Publication: Monitor Volume: 3 Issue: 192

A fierce battle is going on between the Moscow city authorities, led by Mayor Yury Luzhkov, and the federal government, in the person of First Deputy Prime Minister Anatoly Chubais. There has long been personal animosity between the two men but the present dispute also has concrete financial grounds.

Until now, the city of Moscow has qualified for a federal subsidy (2,400 billion rubles in 1997) in recognition of the fact that it doubles as the national capital. The city claims that performing its federal functions costs it between 9,000 billion and 11,000 billion rubles a year. Chubais is arguing that, in fact, the city profits from its status as federal capital and that Moscow is depriving needier regions of federal support. He says the grandiose way in which Moscow celebrated its 850th anniversary last month shows that the city does not need federal support. The government’s draft 1998 federal budget therefore calls for elimination of all federal subsidies to the municipality.

Moscow is one of only about a dozen Russian regions that pay more into the federal budget than they receive back in subsidies. In the past, Luzhkov has protested bitterly about the federal government’s refusal to subsidize the modernization of the Moscow metro system and its attempt to take a cut of the municipal road tax levied on city residents. Now he says that, if state subsidies are cut, the city will have to pay not 50 percent of its tax revenues to the center, as at present, but 70 percent. Luzhkov denies that Moscow is a rich city: he says much of its revenue goes on social spending to protect city residents against the disastrous policies of the central government, such as housing reform plans that Luzhkov has vowed not to implement in Moscow. If federal subsidies are canceled, Luzhkov says, the municipality will stop paying for the upkeep of federal government buildings and put its services on a contract basis. Under this arrangement, he predicts, the federal government will find itself paying 30 percent more than it presently provides in subsidies. Alternatively, he says, Moscow will deduct its expenses before paying its federal taxes. (Itar-Tass, ORT, October 14)

Glimmer of Hope for Foreign Investors.