By the numbers, the depression in Russia is worse now than America’s Great Depression of the 1930s. Russia’s national income is less than half of what it was in 1992. Between 1929 and 1935, the national income in the United States fell by about a third.
And the Russian economy continues to shrink. Between September 1997 and September 1998, the gross domestic product fell another 10 percent, according to the State Statistics Committee. The same source reported that about one of every three Russians now lives in poverty. Industrial production in 1998 will be about 20 percent below last year’s levels, and the tax base is disappearing completely. Wage arrears are calculated at 88 billion rubles. That was US$14.6 billion when the arrears were run up, at six rubles to the dollar. It’s less than US$5 billion at today’s rate of exchange, but even so it’s a bill that has not been paid. There is no budget. The government last week sent the Duma a draft budget for the fourth quarter of 1998, but the year may end before the Duma acts on it. There is not much austerity in this dream sheet: the draft proposes to spend two rubles for each ruble of income. Nevertheless Finance Minister Mikhail Zadornov in a notable phrase said the government will “minimize emissions” of new money. Among the government’s ideas for raising revenue are more foreign borrowing, increased gold production, sale of government assets and a crackdown on moonshine vodka.
After some heavyweight lobbying by Russia’s few really rich people, taxing the windfall profits of oil and gas exporters is no longer part of the package. The profits arose with devaluation, which lifted the ruble value of the exporters’ hard-currency receipts but left costs low. The rising spread is windfall profit–and because the same crowd that owns the oil companies also owns the banks, they have little difficulty moving the rubles back into dollars and safely offshore.
Top lobbyist on this issue was Mikhail Khodorovsky, head of Yukos Oil and Menatep Bank, an outspoken supporter of an “industrial policy” and a “partnership” among industry, banking and government. He has been meeting frequently with Prime Minister Yevgeny Primakov, Central Bank Chairman Viktor Gerashchenko, and others in the leadership, urging increased “monetary emissions” so the banks can pay their depositors with worthless rubles. In other words, keep the profits private and socialize the losses. Khodorovsky’s no fool.
The Duma seems willing to socialize the losses but may balk at leaving the profits in private hands. Last week the Duma passed a bill that would guarantee payment to depositors of all funds that were in ruble or hard-currency accounts in Russian banks on September 1. Ruble accounts would be paid with interest, but hard-currency accounts would be paid in rubles at the exchange rate prevailing on the day the bill becomes law. But the Duma also wants the state to police all financial transactions. A second bill would require individuals and corporations to report to multiple authorities any transaction involving US$10,000 (individuals) or US$100,000 (corporations). If the money trail is not clean, say the bill’s sponsors, prosecutions would follow. Even Gerashchenko thinks this too radical a notion.
The Duma’s bills need approval from the Federation Council and a presidential signature to become law. Neither is likely.