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The decrease in motor vehicles import is still continuing. Over the first two months of 2010 the import of passenger cars versus the corresponding period of the previous year reduced by 45.8%, and of trucks by 35.7%.

At the same time the import of components for cars is increasing rapidly. In January-February 2010 the growth of import for this position made 46.6% versus January-February of the previous year.

As a result of anticipating growth of export, the balance of the Russias foreign trade turnover was positive and made USD 15.2 billion, having risen by nearly 3 times versus the balance of USD 5.1 billion in February 2009. Thus, already at the beginning of the current year the surplus of the trade balance has returned to the pre-crisis level. For reference, the average monthly balance of foreign trade in 2008 was USD 14.9 billion, and in 2007 USD 10.9 billion.

In March 2010 Russia and the USA agreed on the renewal of American pork supply to the Russian market, which were limited according to the decision of the Federal Service for Veterinary and Phytosanitary Supervision (Rosselkhoznadzor). It was the violation of veterinary requirements adopted in Russia, which exclude the presence of antibiotics in meat, by the American suppliers, that was the reason for the ban. As a result of negotiations a new veterinary certificate was adopted, which will allow guaranteeing that the American pork corresponds to the Russian regulations.

Now the USA Agricultural Marketing Service and Food Safety and Inspection Service will carry out export inspection of the enterprises that which to supply pork to Russia, and the suppliers chosen by them will be approved by Rosselkhoznadzor.

The supplies to Russia account for only 6% of the volume of pork export from the USA, making approximately USD 275 million. In 2008 they nearly doubled as compared with 2007, reaching thousand tons. In 2010 Russia reduced quotas for pork import taking into the account the development of domestic production. The total quote makes 472 thousand tons, and the USA share 57.thousand tons. Nevertheless the American producers have already estimated the opening of the Russian market, which was the fifth in the volume before the ban, as positive.

Russia is not the only country that has limited American pork export. At the end of April China closed its market for this kind of goods in connection with swine flu epidemic. Despite the promises on the resumption of pork export, given in December, the supplies have not started yet. The volumes of pork supplies to Canada and the European Union have also reduced.

Starting with January 1, 2010 the ban for the poultry export from the USAA has been in effect in Russia, which was due to discrepancy between the veterinary standards of production. The main RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES controversy concerns the level of chlorine in the chicken supplied. Despite the consultations that has been held since January 19, 2010 between the USA officials and businessmen and Russian core organizations, the agreement on supplies resumption has not been reached.

In March 2010 the USA Congress was presented with new reports of the administration on phytosanitary and technical obstacles in the foreign trade. They concern the problem spots and obstacles in USA trade relations with other countries.

The part of the report that deals with Russia is criticizing. According to it, the deficit of the USA in the trade with Russia in 2009 made USD 12.8 billion, which is by USD 4.6 billion less than a year ago. Over the year, American export to Russia reduced by 42.3% to USD 5.4 billion, and Import reduced by 32% down to USD 18.2 billion. Russia holds 32th place among the biggest export markets of the USA.

The document, following the account of the last years events, connected with the creation of Customs Union of Russia, Belorussia and Kazakhstan in the context of expected accession to the WTO, mentions that the USA expect Russia to provide additional information on its trading plans for 2010, including the intentions concerning the resumption of work on WTO accession and regulation of bilateral trading issues.

Besides the further action of Russia on accession to the WTO against the background of creation of the Customs Union, the problem of ban for chlorine-processed poultry import to Russia remains the most vague moment in Russian-American trading relations.

Russia, however, intends not only to decrease the dependence on the foreign supplies but to start poultry export to Europe. Starting with 1998 domestic production has been growing by 14-16% annually. In 2010 it is expected that the growth of production will make more than 300 thousand tons in laughter weight. Already in the 1st quarter 2010 poultry production went up by approximately 15% versus the 1st quarter 2009.

The association of poultry producers (Rosptitsesoyuz, Union of Russian Poultry Producers) has developed the program Development of poultry industry up to 2020. The main goals of the program are to provide for the demand of the population in the domestic production and poultry export to other countries. According to the forecast parameters, the poultry production in the country will increase from 2.5 million tons in 2009 to 4.5 million of tons in 2020, eggs production from 39.billion to 50 billion.

According to the program, in order to regulate the market of poultry for the period up to 2020, it is necessary, for instance, it is necessary to create the infrastructure of wholesale markets of poultry, consider the issue of inclusion of the branch into the system of eggs, poultry and poultry products purchase for federal and regional needs, expand the chain of stores. As to the field of customs and tariffs regulation the timely regulation of import supplies of poultry is necessary up to the complete refusal from import.

THE STATE BUDGET THE STATE BUDGET E.Fomina In April 2010, a preliminary estimation was made of the results of the federal budgets implementation in this years first quarter. Owing to a positive foreign economic situation, there have emerged some grounds for believing that federal budget deficit in 2010 will turn out to be lower than the corresponding index envisaged in the law. Thus, it is expected that the drop in the federal budget balance will be no more than 6 % of GDP against the previously planned figure 6.8 % of GDP. However, thus favorable trend still remains unstable and fully dependent on the fluctuations in the levels of prices and demand for Russian export commodities, which is fraught, as before, with some serious risks for this countrys budgetary system.

An analysis of the main parameters of the execution of the general government budget for January February 2010.

According to the preliminary estimates of the budgets execution in January February 2010, the revenue volume in the general government budget dropped by 3.6 p. p. of GDP on the corresponding period of 2009, while the expenditure volume also declined by 1.4 % of GDP. According to the data published by the Federal Treasury, the general government budget surplus registered this years in January February amounted to 3.9 % GDP, which is by 2.1 p. p. of GDP lower than the general government budget surplus index for the corresponding period of 2009 (see Table 1). At the same time, both the revenue and expenditure volumes in the general government budget in this years first two months increased in absolute terms. This fact can be explained by the higher growth rate of GDP as compared to that of budget parameters.

Table THE EXECUTION OF BUDGET REVENUE AND EXPENDITURE AT ALL LEVELS OF AUTHORITY IN JANUARY - FEBRUARY 2009 AND January - February 2010 January - February Deviation, p.

p. GDP in bn Rb as % of GDP in bn Rb as % of GDP Federal budget Revenue 1,308.3 21.1 1,220.3 23.2 2.Expenditure 1,477.8 23.9 1,087.8 20.7 +3.Deficit ( ) /Surplus ( +) 169.5 2.7 132.5 2.5 5.Consolidated budgets of RF subjects Revenue 689.8 11.1 639.9 12.2 1.Expenditure 606.1 9.8 548.8 10.4 0.Deficit ( ) /Surplus ( +) 83.7 1.4 91.1 1.8 0.General government budget Revenue 2,001.4 32.3 1,889.6 35.9 3.Expenditure 1,757.7 28.4 1,572.2 29.8 1.Deficit ( )/Surplus ( +) 243.7 3.9* 317.4 6.0 2.For reference: GDP, bn Rb 6,190.0 5,268.* The markedly high general government budget surplus, as compared to the indices demonstrated by the federal budget and the budgets of RF subjects, can be explained by the altered procedure for the transfer of money to off-budget funds, which now bypass the federal budget.

Source: RF Ministry of Finance, IET estimates.

RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES When analyzing the revenue component of the general government budget over recent years, it should be borne in mind that in 2009 the budgetary system was receiving the revenues from the management of the oil and gas funds for the years 2008 2009. In January 2009, the corresponding receipts amounted to 271.0 bn Rb (approximately 3.2 % of GDP). In January 2010, investment-linked revenues were as follows: 52.0 bn Rb (transferred to the federal budget as a result of managing the Reserve Funds resources); 40.4 bn Rb (transferred to the federal budget from the Bank of Russia as a result of managing the National Welfare Funds resources); 33,5 bn Rb (resulting from managing the National Welfare Funds resources kept in Vneshekonombank;

6.9 bn Rb of that amount were transferred to the federal budget, and the rest of it to the National Welfare Fund). The total amount of the investment-linked revenues transferred to the general government budget in January March 2010 was approximately 126 bn Rb (or about 1.3 % of GDP). In order to get a comprehensive picture of the Russian budgetary systems revenues, they should be cleansed of the additional transfers relating to the revenues of earlier periods.

In the course of the first months of 2010, the resources of Russias budgetary system were formed under the influence of a relatively favorable external market situation with regard to prices and demand for Russian exports. Thus, the rise in prices for major energy carriers displayed by world markets in early 2010 and the concurrent increase in demand for products of the oil and gas sector on the part of importer countries considerably increased the federal budgets receipts from tax on mineral resources extraction and its revenues from foreign trade by comparison with the previous year (Table 2). The general government budgets receipts from the said taxes rose by 1.4 p.p. of GDP and 1 p.p. of GDP, respectively.

In conditions of a steady growth in world oil prices, the rates of export duties on crude oil have been adjusted upward on a monthly basis. On 1 March 2010, the rate of export duty on oil will be additionally increased by 12 USD per ton. Thus, the rate of this duty will amount to 281 284 USD per ton. This measure will certainly conduce to further growth of the oil and gas revenues of the federal budget.

At the same time, the zero rate of export duty on oil extracted from the oil fields of East Siberia, initially introduced from 1 December 2009, will be preserved for one more month, beginning from 1 May 2010. This tax benefit is granted to 22 oil deposits. According to the data published by the RF Ministry of Finance, if this measure is extended until the end of 2010, the contraction of the revenue side of the federal budget could amount to approximately 120 bn Rb1.

Unlike oil and gas revenues, non-oil and gas revenues have been demonstrating a certain downward trend. In January February 2010, the general government budgets receipts from tax on profits of organizations declined both in absolute and relative terms. In relative terms, the volume of this tax amounted to 1.2 % of GDP vs. 1.7 % of GDP in the same period of 2009. That was largely a result of the changes introduced in the procedure for calculating and paying the said tax. Prior to 2009, economic agents paid the tax on profits of organizations on a quarterly advance basis, and it was not infrequent for them to pay it in advance, basing their calculations on the volume of profits gained in better periods. Beginning in 2009, there emerged a possibility for them to pay this tax on a monthly basis in accordance with actual profits. At the same time, the January February volume of the federal budgets receipts from tax on profits of organizations reflected the activity of organizations at the end of 2008. Therefore, in order to properly analyze these indicators for the said periods, one should take it into strict consideration that they are not fully comparable.

The reduction in the general government budget receipts from tax on profits of organizations was accompanied by a drop in its receipts from personal income tax (PIT), which declined to 3.5 % of GDP marking a 0.4 p.p. drop compared to the corresponding period of the previous year. However, there was a slight, 2.9-percent growth in PIT receipts in absolute terms on the corresponding period of 2009, caused by the February 2010 increase in real wages. At the same time, since the beginning of the year, the index of real disposable incomes of the population has risen 8.1 % on the corresponding period of the previous year. It should be admitted that this rise was mostly due to the January 2010 valorization of pension payments. Overall, it could be noted that, despite the recorded modest growth in the incomes of the population, their growth rate has been significantly lagging behind the growth rate of GDP throughout the period under consideration.

1 http://www1.minfin.ru/ru/press/speech/index.phpid4=THE STATE BUDGET Table DYNAMICS OF THE TAX BURDEN LEVEL AND THE REVENUES FROM THE MAIN TAXES IN RF GENERAL GOVERNMENT BUDGET IN JANUARY FEBRUARY 2009 AND 2010 (AS % OF GDP) 2 months, 2 months, Deviation, 2010 2009 p. p. GDP Tax burden level (1 + 2 + 3) 28.9 28.5 +0.Tax revenues (1), including: 18.0 19.3 1.Tax on profits of organizations 1.2 1.7 0.PIT 3.5 3.9 -0.SST* 0** 2.0 VAT 6.5 6.9 0.Excise 1.1 0.95 +0.Tax on mineral resources extraction 3.7 2.3 +1.Insurance contributions to mandatory pension insurance (2) 4.0 3.3 +0.Revenues from foreign trade (3) 6.9 5.9 +1. less insurance contributions to mandatory pension insurance.

** from 2010 onwards, SST is transformed into insurance contributions to be transferred to off-budget funds.

Source: RF Ministry of Finance; Rosstat; IET estimates.

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