RUSSIA’S BUDGET: BACK TO THE FOUR-YEAR PLAN?

When Russian prime minister Viktor Chernomyrdin presents the draft 1997 federal budget to the Duma today, he will also outline a four-year development program. The details already released of that plan suggest that it is overly optimistic: when approved by the government on November 21 it contained a maximum average annual inflation rate of eight percent and a projection of GDP growth at five percent a year. (Itar-Tass, November 21) Economics Minister Yevgenii Yasin subsequently sent a confidential letter to the prime minister in which he criticized the draft as too ambitious. This letter was leaked to the press. (Nezavisimaya gazeta, November 26) Yasin also said that efforts to contain the budget deficit by extracting more tax revenue would lead only to a further collapse of output. The tax collection problem is not, Yasin argued, primarily one of willful tax evasion, but stems from a shrinking tax base. He departed from his usual IMF-compatible stance to recommend more state support for ailing industries.

Economists agree that the positive trends envisaged in the original 1997-2000 program were exaggerated. In fact, Russian GDP, as officially measured, has been falling for seven years and is expected to show a decline of about five percent this year. Inflation in 1996 will be about 22 percent. (Segodnya, November 29) The aim of encouraging investment by getting interest rates down to 20 percent in the course of next year is, in Yasin’s view, also overly ambitious. The Economics Ministry considers zero growth in 1997 and a beginning of recovery only in 1998 to be the more likely scenario. It appears that Yasin’s doubts have caused at least some redrafting of the original program. The projected annual inflation rate for 1997-2000 has now set at 10 percent instead of 8 percent. (Itar-Tass, December 5) In general, the government’s program contains a good deal that is sensible but also a dollop of wishful thinking worthy of a Soviet five-year plan.

Regional Bosses Seek Soft Money.