On April 3, Prime Minister-designate Sergei Kirienko is due to address the State Duma in a bid to persuade the deputies to accept his nomination to lead the government. On April 1, Kirienko addressed the Federation Council, and provided some important insights into his emergent economic strategy.
In his speech, which seems to have been favorably received by the regional leaders who make up the upper house, Kirienko was surprisingly critical of the economic policy of the outgoing government. "For the past six months," Kirienko said, "the government was been talking all the time about economic growth trends, but there is practically no one in Russia who really feels it himself." He also noted that "The growth that occurred proved to be fragile in quality, since the first combination of external and internal causes destroyed it." While GDP rose by an anemic 0.7 percent, investment fell by 7 percent in the first two months of the year and 25 percent of the population (32 million people) are living in poverty. In a transparent bid to win over the assembled governors Kirienko said that "[t]he economy is found not in the White House, but in the regions." (Kommersant-daily, April 2, Izvestia April 2)
Kirienko’s skepticism about the upturn in growth that Viktor Chernomyrdin often invoked is confirmed by the latest survey from the Russian Economic Barometer. In March, only 17 percent of the industrial directors surveyed considered the economic situation "normal" or "good"–down from 27 percent the previous month. Only 43 percent said that they were running at a profit, and 38 percent said they were operating at a loss. (Finansovye izvestia, April 2)
Apart from the chronic problems of economic stagnation and low tax revenues, Kirienko will have to deal with an imminent cash crunch. There is the real chance of a delay in the release of the latest $700 million quarterly tranche of the three-year IMF Extended Fund Facility. An IMF team in Moscow declined to sign the government’s memorandum for 1998 as scheduled on March 27, because they wanted to see if Kirienko were confirmed. The IMF is also concerned by the low level of tax receipts and the government’s failure to cut import tariffs by 20 percent, as promised last year. Plans to slash state spending by some 40 billion rubles ($6.5 billion) this year in order to close the deficit have also been put on hold pending the formation of the new government. If the memorandum is not signed before the IMF board of directors meeting on April 17, Russia may not see that money until June. (Russky telegraf, April 2, Kommersant-daily, April 1)
Even if the IMF money does arrive, Russia’s fiscal situation will remain acute. Over the course of 1997 the national debt rose by 135 trillion rubles to 500 trillion rubles. Further, in the first two months of 1998 debt service accounted for 24 per cent of all expenditure. During that period federal revenues ran at just 63 per cent of the planned level. On 31 March, despite the uncertainty over the new government, Russia was able to raise $545 million through its first Eurobond issue of the year. (Finansovye izvestia, April 2, Russky telegraf, April 1)
Bankers Feud Over State Credits.