Publication: Monitor Volume: 5 Issue: 8

The ruble, which hit a record low of 23.06 on January 11, strengthened slightly yesterday, reaching 22.58 to the dollar. Reactions to this upward waver were mixed. Some observers predicted the Russian currency would soon resume its downward trend. Others attributed its strengthening to a new government regulation requiring exporters to convert 75 percent–up from 50 percent–of their hard currency earnings into rubles. Official Moscow was heartened by the ruble’s performance. First Deputy Prime Minister Yuri Maslyukov predicted that the exchange rate for the year would average 21.5 to the dollar–the rate set in the 1999 draft budget. Igor Shchegolev, head of the department of government information, also said the government hoped to “stabilize the ruble’s rate to the dollar within the criteria set by the draft budget” (Russian agencies, January 12).

The State Duma, which approved the draft budget’s basic parameters last month, is expected to examine it in a second reading on January 19, and in a fourth and final reading in early February. Aleksandr Zhukov, head of the State Duma’s budget committee, told NTV television yesterday that the document, presuming it is passed, may have to be revised. First, if the ruble-dollar exchange rate rises about 1-to-25. Second, if the International Monetary Fund (IMF) fails to release the US$4.3 million credit to Moscow it withheld last fall. Zhukov said that if the IMF credit is not forthcoming, the budget deficit will increase and the government will borrow more money from the Central Bank. Approval of the budget, he indicated, would likely have two significant effects: Russia would likely have more success in negotiating for the IMF credit, and the overall economic situation would likely improve. The budget is one of the more fiscally austere documents in recent Russian history, at least on paper. A spokesman for Yevgeny Primakov reported yesterday that the Russian prime minister, during a meeting with France’s foreign minister, had emphasized how important it was to reach an agreement with the IMF over the release of withheld credit. Economics Minister Andrei Shapovalyants said he expected “success” in the upcoming negotiations with the IMF. That delegation is expected to arrive in Moscow next week. Shapovalyants said the terms for granting the money should be “corrected for those realities which exist in Russia,” adding that it was his understanding that “American specialists share this point of view” (Russian agencies, January 12).

One Western expert, however, apparently doesn’t see it that way. John Odling-Smee, director of the IMF’s European II Department, said yesterday that Russia had not lived up to the terms of the multibillion-dollar bailout negotiated last summer. “It is now up to the Russian government and people to find a solution to their country’s crisis,” Odling-Smee was quoted as saying. “The IMF and the international community stand ready to work with them if [they show] a willingness to address the problems directly” (Moscow Times, January 13).

Once the budget is approved by the Duma, it must then be considered by the Federation Council, the upper chamber of Russia’s parliament, which is made up of regional governors and leaders. Last month the Council threatened to veto the draft, complaining that it robbed them of federal revenues and the power to levy taxes. Yesterday, however, the Council’s speaker, Yegor Stroev, said that the upper chamber would approve the draft if it were “reasonably amended” by the Duma. The budget subcommittee of the Duma’s committee on the budget, taxes, banks and finances recommended yesterday that an additional 3.5 billion rubles (a bit more than US$150 million) be added to the 39.9 billion rubles ($1.8 billion) earmarked in the draft budget for financial aid to the regions (Russian agencies, January 12).