Publication: Prism Volume: 1 Issue: 19

Prism Interview: Duma Economic Chairman Discusses Budget

In an interview with Prism August 28, the conclusion ofwhich is reproduced below, Sergei Glazyev, the chairman of theDuma economic policy committee, argues that the Chernomyrdin government’s1996 proposed budget is a budget of inertia which sets the wrongpriorities, designed by people who are more interested in richand powerful cronies than in responsibly dealing with Russia’sproblems, and that the government’s debt service policy is likea pyramid scheme, creating new debt obligations in order to serviceold ones.

The interview was conducted for Prism by Yevgeny Krasnolobov,a correspondent for Moscow’s "Open Radio."

Prism: Could you make any comment on the1996 proposed budget?

Glazyev: This budget does not contain anything new in theeconomic policy plane. It is a budget of inertia, in which allthe proportions of the previous budgets, which we opposed, aremore or less preserved, and which completely reflect the cabinet’spresent policy of passive accommodation to the growing economicdecline. In this budget, there are no signs of any effort to findnew sources of income, nor are there any signs of innovationsin the fight against economic depression. In particular, no supportis provided for the restructuring of the economy. The level ofspending on science and technical progress is clearly insufficient;its share has fallen compared to last year’s proposed budget,but on the other hand, more money is being spent on the governmentitself. That is, the paradoxical situation in which the economyis contracting, but the bureaucratic apparatus is growing, continues.Spending on the maintenance of government agencies goes up by150 percent in this budget, and that’s not even a complete estimate,because many other expenses are concealed in the fine print, which,for the most part, also go to maintain the bureaucracy. By theway, some of the line items are duplicated, i.e., spending forone and the same thing may be listed in various line items connectedwith the servicing of the bureaucratic apparatus. Spending onscience, on the restructuring of the economy, on social needs,is clearly insufficient.

Prism: And on the army?

Glazyev: Spending on the army, as far as I know, is substantiallylower than the minimal demands for the maintenance of the armedforces. The situation in the army is such that people are goinghungry, because [First Deputy Prime Minister] Chubais crossedout the accurate inflation projection and wrote in the figureof 2 percent as a projection of the average rate of monthly inflation,and this is the figure on the basis of which all of the budgetitems are calculated. And I’m not even talking about the situationwith defense orders, which are not being fulfilled, or conversion,which is not being financed at all. No more than one-third ofthe planned defense orders are being fulfilled. If prices rise,on the average, 5 to 7 percent a month, and in the first six months,by 10 percent, then it is clear that the army has already eatenup all its funds. Now, the defense ministry bureaucrats are tryingto blame it all on the Duma, but we warned them that adoptingsuch a budget at a 2 to 3 percent inflation rate would mean asimply catastrophic situation when it came to the military personnelbudget. The government and the Ministry of Defense, which didnot try to make the budget realistically reflect their needs,are to blame for this. Now, they’ve revised their estimates. Wewill see how they’ll behave in the State Duma. In the past, almostnobody was present when the budget was being discussed. We workedwith many government agencies, but the Ministry of Defense wasnot among them.

There is one more factor which I would like to mention, and thatis the senseless practice of increasing the national debt. Besides,even such possible sources of income as rent payment from naturalresources and income from the commercial use of state propertyare not being exploited. Spending on service of the national debtas a whole is growing by 250 percent; service of the internaldebt, by 300 percent. The total spending on internal debt servicealone exceeds all education spending, and more than doubles thespending on health.

Our government has turned into a typical financial pyramid scheme.It creates these debt obligations itself, and then emits new debtobligations in order to service the old ones. That is a typicalfinancial pyramid scheme. The financial debt burden has becomesimply unbearable for the federal budget. Servicing the newly-creatednational debt is only in the interest, for the most part, of thosebanks who hold its paper, which pays 80-90 percent per year. Thegovernment has no plans to do anything to restore the people’ssavings. For the government, the population and people do notexist in the capacity of individuals whose interests ought tobe taken into account. We passed a law on restoring citizens’savings; there should be a corresponding line item directed toimplement this law. But nothing of the kind is in the budget.In spite of the fact that Russia has already become the world’slargest debtor, the government proposes to increase the foreigndebt, having borrowed about 10 billion dollars. We, of course,will criticize this budget, and will demand changes.

Additional sources of income must be found: export duties on naturalgas alone could bring in no less than four billion dollars intothe budget, which would cover health care spending three timesover, or finance the conversion program. The budget also doesnot provide for any progress in the area of tax collection. Wewill continue to live in a situation, in which someone who paysno taxes can continue to do so almost without any risk.

We will fight to increase spending on research and development.The virtual cutoff of scientific research in our country meansthat we are depriving ourselves of an enormous source of economicgrowth. Therefore, spending on science, which has declined fivefoldin comparison with 1990 must be increased. Last time around, wewere able to get it increased by half a trillion rubles, on ourcommittee’s initiative. We must seek a spending increase on conversionand social needs.

For this, we need to charge rent for natural resources. This articlein the budget is almost zero. The enormous potential income, whichcould become a foundation of stability for our economy, is, today,privatized by a narrow group of people. And from looking at thebudget, it is obvious that they do not intend to part with it;they simply want to live and clip coupons from their rent whichbelongs to all of society.

The budget also envisages the continuation of the practice ofmass sales of shares of federal property. It is planned to sellmore than 10 trillion rubles worth of them. The sum is insignificant,but judging from the budget, they plan to sell off practicallyeverything. In the explanatory note to the budget, it is stateddirectly that those shares will be sold which "are of interestto Russian and foreign investors." That is, it is fixed inthe text that privatization will take place, not in the interestof the state and society, but in the interest of those who wantto make a profit. The explanatory note speaks of how the raw materialsproducing sector will be privatized, as one of the most attractivebranches of industry. Enterprises in this branch of industry arebeing sold at prices which are tens of times lower than theirmarket price. These enormous sums of money could be going intothe budget, but they, again, will go into private pockets. Thegovernment plans to continue to conduct policy in their own interests,in the interests of a few rich people in the country, who succeedfor these or other reasons. These are either people close to Goskomimushchestvo[the State Property Commission], who have received fabulousprofits, who "own" a pipeline simply because they directit, or represent the interests of foreign oil companies. And thegovernment itself can be numbered among these people. It is notonly immoral, but also shortsighted, to build one’s wealth onthe impoverishment of the majority of the population. In conditionsin which almost all of industry is unprofitable, and the nonpaymentscrisis is already smothering the banking system, it becomes clearthat even those who have been able to live high on the hog inthis chaos will go bankrupt very soon. Because the last sourcesof profitable investment in the economy are disappearing veryrapidly.