Publication: Monitor Volume: 4 Issue: 197

The Kremlin has agreed to allow Gazprom, the natural gas monopoly, to pay its taxes in food, which Belarus and Ukraine will send to the Russian government in lieu of cash payments for gas supplies. According to an agreement signed last week, Gazprom will allow Minsk to pay for US$550 million worth of gas by year’s end. Of this, US$250 million will be in the form of food and other consumer goods, US$200 million in government securities and US$100 million in cash. Belarus will later deliver another US$200 million worth of food to the Russian government. This amount will also go towards Gazprom’s tax bill. The new deal would appear to nullify one signed last May, when Belarus agreed to pay 26 percent–or US$225 million–of its bill to Gazprom in cash. A separate agreement in the works will allow Ukraine to pay for US$1 billion in past gas deliveries in food (The Moscow Times, October 24).

The Belarusan food shipments will be enough to feed the Russian army for nearly the entire winter, but will worsen an already-dire food situation in Belarus, RTR television reported Sunday (October 25). With fears of food shortages also looming in Russia, Prime Minister Yevgeny Primakov announced earlier this month that Russia had put US$600 million towards creating a food reserve (see the Monitor, October 16).

The “bread-for-gas” deal is typical of barter arrangements in Russia. The item used as barter–in this case, food–tends to be valued at inflated prices. This allows the debtor to shrink his real costs, which are ultimately passed on to the state. According to some estimates, as much as 75 percent of the Russian economy operates in barter. This has led some observers to call it a “virtual economy”–referring to its unreal, nonmarket means of assigning value. The “bread-for-gas” deal would also appear to violate the conditions the IMF laid down last summer when it promised Russia more than US$22 billion in loans. The fund has repeatedly said that Russia needs to increase tax revenues, yet the “bread-for-gas” deal would appear to allow Gazprom to pay its tax arrears in over-priced food from Belarus and Ukraine. While Gazprom is one of the country’s biggest tax deadbeats, its officials say that it is more sinned against than sinning, given the huge amount of money it is owed by natural gas consumers, including the Russian government.