36% to 26% will make it possible to retain about $10 billion for the economy to be later used to raise wages or increase investment, and will improve business climate in the country, he said.

    As for the poverty elimination, the vice premier said that the Russians living below the poverty level would account for 50% less in the next three years. This is the task set by the Russian government, he recalled.

    According to Mr. Zhukov, about 30% of the population are poor people. In the next three years, incomes of the Russian people are to increase by 40%.

    "This is an ambitious task but it is realistic," said the vice premier.

    According to him, citizens' incomes will increase, among other things, due to amendments in the pension reform that the government plans to carry out. Mr. Zhukov recalled that the government, in particular, intended to replace pensioners' privileges with allowances.

    "We are bound to do this to make social privileges targeted, to increase their importance and remedy the financial policy," said the vice premier.

    He noted that to make budget expenditures more effective was another priority facing the government.

    According to Mr. Zhukov, all spheres of the Russian economy today have a serious potential for economic growth, for improving the social and economic situation, and raising competitiveness by getting rid of monopolies and letting in enterprises into this sphere on the market basis.

    Mr. Zhukov also emphasised that the Russian government sought to reduce the country's dependence on the world oil prices.

    According to the vice premier, so far Russia owed its economic growth to the foreign economic situation favourable for the export of Russian raw materials (oil, gas and metals).

    Now we need some measures that would boost the processing sectors and high technologies, he added.

    Mr. Zhukov remarked that the goals of the government to increase economic growth and reduce inflation were important but insufficient for the Russian economy to become really competitive as compared the leading economies of the world.

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