Publication: Monitor Volume: 4 Issue: 44

After months of disagreement, the lower house of the Russian parliament — the State Duma — yesterday approved the 1998 federal budget in its final reading. Voting was 252 to 129. Share prices immediately jumped four percent and Prime Minister Viktor Chernomyrdin hurried to the parliament to thank the deputies. (RTR, March 4) The draft now goes to the Federation Council and then, finally, to the president.

Yesterday’s budget is very different from the draft originally approved by the Duma six months ago. That first draft was drawn up before turmoil hit the Asian markets and Russia’s Central Bank was forced to defend the ruble by hiking interest rates, sharply raising the cost of government borrowing. The government responded by reining in its own projected spending. Now the budget calls for a deficit of 4.7 percent of gross domestic product and an annual inflation rate of below six percent. The government says this is the most realistic budget since 1992 but admits that even now it is not perfect: Ministers admitted yesterday that the government may still find itself running out of money before the end of the year. In anticipation of this, the Duma agreed yesterday to a compromise mechanism that will allow the government to cut expenditure on a progressive basis if income falls below target.

The government hopes that approval of the budget will now allow it to borrow money more cheaply. Uncertainty had caused delays in disbursement of the IMF’s extended loan to Russia and forced the government to borrow abroad at commercial rates. Now that Russia has a realistic budget, the way should be clear for cheaper loans.

Almost all deputies from the "Russia is Our Home", Russian Regions and Liberal Democratic factions voted for the budget. All those from Yabloko voted against. Passage was secured by virtue of the fact that 40 percent of the Communist deputies, half of their nationalist allies and almost all of the agrarian deputies voted in favor. (RTR, March 4) Finance Minister Mikhail Zadornov commented last night that the budget was passed because, after six months’ haggling, the Duma realized that the government intended to press ahead with its austerity plans and that, until parliament approved the budget, the Duma would have no means of monitoring how the government implemented it. (NTV, March 4)

Soros Bails Out Russia.