Publication: Monitor Volume: 5 Issue: 13

Prime Minister Yevgeny Primakov’s government got a morale boost yesterday when the State Duma passed the draft 1999 federal budget in its second reading. After six hours of debate, the lower house of Russia’s parliament approved the draft in a 296-54 vote, with five abstentions. While a little money was reallocated toward social spending and defense, among other things, the draft was basically passed intact. Some amendments urged by the Communist Party of the Russian Federation (KPRF)–such as the idea of putting some of the US$9.5 billion allocated for foreign debt payments toward increased social spending–were skirted, and are likely to crop up again on January 29, when the budget is examined for a third time. The budget will be finally passed–or rejected–after a fourth reading, which is expected to take place some time in February. After that, it will be considered by the Federation Council, the upper chamber of Russia’s parliament (Russian agencies, January 19).

Russia is due to pay US$17.5 billion this year to foreign creditors–mainly to the International Monetary Fund (IMF) and holders of Russian Eurobonds. Finance Minister Mikhail Zadornov said yesterday that the government will pay back, at a minimum, the US$9.5 billion allocated for external debt payments. He added, however, that because this amount falls well short of the total debt, further talks on restructuring the debt are necessary. For his part, First Deputy Prime Minister Yuri Maslyukov said yesterday that if a restructuring agreement is not reached, Russia will pay all of the US$17.5 billion it owes. “It’s not important how realistic it is, if we must pay, then we will pay” (Russian agencies, January 19).

Given that Russia is simply unable to pay the entire amount on its own, Maslyukov seems convinced that the IMF will agree to restructure the debt. Yet the IMF’s line toward Russia has been tough of late–at least publicly. On January 15, IMF deputy director Stanley Fischer said that the basic macroeconomic parameters in the 1999 draft budget were unrealistic, and urged the Primakov government both to take urgent measures to cut the budget deficit and not to cut the value-added tax rate. Fischer said Russia should aim for a 3-4 percent primary budget surplus, to ensure it has money to pay its debts (Moscow Times, January 19). Nonetheless, Maslyukov called reports in the Russian press–that the IMF was making a “realistic” budget a condition for further aid–“misinformation.” Maslyukov’s confidence that the IMF will relent was probably bolstered by the fact that the London Club, which is made up of more than 600 bank-creditors of the former Soviet Union, is likely to vote today against declaring Russia bankrupt. Last December 29, Russia’s Vneshekonombank failed to meet a scheduled US$362 million payment on its Soviet-era debt. That debt, including interest, amounts now to some US$32.3 billion (Russian agencies, January 19). Officials from the IMF and World Bank are scheduled to arrive in Moscow today and tomorrow to begin talks with the Primakov government.