Publication: Monitor Volume: 6 Issue: 11

In a television interview broadcast yesterday evening, First Deputy Prime Minister Mikhail Kasyanov seemed to be trying to dampen down expectations for significant improvements in the Russian economy in the near future. Asked about the 5-percent drop in the ruble’s value in relation to the dollar since the start of the year, Kasyanov, who is also Russia’s finance minister, bluntly described the economy as “weak,” adding that it will take three to four years to bring the economy back to the level it reached in 1997, when Russia registered a small growth in gross domestic production and a slightly higher rise in industrial output. Kasyanov said that the ruble would start to strengthen in five to seven years, and predicted that the ruble-dollar exchange rate would average 32 to 1 this year. The ruble is now trading at 28.57 to the dollar. Kasyanov singled out political factors as being the main problem for the economy, noting that an election period is always a factor for “instability” and not the best time for carrying out “serious and deep reforms.” Despite these negative factors, he said, the government hoped to provide for modest economic growth this year (RTR, January 16).

Kasyanov’s statements would appear to reflect the government’s worry about the possibility that an economic crisis could strike in the run-up to the presidential elections, scheduled for March 26. Acting President Vladimir Putin presently appears to be positioned to win the contest easily, but a sharp downturn in the economy could complicate matters. Russia is supposed to pay off US$3 billion in its foreign debt–mostly to the International Monetary Fund (IMF), the World Bank and holders of Russian bonds–during the first quarter of this year. In the meantime, it is still hoping that the IMF will renew payments from its US$4.5 billion loan to Russia. The Fund withheld the second US$640 million tranche from that loan last autumn, on the grounds that Russia had not carried out the necessary financial, banking and budgetary reforms. In an interview yesterday, IMF Managing Director Michel Camdessus gave no indication that the Fund was ready to resume its loans to Russia. Camdessus was quoted as simply repeating that the IMF will resume assisting Russia after it fulfills the terms of the loan, adding that he did not know whether credits would be released prior to the March 26 election (Russian agencies, January 11).

In December, Central Bank Chairman Viktor Gerashchenko sent a letter to Putin warning that export earnings would shrink by some US$1.5 billion dollars at the beginning of this year. In addition, he said, a drop in world oil prices could further reduce Russia’s hard-currency revenues, thereby making it harder for the government to meet domestic budgetary obligations, such as paying out pensions and wages to state workers and pensions, or to support the ruble. This could ignite inflation and make Putin’s victory at the polls less of a foregone conclusion. In an attempt to raise revenues, the government has already raised the excise tax on the sale of some alcoholic beverages by 40 percent and recently announced its intention to require exporters to sell 100 percent of their hard-currency earnings to the government for rubles (Vremya-Russian agencies, January 13).