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Measures on securing the economys financial stability Out of the federal budget On balancing regional budgets (subsidies, subventions, budget loans) 363.4 363.Vneshekonombank 175.0 175.VTB 180.0 180.Rosselkhozbank 45.0 45.JSC Rosagrolizing 25.0 25.AIZHK 80.0 80.Out of the federal budget, subtotal 868.4 868.Extrabudgetary sources (quasi-budgetary) Subordinated loan to Sberbank of Russia (source- the CBR) 500.0 500.Extended to Vneshekonombank to disburse subordinated loans to other banks (410.0 404.banks, source -NWF) Placement of funds on deposits at Vneshekonombank for the sake of lending to small 30.0 30.and medium-sized (source -NWF) Banks debts restructuring (source- the CBR and the Deposit Insurance Agency) n/a 297.Extrabudgetary sources, subtotal 1 231.On securing the economys financial stability, subtotal 2 099.Measures on support of the real sector Out of the federal budget Support to car makers 68.0 69.Support to aircraft makers 15.9 21.Support to shipbuilding 3.0 3.Subsidizing interest rates for agrarian and fishery corporations 18.1 60.Support of export 6.0 6.Development of small and medium-sized businesses 13.6 18.Support to the defense and industrial complex 73.3 79.Support to transport complex 53.0 56. contribution to the public corporation "Rostekhnologii" 1.0 1.Government guarantees to backbone enterprises 300.0 300.Out of the federal budget, subtotal 551.9 615.Extrabudgetary sources (quasi-budgetary Support to housing construction (source- the Fund for Assistance to the Housing and n/a 136.Utilities Sector Reform) On support of the real sector, subtotal 751.Social measures Out of the federal budget Support to the labor market and assistance to employment 43.7 43.Raising unemployment benefits 37.0 80.Possibility to use the maternity allowance to improve housing conditions and for 44.3 44.one-time Rb. 12,000-worth allowance for ongoing needs Additional measures in the health care area (combating the /H1N1 pandemic, provi9.7 9.sion of necessary medicines, delivery of high-tech medical assistance, etc.) Procurement of housing for veterans 55.8 55.Provision of transfers to extrabudgetary funds and the EAEC s anti-crisis fund 427.7 443.On social measures, subtotal 618.2 677.On anti-crisis measures, TOTAL 3 528. RUSSIAN ECONOMY IN trends and outlooks As evidenced by the Tables, the anti-crisis measures on securing financial stability in the economy were being implemented at the expense of both the federal budget and extrabudgetary sources. The proportion of the latter accounted for over 2/3 of the respective expenditures.

Other support measures were financed exclusively out of the budget funds.

In all, between 2088 and 2009 the anti-crisis measures cost a total of some Rb. 3.5 trln.

Main objectives of moves to secure financial stability of Russias economy were reduced to combating liquidity shortages, recapitalizing the largest banks, having banks and corporations repay their external corporate debts and regions get their budgets balanced.

The government support to the banking system was exercised by means of boosting the largest banks capital and providing liquidity in the form of subordinated loans. These measures combined cost some Rb. 2.1trln, with the the federal budgets contribution accounting for Rb. 500bn. In the frame of this bloc of measures the government invested in Vneshekonombank (Rb. 175bn), Rosselkhozbank (45bn), VTB (180bkn), JSC Rosagrolizing (25bn). In addition, the CBR disbursed subordinated loans to Sberbank of Russia (a total of Rb. 500 bn), completed a Rb. 300bn-worth debt restructuring of 18 other banks, which were recognized as being significant for the national banking system or backbone for their respective regions, including: KIT Finans investment bank (JSC), AKB ROSSIYSKY KAPITAL (JSC), Bank Vefk-Sibir (JSC), Gubernsky Bank Tarkhany (JSC), KB Moskovsky Kapital (Ltd, AKB Soyuz (JSC), SEVERNAYA KAZNA (JSC), Nizhny Novgorod (JSC), to name a few.

In the frame of support of the industrial and technological sectors the RF government employed both a direct aid from the budget and issuance of government guarantees and provision of tax benefits. The volume of funding on support of corporations from different sectors over the crisis period 2008-09 accounted for some Rb. 750bn, including Rb. 300 bn in government guarantees.

The following programs were to be financed out of the federal budget: the technological rearmament of backbone DIC enterprises (to this effect Rb. 50.7bn. was earmarked); innovation-oriented federal target programs on development of the infrastructure for small- and medium-sized business (Rb. 18bn.); automakers investment projects (a. Rb. 69bn.).

As well, the government practiced a widespread support of corporations by means of subsidized interest rates. This form of support was provided for beef and dairy husbandry enterprises, and fishery companies (Rb. 60.4bn), DIC corporations (20.3bn), etc. In addition the government provided for subsidizing interest rates across individual kinds of economic activity, including refinancing of investment loans, interest rates with respect to transactions on leasing of the domestic automobile hardware, for exporters (Rb. 6.1bn), among others.

Additional financing out of the federal budget was exercised by means of granting subsidies and subventions: more specifically, to prevent the strategic DIC objects from going bankrupt (Rb. 7.9bn); subsidies to air carriers to continue passenger transportation in the event their licenses had been revoked (5.0bn), etc.

To support individual industries, the government employed the public procurement mechanism, which formed the bulk of funds spent on procurement of motor vehicles for the federal and territorial public agencies and renewal of other special hardware (circa Rb.

15.5bn).

The government also provided guarantees on backbone corporations loans worth a total of Rb. 300bn.

Section Monetary and Budgetary Spheres Support to the construction sector was exercised through the Fund for Assistance of the Housing and Utilities Sector Reform, which contributed to the Subjects of the Federation with some Rb. 136bn, to co-finance regional target programs.

As concerns measures on support of the most vulnerable strata of the population, the following ones should be particularly referenced to:

support to the labor market and assistance to employment measures (some Rb. 44bn);

increase of unemployment benefits (some Rb. 80bn);

possibility to use the maternity allowance to improve housing conditions and for onetime Rb. 12,000-worth allowance for urgent needs (Rb. 44.3bn);

Provision of transfers to extrabudgetary funds and the EAEC s anti-crisis fund (Rb.

443bn);

Procurement of housing for veterans (Rb.55.8bn) The social measures also included co-financing of special programs in the housing and utilities sector, that is, restructuring the private individuals mortgage arrears. This measure is implemented by means of an additional capitalization of the AHMLs authorized capital (Rb.

80bn).

The analysis of the system of anti-crisis measures allows one to assert that they have centered mostly on securing the financial stability and support of strategic corporations, while just an meager fraction of them was to be spent on improvement of the situation on the labor market. The target approach to allocation of the budget aid is laudable; however not all the measures were implemented in a timely fashion. Furthermore, some of them latently derailed economic agents incentives to conduct a more sound policy and more adequately assess risks.

Because of the expansion of volumes of financing out of the federal budget in 2009 and given the persistence of the negative tendency to contraction of revenues to the budget that started yet in 2008, the 2009 federal budget posted deficit amounting to 5.9% of GDP, with the size of the oil-and-gas deficit equivalent to -13.5% of GDP.

The funding of the large-scale measures on support of the economy without attracting external borrowing became possible thanks to financial reserves accumulated in the period of economic growth. It was resources of the oil-and-gas Funds that formed the major pool securing the 2009 federal budget equilibrium. As evidenced by Table 7, as much as some Rb.

3.0trln was allocated out of the Reserve Fund alone to finance budget expenditures. This allows to reckon that the concept of formation of the oil-and-gas Funds has been absolutely sound and the current fiscal policy should be given a due credited for that.

Table Dynamic of Formation and Use of the Oil-and-Gas Funds in 2009, as Rb. bn.

Collected in 2009 Spent in 2009 on:

Revenues Cash balances as of Cash balances as of Securing the Securing the Indicator Oil-and-gas from capital end-2008* end-2009.* balanced oil-and-gas revenues managebudget transfer ment 4027.6 1830.Reserve Fund 488.5 205.0 2964.8 179.(9.8% of GDP) (4.7% of GDP) 2584.5 2769.National Welfare Fund 92.5 (6.3% of GDP) (7.1% of GDP) 6612.1 4599.Total 488.5 297.5 2964.8 179.(16.0% of GDP) (11.8% of GDP) * balances recalculated using the exchange rate as of January 1, 2009, and January 1, 201, respectively RUSSIAN ECONOMY IN trends and outlooks The year of 2009 saw introduction of amendments to the Budget Code of RF with respect to administration of the Reserve Fund and the National Welfare Fund. More specifically, it was ruled to detest using funds from management of both Funds on their replenishment.

Hence since January 1, 2010 and though February 1, 2012 the said funds have become subject to an immediate collection to the federal budget. The measure will enable one to compensate for the fall of the revenue component of the federal budget and narrow its deficit.

2.2.4. Main Parameters of Russias Federal Budget for 2010-The year 2009 has de-facto marked a turning point of trends of main budget indicators and the discontinuation of a long-term policy of boosting expenditures in particular (Fig.1). In 2009, the federal budget expenditures hit their peak value both in constant prices and as percentage of GDP (some 24.7% of GDP for reference, the 2004 indicator did not exceed 16% of GDP). The fact of the matter is that in order to secure the financial sustainability of the budget system in the medium term, the RF government has focused on curtailing volumes of expenditure obligations in shares of GDP together with a parallel increase of their efficacy.

Fig. 1. Dynamic of the Federal Budget Revenues and Expenditures (in the 2006 prices), as Rb. bn.

The volume of revenues to the federal budget is expected to plunge to 15% of GDP by 2012, while the volume of government obligations will be consistently sequestrated from nearly 23% in 2010 to 18% of GDP by 2012.

During the period in question the federal budget revenues should tumble substantially due to the projected relative downfall in the world prices for oil and gas, deceleration of the increase rate of extraction and export of carbohydrates and appreciation of the Rb. against the USD under conservation of the earlier emerged mineral structure of Russias export. The fedSection Monetary and Budgetary Spheres eral budget act provides for a decline in the volume of oil-and-gas revenues by 0.7 p.p. of GDP over the three-year period concerned. It should be noted that a surge of structural revenues would fall short of duly compensating for the contraction in oil-and-gas revenues. The volume of collection of non-oil-and-gas revenues to the budget would plunge by 1.5 p.p. of GDP over the period in question.

While the volume of expenditure obligations is projected to decline, they would still remain on a fairly high level. Such a structure of the federal budget should give rise to a steady deficit whose size would be fluctuating within the range of 3-5% of GDP. To run a balanced federal budget, the respective act provides for the financing of the deficit out of domestic and external sources, with the Reserve Fund and domestic borrowings constituting major ones.

Meanwhile, there has emerged the need for borrowing from overseas it is planned to attract some USD 18bn already in 2010 alone, while the overall volume of borrowings for 20102012 was set at the level of USD 60bn. It may also become possible to introduce some adjustment to the value of annual borrowing in the period in question, should the change in the oil price level display a negative dynamic. In light of the prospective borrowings in Russia faces a critical challenge of a full repayment of its debt to the London Club and of another USD 400-500mln-worth commercial debt of the former USSR.

An analysis of the revenue part of the act on the 2010-2012 federal budget of RF According to the federal budget act, the period between 2010 and 2012 would witness a decline in, or a lower dynamic of revenues from most taxes and levies compared with the period of 2006-2008 (Table 8). The tendency is characteristic of both the oil-and-gas- and infrastructure-based taxes. The projected decline would be driven chiefly by a relative deterioration of the situation with prices and demand for Russian exports. Specifically, according to forecasts of main macro indicators of the economys health, through the end of 2011 the world oil prices should not exceed USD 60/bbl, being in a stark contrast with the USD70120/bbl noted between 2006 and 2008. Likewise the growth rate of production of oil and natural gas should slow down and export of the oil-and-gas complex products should contract.

Given that customs duties still account for a fairly substantial proportion in the overall volume of the federal budget revenues, in the medium perspective the level of revenue collection to the federal budget will remain directly correlated with prices for the nations exports.

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