Publication: Monitor Volume: 4 Issue: 229

The Russian government Thursday (December 10) approved a draft 1999 budget, one which includes, for the first time, a small surplus. Prime Minister Yevgeny Primakov called it a “tight” budget, but an “honest” one. “We did not include expenditures we cannot finance,” Primakov said. “This is an optimal, mobilizing budget” (Russian agencies, December 10). Yet the budget envisions a ruble rate of 21.5 to the dollar for next year–a level which has practically been reached today. It also assumes that inflation in 1999 will be kept to 30 percent–20 percent in the first half of the year, 10 percent in the second. Inflation, however, is already running at 7-10 percent per month. The budget also envisages a 2-percent growth in the GDP, a projection which Aleksandr Zhukov, head of the State Duma’s budget committee characterized as “extreme optimism” (Segodnya, December 11). In addition, the government has announced that next year’s tax revenues will be 30 percent higher than this year’s, a projection viewed with skepticism by many observers given the long-term general downward trend in tax collection, particularly since last August’s financial meltdown.

“Segodnya” characterized the budget as a “political fantasy.” It may be all the more so given that the budget also assumes, as Finance Minister Mikhail Zadornov reported yesterday, that Russia will attract US$7.05 billion in foreign loans and will be able to restructure about US$8 billion of its massive foreign debt. A payment of US$17.5 billion on that debt comes due next year, and Zadornov said yesterday that a restructuring agreement on both Russia’s domestic and foreign debt was crucial. “Without it we will be unable to exist in 1999 or in 2000,” he said (Moscow Times, December 11).

Yet there is no reason to believe that the IMF will agree to disburse further installments of its multibillion-dollar loan package to Russia. The fund is not happy with Russian tax policy, and its director, Michel Camdessus, was recently in Moscow and made no commitments. IMF approval of Russia’s budget and overall economic policy is seen as crucial in winning agreement from international creditors for debt restructuring. Meanwhile an agreement reached last week over Russia’s treasury bills, on which the state defaulted last August, has reportedly broken down (Russian agencies, December 10).