DRAFT FEDERAL BUDGET IS APPROVED, BUT IMF HAS LESS WELCOME NEWS FOR MOSCOW.

There was good news for the Russian government on December 28 when the lower house of the Russian parliament approved the draft 1997 federal budget in its third reading. (Interfax, Itar-Tass, AP, December 28) From now on, major changes to the budget will not be possible. The Duma is to vote on the budget once more on January 24; after that it will go to the upper house and then to President Boris Yeltsin for final approval. The Duma’s action was seen as a significant success for Prime Minister Viktor Chernomyrdin, achieved thanks to support from Communist parliamentarians. The draft budget envisions the first economic growth in Russia since the start of reforms in 1992 — a projection that many economists believe to be unrealistic.

Approval of the federal budget is seen as essential if Russia is to go on receiving the monthly tranches of the International Monetary Fund’s extended loan to Russia, but on that front the Russian government has received less welcome news. The IMF has reportedly informed Moscow that in the future it will count wage and pension arrears, together with interest on government borrowing, as part of the federal budget deficit. There is concern in Moscow over this announcement, since the size of the budget deficit is a key criterion used by the IMF to decide whether or not to disburse the monthly tranches of its extended loan to Russia. The federal government’s wage and pension debts are presently estimated to amount to $3.2 billion. If this sum is to be counted as part of the deficit, the government will have difficulty keeping the deficit within the bounds set by the IMF. Instead, the government will have to find new means of funding the deficit at a time when the IMF is also putting pressure on it to reduce interest rates on government borrowing. (Segodnya, December 26) It therefore came as no surprise when Finance Minister Aleksandr Livshits announced that, following the success of last year’s Eurobond debut, Russia plans a second Eurobond issue in the first quarter of this year. (Itar-Tass, December 28)

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