RUSSIAN GOVERNMENT APPROVES 1998 BUDGET.

The Russian cabinet yesterday approved a draft budget for 1998 which it will submit to parliament by August 25. Prime Minister Viktor Chernomyrdin said it was a good budget but that, because of its austerity, the government will have a hard job persuading parliament to approve it. (RTR, August 21) As drafted by the Finance Ministry under First Deputy Prime Minister Anatoly Chubais, the budget predicts GDP growth of 2 percent and growth in industrial output of 3 percent. If achieved, this will be the first time the economy has grown since Russia launched its economic reforms in 1992. The original 1997 budget similarly forecast GDP growth of 2 percent, but had to be abandoned halfway through the year when it became clear that the targets could not be met.

The 1998 budget adopted yesterday forecasts twelve-month inflation of 5 percent (less than half this year’s anticipated rate of 12 percent) and a budget deficit of 4.8 percent of GDP as opposed to the 5.4 percent anticipated for this year. Yields on T-bills are predicted to fall from their present level of 18-19 percent to 12-14 percent in 1998. The government says it expects to borrow $2 billion from the IMF and to raise a further $3.5 billion in Eurobond issues.

Although the original 1997 budget had to be abandoned, Russian and western commentators agree that the government has a better chance of attaining its 1998 targets. (Reuter, August 20) One major hazard remains to be negotiated, however. The Duma still has to consider a proposed new tax code designed to increase revenue collection. If that is not enacted, it will be very difficult for the government to raise revenue and reduce the deficit in line with the targets agreed yesterday.

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