Publication: Monitor Volume: 2 Issue: 177

Several Russian Duma deputies have expressed reservations about the feasibility of Russia’s draft 1997 federal budget.(Interfax, September 19) According to Finance Minister Aleksandr Livshits, the draft is based on a projection that gross domestic product (GDP) will grow by one percent in 1997 over 1996 and on the expectation that the federal authorities will be able to collect for the federal budget taxes equivalent to 15.9 percent of GDP. (NTV, September 19) Each of these assumptions is suspect, however. The base-line scenario for the economy currently being used by Russia’s Economics Ministry predicts zero growth between 1996 and 1997. (Presentation by Deputy Economics Minister Andrei Svinarenko at a seminar in Helsinki, September 23) Real GDP may therefore prove to be lower than that envisaged in the budget. At present, too, the federal budget is receiving only something on the order of 12 percent of GDP in tax revenue.

The government is therefore in a tricky position. It is under pressure from both parliament and lobbying groups to spend more than is planned, yet the plans themselves may be based on excessive optimism about the amount of revenue that can be raised. Moreover, work on the 1997 budget was delayed by the presidential elections and the draft was presented to the Duma literally at the eleventh hour on August 31. It arrived at a moment when this year’s budget was running into difficulties caused primarily by underpayment of taxes by enterprises. Criticism of the 1997 draft includes the usual complaints from the Defense Ministry that it is being underfunded, and criticism from the prominent Security Council economist Sergei Glazyev that the government is not doing enough to revive investment–another perennial complaint. Mikhail Leontyev of the newspaper Segodnya has likened the government’s dilemma to that of a drug addict: the government knows its efforts to extract more tax revenue from businesses will contribute to a further decline in output and therefore in the tax base, but it is driven by such an urgent need to meet expenditure commitments that it carries on regardless. (NTV, September 19)

Chechnya Hearings, Yandarbiev Visit Postponed.