Publication: Monitor Volume: 8 Issue: 104

Viktor Basargin, deputy presidential representative in the Urals federal district, announced last week that the preliminary results of an audit of Kurgansk Oblast’s finances showed that the region’s financial situation is so bad that it may have to be put under external management. The presidential representative in the Urals federal district, Pyotr Latyshev, subsequently seconded his deputy’s assessment. What Basargin and Latyshev were saying, in essence, is that Kurgansk Oblast, located in the southern Urals, is bankrupt (RBK, May 23). Following Basargin’s announcement, the Russian government and President Vladimir Putin, said the results of the Kurgansk Oblast audit would be examined in an upcoming cabinet meeting (RIA Novosti, May 24). If the oblast is indeed placed under direct federal management it will mean that the Kurgansk regional authorities will no longer have any control over the oblast’s finances, and that federal subsidies, which comprise 60 percent of Kurgansk Oblast’s budget will go directly to the tasks for which they are earmarked, bypassing local officials (Gazeta.ru, May 23).

According to some observers, the cause of Kurgansk’s plight is financial mismanagement. Indeed, some observers have noted that while federal outlays comprise 60 percent of Kurgansk Oblast’s budget, 60 percent of the region’s population live on the edge of poverty. The Kremlin has thus concluded that local authorities are unable to use the federal funds wisely (Vremya MN, May 24). Another recent audit bolsters this conclusion: a regional energy commission uncovered unjustified use of budget funds and found that the situation involving payments for energy resources in Kurgansk was the worst among the regions in the Urals federal district (RIA Novosti, Strana.ru, May 22).

Other observers, however, note that Kurgansk is by no means alone in terms of being de facto bankrupt. What is more, a number of Kurgansk’s economic indicators are actually positive. As Moscow State University’s Magomet Yandiev recently noted, the region’s electricity output–an accurate indicator of real industrial output–increased by a third in Kurgansk in the first quarter of 2002 as compared with the first quarter of 2001. Housing construction more than doubled while retail sales grew 13 percent. Consumer prices grew only by 5.1 percent while average wages increased by 43 percent (Vremya MN, May 24).

These figures raise doubts about the need to put Kurgansk Oblast under external management, suggesting that the federal government’s intention to do so may be politically motivated. It is possible that the Kremlin wants to make an example of Kurgansk, using it to demonstrate its will and readiness to directly interfere in regional affairs on the eve of the battle over redistributing powers between the Center and the regions that is set to take place this summer.