Yeltsin's Economic Cabinet Picks Draw Applause

President Boris Yeltsin's appointment Thursday of a top banker and a trusted economic adviser to key cabinet posts drew praise from investors and analysts, though they warned that the government faces Herculean tasks in cutting the budget deficit and cleaning up the notorious tax system.


Vladimir Potanin, 35, the president of Uneximbank, was named first deputy prime minister for economic matters. Former presidential adviser Alexander Livshits, 50, was appointed deputy prime minister and finance minister.


"It means a step toward free-market policies," said Lucien Blanc, president of the European Business Club in Moscow. "It will be a good thing for foreign investment."


"The overall balance of forces in the new government is positive," said Alexander Tsapin, vice-president of Pioneer Investment.


Potanin promptly sounded an encouraging tone for foreign investors.


"A boom in investment could start in a few months once we manage to show investors that their rights are being protected," Interfax quoted him as saying.


Analysts said Potanin, who will be in charge of financial policy, was likely to be put to a test soon in the budget-deficit battle.


"It is good to have a banker in the government because they are used to not living beyond their means," said Andrei Nezhadin, director of the Expert Institute of the Russian Union of Industrialists and Entrepreneurs.


Pioneer Investment's Tsapin sounded a note of caution over the appointment of Alexei Bolshakov, 56, as first deputy premier in charge of industry, the second highest job in the government. Formerly the low-profile deputy prime minister in charge of relations with other former Soviet republics, his economic leanings are less clear.


Tsapin also noted that some key posts, such as the head of the State Property Committee responsible for privatization, remain unfilled.


But he said the reform wing, strengthened by the new appointments, should be able to "stand up to" conservative elements.


Stephen O'Sullivan, a senior analyst with MC Securities in London, also said new cabinet "looks like a good mixture of people with [government] experience and real pro-reformers such as Potanin and Livshits."


Analysts said they also believed the reappointment of veteran Yevgeny Yasin as economics minister and the departure of industrialist Vladimir Kadannikov would add to the overall reformist thrust of government economic policies.


Conspicuous by his absence is Yury Shafranik, the minister of fuel of energy, whose post was listed as vacant for now. But analysts said his departure might not have much effect either way in the key energy sector.


"The ministry of fuel and energy is less important than in the old days," O'Sullivan said. "It has been working its way out of existence."


The government will be at pains immediately to resolve chronic spending and tax collection problems, which in July prompted the International Monetary Fund to suspend the latest monthly disbursement of a three-year, $10 billion loan.


An IMF mission is in Moscow this week to assess the government's moves to solve the problems. At the same time, many sectors of industry are crying for help.


"The new government will be presented with a tidal wave of demands for subsidies," Nezhadin said.


"Raising additional budget revenue will definitely be the government's main short-term task," said Vladimir Mau, deputy head of the Institute for the Economy in Transition.


With annual treasury bill yields generally hovering in the 80- to 100-percent range, incentive remains strong to invest in them rather than provide crucially needed investment in production.


Tax reform must also be high on the agenda if the cabinet wants to attract additional foreign investment, said Blanc of the European Business Club.


"We need clear rules of the game," Blanc said. "We expect a clear tax code and clear enforcement," he said.