RUSSIA’S BUDGET REMAINS IN THE BLACK, FOREIGN DEBT FALLS.

Taken as a whole, recent spending data suggest that Moscow sees recentralizing fiscal policy, addressing long-unmet social needs and servicing Russia’s foreign debt as at least as important as pursuing a military solution to the Chechen problem. But they also show that Moscow remains committed to maintaining fiscal balance. According to the Finance Ministry data, the federal budget recorded a surplus of nearly 115 billion rubles (US$4 billion) during January-April 2001–or 4.4 percent of GDP. In dollar terms, this surplus is almost as large as the US$6.2 billion figure recorded for all of last year. Russia’s primary budget surplus–the budget balance plus interest payments, showing how much money the budget can allocate toward the repayment of debt interest and principle–had risen to 220 billion rubles, or nearly US$8 billion.

Moscow is using some of these funds to cover its foreign debt obligations. According to the Finance Ministry data, US$3.2 billion in federal budget revenues went to cover foreign interest payments during January-April, while another US$1.8 billion went to reduce the principal on its foreign debt. Moscow’s foreign debt therefore continues to fall. According to Finance Minister Aleksei Kudrin, Russia’s debt by the end of February had dropped to US$149 billion (Bloomberg, April 11) This is most apparent in Russia’s obligations to the IMF, which at the end of March had dropped to US$11.5 billion from US$19.3 billion at the end of 1998.

But not all of the budget surplus is going to pay off Russia’s debts. Some 61 billion rubles (US$2 billion) of this surplus is simply sitting in the Finance Ministry’s bank accounts (so-called “treasury accounts”) and has not been spent at all. This is fortunate, since maintaining a budget surplus remains one of Moscow’s few tools for offsetting the strengthening inflationary pressures now taking hold in the economy. Consumer prices in April 2001 were 25 percent above the levels recorded in April 2000. Should Moscow decide to spend the budget surplus–on Chechnya, teachers’ salaries, or any other domestic priority–inflation would almost certainly accelerate further.

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