POTEMKIN BUDGET….

Catherine the Great probably knew exactly what was going on when her royal barge passed under the handsome facades her favorite guardsman had erected along the Volga to hide the squalor from his mistress’ eyes. And probably neither Western bankers nor deputies in Russia’s Duma will be fooled by Prime Minister Primakov’s “honest” budget, in which “we have not put on the expenditure side what cannot be covered by revenue.”

The draft budget for 1999, on its way to the Duma, calls for expenditures of 574 billion rubles against revenue of 473 billion rubles, for a deficit of over 100 billion rubles, around US$5 billion at current exchange rates. But the draft budget assumes: –An exchange rate of 21.5 rubles for the dollar in 1999. That rate will be reached this week. –Inflation of 30 percent, of which 20 percent would occur in the first six months. Inflation since mid-August is running at 7 percent–10 percent per month, which is around 225-315 percent per year. –Growth in the gross domestic product of 2 percent. GDP is shrinking at an annual rate of over six percent. –New net foreign borrowing of US$7 billion, including a rescheduling of at least US$8 billion in foreign-debt service and resumption of IMF credit disbursements. Right.

NOTES:

–Foreign-exchange reserves fell by US$700 million in the week ending December 4. Reserves on that date were estimated at US$12.1 billion.

–The tentative deal struck November 20 to restructure US$10 billion in hard-currency debt has come unstuck. A creditors’ committee led by Deutsche Bank accepted in principle that most of the debt would be repaid only in rubles, or in deeply delayed and discounted dollars. But when the Russians proposed settling at 4.6 cents on the dollar, or 12.5 cents worth of rubles, the creditors balked…. Negotiations on US$15 billion in defaulted ruble-denominated debt held by foreigners have also broken down.

–The European Union approved US$460 million in food aid for Russia, following the $850 million package from the United States. Not all Russians are pleased. Respected financial daily Kommersant said of the U.S. program: “For the food consumed in the next six months Russia will have to repay almost US$850 million over twenty years, yet the income from the sale of the food … is unlikely to exceed US$100 million.”

–Despite strong pressure from Prime Minister Primakov and the rest of the government, the Duma continues to delay consideration of a bill to ratify the START II arms-reduction treaty with the United States The Duma’s “anti-NATO group” held hearings aimed at linking ratification to guarantees regarding NATO expansion and future NATO policies.

–Three of four respondents to a Public Opinion Foundation poll say human rights are not observed in Russia. Least observed, according to respondents, are the rights to life and security, employment, a safe environment and social security in the event of disability. Best observed are the rights to freedom of conscience and religion, freedom of speech, freedom of movement and domicile, and the right to property…. Former dissident and strong anticommunist Valeria Novodvorskaya said in a recent interview that “we [dissidents], the CIA and the United States used [the human-rights issue] for the destruction of the communist regime and the break-up of the Soviet Union.” The issue should not be used, she said, to “saw off the branch we sit on” by undermining the present government and allowing the communists back in power.