By a vote of 303 to 65, the 450-seat Duma gave the government’s 1999 draft budget preliminary approval. The budget is both austere and fraudulent. It calls for outlays of 575 billion rubles (just US$28 billion at the current exchange rate of 20.45 rubles to the dollar), against revenues of 474 billion rubles (US$23 billion), for a $5 billion deficit. Spending goes mainly to service the country’s debt, which takes 167 billion rubles ($8.2 billion), equal to 35 percent of revenues and 29 percent of outlays. Defense (92 billion rubles, or $4.5 billion) and law enforcement (51 billion rubles, or $2.5 billion) are the next largest items. The budget forecasts the 1999 gross domestic product at about 4 trillion rubles, so that outlays are 14.4 percent of GDP, revenues are 11.9 percent and the deficit 2.5 percent.

The budget does not identify funds for payment of arrears in wages and transfer payments. The government calculates arrears at 18 billion rubles in wages (not counting 67 billion rubles owed by private employers), 30 billion rubles in pension payments and 24 billion rubles in child-welfare subsidies.

The austerity in the budget is its absolute size. The $28 billion to be spent in 1999 is only about $185 per person, about 3 percent of what the U.S. government spends per capita. Anyone who doubts the weakness of Russia’s central government need only contemplate that figure.

The fraud is in the assumptions. The budget uses an average exchange rate for 1999 of 21 rubles to the dollar and an inflation rate of 30 percent for the full year. Perhaps with zero inflation an exchange rate of 21 to the dollar might be sustained, but 30 percent inflation will ensure that the ruble depreciates significantly. And inflation is likely to be considerably higher than 30 percent. The International Monetary Fund (IMF) “optimistically” projects inflation at 56 percent for 1999. Debt service of $8.2 billion assumes that creditors will agree to restructure at least half of the $17.5 billion in hard currency payments due in 1999–or that Russia will restrict payments unilaterally. On the revenue side, the budget assumes $7.5 billion in new foreign loans, including a resumption of disbursements by the IMF. That assumption is also doubtful.

The budget needs two more votes in the Duma before it goes to the Federation Council, parliament’s upper house, where regional leaders could give it a rough time. Once both houses have agreed, President Yeltsin can sign the budget into law–probably not before February. If passage is delayed much beyond then, the budget may be blown before it is enacted.

NOTESPolice blotter: when crime is politics by other means

–President Yeltsin, on television, denounced Interior Minister Sergei Stepashin as being soft on crime. He accused the minister of using phony statistics to conceal the true extent of the problem. Yeltsin also upgraded the tax police to a ministry, reporting directly to him.

–Presidential chief of staff Nikolai Bordyuzha held a media event with the ministers of defense and interior, the head of the Federal Security Service and other cabinet-level officials. For the television cameras Bordyuzha held up and denounced anti-Semitic tracts available in Moscow. He also ordered special military inspectors to visit Cossack territories to investigate growing support for the neo-fascist Russian National Unity faction. Bordyuzha told reporters his principal task is “maintaining law and order in Russia in 1999.”

–Moscow Mayor Yuri Luzhkov denied Russian National Unity a permit for a congress in Moscow and called for banning the organization outright.

–In St. Petersburg, Federal Security Service investigators say they are looking at a commercial scenario to explain the murder last month of Galina Starovoitova. Anonymous officials say Starovoitova was linked to the lumber and antique trades, and the newspaper “Komsomolskaya pravda” says she was connected to companies in Moscow which laundered money for transfer abroad. Starovoitova, a dissident in the Soviet era and later a Yeltsin ally, Duma member and one of Russia’s leading democrats, was shot three times in the head near her apartment, and her aide was seriously wounded. Her murder was almost surely politically motivated.

–The deputy head of the Audit Chamber, a federal watchdog agency, told the press that when President Yeltsin gave the National Sports Federation the right to import booze and cigarettes duty free, he cost the federal treasury $7 billion in lost revenue. The head of the NSF, a Yeltsin crony, was killed in a contract murder in 1996. The Russian Orthodox Church reportedly now operates the cigarette import monopoly.

–Chechen officials are delivering the severed heads of four murdered communications workers to British and New Zealand embassy officials in Moscow. The murderers, however, are reportedly demanding $2,000 each in ransom for the bodies. Chechnya’s president has reportedly suspended the republic’s anticrime campaign until the end of Ramadan.