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Lately, disagreements have been becoming stronger and stronger within the URF with respect to some fundamental issues in particular, such as opposition to the authorities, merger with Yabloko, the possibility of joint activities with the Left, the powers of regional organizations, etc. These disagreements have led to a fundamental split concerning the partys position at the 2008 election:

whether to support Vladimir Putin or his successor as lesser evil, or a categoric refusal to support any candidate nominated by the group in power. The sides were blaming one another in their readiness to sacrifice ideological values for the struggle against Putin as a person, on the one hand, and in having been recruited by Kremlin, on the other.

In fact, Nikita Belykh, while struggling for voters, declared at the congress his oppositional standpoint, accused the authorities of forging the electoral results, as well as of subverting democracy and private property, spoke about his preparedness to start a dialogue with Yavlinsky and voiced support for granting to the regions the power to independently form their regional baskets of candidates, without any interference from the center. However, it is necessary, just as in the event when a new government is appointed, to grant 100 days to the new Chairman, during which it will become clear just how convincing are his managerial and ideological plans.

A. Dzasokhov, President of North Osetia, resigned from his office in May. In fact, he had faced this threat long ago, after the events in Beslan and the subsequent indignation of the people, but the last drop was his refusal to sign the plan for Osetia Ingushetia settlement developed by D. Kozak. His closest ally parliaments speaker T. Mamsurov will be proposed for the vacant post, which represents a rather good choice, considering the probable emergence of hostile candidates after expiry of the term of office.

S. Zhavoronkov On the Development of Reforms in April-May April and May, in contrast to the first thee months of this year, represented a certain breakthrough in the development of reforms. However, this breakthrough has so far been remaining just a declarative one, that is, the President, in his Annual Address, presented a program which was pro-reform and liberal in its spirit. The Government and the Duma have begun to practically implement some of the assignments formulated in the Address.

He promised to devote his main efforts, after having been elected, to the partys activities.

The main event that occurred in April and May in terms of economics was the Presidents Annual Address. This year, the Address appeared as unexpected by the larger part of society both in its content and by the time when it was released. Primarily, this was due to the fact that despite the activity aimed at increasing pressure on business, including the imposition of restrictions on political and civil liberties by representatives of the Government, which has been going on since mid-2003, the Address appeared as very liberal in spirit.

Leaving aside the Addresss provisions dealing with the threats of terrorism, let us dwell upon those that have to do with the economy or are around the economy. The first unexpected point is that of sharp criticism focused on the processes of property redistribution through the States mediation. That is, sharp criticism of that for which the president himself is being largely blamed. Also, there was criticism of tax authorities for their repressions aimed at companies, as well as an expressed urge to ensure the objectivity and freedom from control for the mass, and the independence of courts of justice. The President, in fact, repeated the postulates always put forth by liberal opposition.

What can this mean in terms of reforms and the future socio-economic development All will depend on those practical actions that are to follow in order to implement the Addresss provisions on the part of the president himself, as well as of the Government. They will either serve as a landmark for a turn toward efficient economic policy, or a verbal coverage intended to disguise the new initiatives of the Procuracy General and the Federal Tax Service.

For one thing, the list of the presidents assignments for implementing the Address has already been issued, with clearly formulated items intended for the implementation of measures designed to make the mass media and courts of justice more independent, as well as other useful steps. For another, the experience of practically implementing the Addresses of the previous years has shown that in actual practice there can happen things which are quite contrary to those which have been declared.

The second unexpected point is the postulate voiced by the President, to the effect that the goal of the tax service is not to ensure a certain planned level of budgetary revenue but to supervise the compliance with legislation on taxes and levies. That which is being regarded as an axiom in developed countries, was, until recently, in this country, something which just caused skeptical smiles of the majority of economists. The meaning of this postulate, in the event of its practical materialization, may become positive in terms of economic growth and the development of enterprising.

The third unexpected point is amnesty for capital. The step formerly suggested, probably, by only the most radical liberal economists, has now been placed on the Governments agenda as the Presidents direct assignment. This step is important, rather, not as a major economic measure (the effect of such undertakings, as commonly recognized, is low enough), but as a serious positive signal to business.

Among the other important economic innovations introduced by the Address there are the following ones: the clear stipulation of the rules of game for foreign capital, that is, in which sectors and enterprises it has the right to participate, and in which not; the abolition of the tax on property being transferred as a gift (the State Duma is already discussing the respective draft law); the simplification of the procedure for formalizing the rights of ownership in respect to immovables; and further improvement of the policy in respect to migration.

The Address also contains some contradictory assignments for the Government, i.e., to raise by 1.times the salaries of employees of the budget-funded institutions. No matter how socially popular this measure may appear, its presentation separately from the need for it to be followed by reforms in appropriate sectors looks somewhat alarming. Without reforming the health care system, education, and the social sphere, the raising of salaries cannot improve the situation, but will surely increase the rate of inflation.

Thus, the Address may be viewed as both a positive signal to business and a direct assignment of the President for the Government to intensify its activity in certain areas of reforming (meaning the reforms that are close in spirit to the Governments medium-term program developed by the Ministry for Economic Development and Trade last autumn and not yet approved). The nearest future will show the extent to which the Government is able to implement the sufficiently short list of the Presidents direct assignments.

And so far the President has made one more positive signal to business almost one month prior to the release of the Address he voiced the idea as to the necessity to reduce the period of limitations for property deals from ten to three years. And the draft law to this effect has already been prepared for adoption.

As for the Governments actual undertakings in the sphere of economic reforms during the past two months, it would be difficult to speak of any significance or meaningfulness of this activity (which in late April and early May was slowed down by the preparations to the celebration of the 60th anniversary of the Victory in World War II. Thus, the draft law on special economic zones is undergoing one of the necessary stages of discussion and coordination; the date of privatization of Sviazinvest has not yet been set; nor the Forest Code and the Water Code have been enacted.


Budgetary and Tax Policy In accordance with the preliminary results of the execution of the RF federal budget in January through April of 2005, the level of revenues of the RF federal budget made 27.28 per cent of GDP, while the level of expenditures of the federal budget was registered at 16.65 per cent of GDP, and the budget surplus made 10.63 per cent of GDP. According to the data as on April 1, 2005, the amount of financial reserves accumulated in the RF Stabilization Fund was registered at Rub. 858.0 billion.

Therefore, in April of 2005 Rub. 89.55 billion were transferred in the RF Stabilization Fund. On May 13, 2005, the RF Finance Ministry reached an agreement with the Paris Club as concerns the anticipatory repayment of a portion of the RF debt to the Club amounting to US $ 15 billion out of the total amount of the respective debt (US $ 40 billion) at the par value. The advance payments should be carried out starting in early June and until August 20 at the expense of the financial reserves of the RF Stabilization Fund.

The State of the Federal BudgetAccording to the preliminary estimates presented by the RF Finance Ministry, in January through April of 2005 the revenues of the federal budget made Rub. 1 558.08 billion in terms of the execution of the budget on the cash basis (or 27.28 per cent of GDP), while the expenditures of the federal budget were registered at Rub. 969.27 billion (or 16.65 per cent of GDP). The surplus of the federal budget made Rub. 618.81 billion (or 10.6 per cent of GDP). It should be noted that in 2005 the amount of revenues of the federal budget significantly exceeded the value of this indicator registered in the respective period of the preceding year, which at that time made Rub. 964.68 billion (or 20.4 per cent of GDP). In January through April of 2005, the expenditures borne by the RF federal budget also increased in comparison with the nominal figures registered in the respective period of 2004, which at that time made Rub. 794.89 billion; however, these figures somewhat declined in terms of per cent of GDP (16.8 per cent of GDP). The surplus of the federal budget registered in the period under observation also significantly surpasses the value of this indicator observed in 2004 (Rub. 169.79 billion or 3.6 per cent of GDP).

In March and April of 2005, the amount of the revenues of the RF federal budget made Rub. 446.billion and Rub. 391.72 billion respectively, or was at 28.75 per cent and 25.05 per cent of the monthly GDP amount (in accordance with the estimates presented by the RF Finance Ministry). The expenditures borne by the RF federal budget in March and April of 2005 made respectively Rub.

225.5 billion (or 14.25 per cent of GDP) and Rub. 298.24 billion (or 19.7 per cent of GDP), while the surplus of the RF federal budget was registered at the level of Rub. 220.9 billion and Rub. 93.47 billion, what respectively made 14.22 per cent and 5.98 per cent in terms of the shares in GDP. Therefore, it should be noted that in April there was registered a certain decrease in budgetary revenues as compared with the figures observed in March both in the absolute terms and in the per cent share of GDP.

In January through April of 2005, the revenues of the RF federal budget evaluated in accordance with the method of distribution of revenues3 made 18.57 per cent (Rub. 1081.28 billion), while in Because of the changes in the classification of the budgetary revenue and expenditure items, as well as the nonavailability of official information on the execution of the consolidated RF budget for year 2005, the revenue and expenditure items of the consolidated budget have not been analyzed.

terms of the execution of the budget on the cash basis the revenues were registered at 27.28 per cent (Rub. 1 588.08 billion). For the structure of revenues over the period under observation, see Table 1.

Table Amounts of revenues of the RF federal budget in January through April of (in per cent of GDP, in terms of revenue distribution and cash basis execution) Distribution of revenues Cash basis execution February March April February March April Taxes and other payments adminis10,58% 10,26% 10,24% 17,43% 16,02% 15,59% tered by the Federal Tax Service Taxes and other payments adminis8,20% 7,71% 7,39% 9,04% 9,04% 9,19% tered by the Federal Customs Service Receipts administered by the Federal Agency for Management of Federal 0,19% 0,17% 0,17% 0,21% 0,20% 0,19% Property Revenues of the federal budget admin0,65% 0,89% 0,78% 1,05% 2,83% 2,31% istered by other federal structures Total revenues 19,63% 19,02% 18,57% 27,72% 28,10% 27,28% Table 2.

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