RUSSIAN BUDGET STAND-OFF CONTINUES.

On February 20, the State Duma failed to approve President Yeltsin’s proposal to cut 27.9 billion rubles ($4.65 billion) from the 500 billion ruble spending plan for 1998. They will reconsider the budget draft, which had already passed three readings, on March 4. The left opposition parties voted in favor of adopting the budget — minus the spending cuts — while the pro-government "Russia is Our Home" abstained. The budget garnered only 191 votes, short of the 226 required. (Kommersant-daily, February 21)

Prime Minister Viktor Chernomyrdin described the last-minute budget cuts as "jumping into the last wagon of the train." The government’s eleventh hour effort to revise the budget was prompted by pressure from IMF managing director Michel Camdessus, who spent three days in Moscow last week before announcing on February 19 that the IMF would release the next $670 million tranche of its three-year loan to Russia. (Rossiiskaya gazeta, February 20)

The government is not too perturbed by the postponement of the budget vote. Quite the contrary. Budget expenditures in the revised budget would total 472 billion rubles, or 39 billion rubles a month. Finance Minister Mikhail Zadornov reports that budget spending has been capped at 25 trillion in January and 30 trillion in February and March — well below the level in the revised "tougher" budget. This is because without an approved budget, spending continues at the rate of one-twelfth the 1997 level, minus any tax-arrear offsets (which have been forbidden by presidential decree since January 1 1998). (Russky telegraf, February 18)

The government’s tightened purse strings seems to have helped bring some stability to financial markets. On February 17, the Russian Central Bank cut its refinancing rate from 42 percent to 39 percent. T-bill yields have fallen from more than 45 percent a month ago to around 33 percent. Even the stock market, which had slumped by over 30 percent in January, rallied about 7 percent in the first week of February.

Camdessus pressed the Russian government not only to cut spending, but also to cancel customs benefits for auto manufacturers. In the second, he was rebuffed. On February 5, President Yeltsin had signed a decree waiving import tariffs for foreign auto manufacturers who promise both to invest $250 million over five years and to pledge to source at least half their components in Russian factories at the end of the five-year period. This was swiftly followed on February 11 by the signing of a $850 million deal with Italy’s Fiat and the EBRD, creating a joint venture for the manufacture of Fiat models in the Gorky auto factory in Nizhny Novgorod.

Opposition Marches on Eve of Red Army Day.