Publication: Monitor Volume: 4 Issue: 194

Late on October 20 the Russian government released a draft budget covering the fourth quarter of this year. While the draft was undoubtedly, in part, an effort to accommodate the International Monetary Fund, which has been demanding a clear economic program as a condition for further funding, it calls for spending at twice the level of revenues. The resulting deficit will equal 5.33 percent of the gross domestic product. Finance Minister Mikhail Zadornov said that the government will print money to help cover the deficit, but that the emission will be no more than 20 billion rubles (more than US$1 billion at current exchange rates). He noted that the fourth-quarter budget assumes an exchange rate of 17-18 rubles to the dollar. Zadornov also said that the government will increase the sale of gold and other precious metals to the Central Bank. For his part, Central Bank chief Viktor Gerashchenko said the state would try to increase the production of gold to back the emission of new rubles. Aleksandr Pochinok, head of the cabinet of ministers’ financial department, said the money emission will be “far less than 50 billion rubles by the end of the year.”

According to Zadornov, the government would, in addition to printing money, raise revenues through privatization and overseas borrowing. Moscow has reportedly reached an agreement with the Paris Club of creditors on postponing payment of Soviet-era debt until 1999. This means that Russia will only have to pay US$2-$2.1 billion in foreign debt servicing by the end of this year. Aleksandr Pochinok said the government had discussed raising extra revenues by raising taxes on “super-profitable” oil and gas companies which did well, thanks to the ruble’s devaluation, but added that it is “necessary to take into consideration that the companies must pay back credits to Western banks and obtain equipment abroad.” The heads of Russia’s oil companies have strongly opposed Zadornov’s attempts to raise taxes on oil exports. While tax collection remains dismal, the government, as a bone to industrial producers, plans to cut the value-added and profit taxes (Russian agencies, Reuters, October 20).