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Lami, the head of the World Trade Organization, as well as by the heads of trade missions of the USA and European Union, no progress was achieved.

The appointment of the former head of the main directorate of the RF Ministry of Interior in the Central Federal Okrug and deputy Prosecutor General A. Bastrykin as the head of the powerful Investigative Committee nominated by V. Putin to hold this office was approved. Mr. Bastrykin was V. Putins fellow student, what, most probably, was the main criterion of the selection of the appointee for this post. However, it should be noted that throughout the years of V. Putins Presidency, A. Basrykin has always followed the present Prosecutor General Yu. Chaika in terms of his career. Therefore, Yu. Chaika and the groups allied to him, first of all, Gazprom, could again consolidate their positions, whereas the team of V. Ustinov failed to have revenge although exactly this development was expected.

In June, Yu. Luzhkov, nominated at this office by V. Putin, was appointed as the Mayor of Moscow for the fifth consecutive term. The intrigue concerning his fate attracted the attention of experts practically throughout the whole time of V. Putins Presidency. Mr. Luzhkov did not come from St. Petersburg, moreover, in the beginning of the political career of V. Putin the Mayor of Moscow dared to oppose him, besides, Mr. Luzhkov has periodically criticized some prominent members of the Russias leadership, primarily G.

Gref and A. Kudrin. In turn, the Mayor of Moscow was the favorite symbol of arbitrary rule at the regional level of the Kremlin propaganda machine. Over the 15 years of his rule in the city, the Luzhkov Baturina family could not only make a handsome fortune, but, already during the Presidency of V. Putin, make it legal. In this connection, many experts have time and again suggested that Mr. Luzhkov, whose 71st birthday should be celebrated in September and whose term in the office as an elected Mayor expire in 2007, should cede his post and control over the Moscow budget. However, this has not happened. From our point of view, the factors behind this development are primarily political ones. Over the time he managed the capital and simultaneously the largest subject of the Russian Federation, Mr. Luzhkov could build an efficient administrative and electoral vertical, which bases not only on compulsion, but also on a system of massive subsidies, active PR campaigns and so on. Therefore, in the framework of the cycle of 2007 and 2008 Yu. Luzhkov is needed as an administrative unit and an electoral ram for the United Russia political party and successor (successors) of President Putin; any other appointee just would not have enough time to tune up the system created by Mr. Luzhkov. In this connection it should be noted that, first, the decision to keep Yu. Luzhkov as the Mayor of Moscow is evidence that the system is not so strong as it wants to seem, and, second, in the case the electoral cycle is completed successfully, Mr. Luzhkov may loose his post earlier than his official term in the office expires.

In the early June, in the Stavropol krai there again took place mass riots on the grounds of an interethnic conflict. There were taken unprecedented security measures central parks were closed, working hours of the places of entertainment were limited, whereas administrations of higher educational institutions were obliged to submit to the law and order agencies the lists of all students indicating their places of residence. In contradistinction to Kondopoga, no information was made public by the official mass media. In the course of a series of mass fights between the Russian and the Chechens resulting in numerous injuries, there was first killed a student from Chechnya and a week later there were killed three Russians. It should be noted that the nature of this crime provided grounds to view it as the promised revenge. Within a month the situation could be somewhat normalized; however, it may be presumed that in the future such incidentsTF FPT will be regular P until the influence of A. Kadyrov, the present leader of Chechnya, and the rules promoted by him persist in the Northern Caucasus.

S. Zhavoronkov PT TP It should be noted that regular clashes of citizens with the Chechens, as well as clashes between uniformed services and security agencies of the Chechen Republic take place not only in the Stavropol krai, but also in Ingushetia, Dagestan, North Ossetia and other regions.

Budgetary and Tax Policy According to the tentative performance of the budget as of January-May 2007, the level of revenue of the RF federal budget made 21.8 per cent of GDP; the expenditures of the federal budget accounted to 15.1 per cent of GDP, budget surplus has come up to 6.7 per cent per cent of GDP. Within January - April of the RF consolidated budget revenues made 33.1 per cent of GDP, consolidated budget expenditures made 23.8 per cent of GDP, and consolidated budget surplus accounted to 9.3 per cent of GDP. As of June 1, the volume of financial reserves of the RF Stabilization Fund made RUR 3026.7 billion, as opposed to RUR 2920.5 bln on May 1, what makes 10.9 per cent and 10.6 per cent of annual GDP accordingly.

The State of the Federal Budget The dynamics of basic parameters of the RF federal budget in 2005-2007 is presented in Table 1. According to the tentative estimates of the federal budget execution on cash basis, made by the RF Ministry of Finance, in January-May 2007 the federal budget was executed in terms of revenue in the amount of RUR 2 512.5 bln (21 per cent of GDP), in terms of expenditures in the amount of RUR 1 741.9 bln (15.1 per cent of GDP). The budget surplus made RUR 770.7 bln. (6.7 per cent of GDP). It should be noted that the amount of revenues and expenditures of the federal budget within the period under review in absolute terms were somewhat higher than the respective indicators of the relevant period of preceding year (revenues - RUR 2 393.7 billion, expenditures 1 504.5 billion). Nevertheless, in regard to GDP the indicators have declined (25.0 per cent and 15.7 per cent of GDP accordingly in 2006). It should be noted, that the budget surplus has decreased in both, absolute terms and in regard to GDP share versus the indicators of preceding year (RUR 889.3 billion, i.e. 9.3 per cent of GDP).

Table 1.

Basic Parameters of the RF Federal Budget in 2005 2007 (% versus GDP) 2005 April 2006 2006 April Revenues 23,7% 25,0% 23,5% 21,8% Expenditures 16,2% 15,7% 16,2% 15,1% Deficit ()/ Surplus (+) 7,5% 9,3% 7,4% 6,7% Source: RF Ministry of Finance, IET estimates The structure of tax revenues to the federal budget for the period under review as broken by individual federal administrative bodies is presented in Table 2.

Table 2.

Amount of Revenues to the RF Federal Budget in 2005-(per cent of GDP in terms of cash basis execution) 2005 April 2006 2006 April Taxes and other payments administered 12,33% 12,70% 11,27% 10,80% by the Federal Tax Service Taxes and other payments administered 9,73% 11,19% 10,76% 9,97% by the Federal Customs Service Receipts administered by the Federal Agency for Management of Federal 0,27% 0,20% 0,26% 0,13% Property Revenues of the federal budget adminis1,35% 0,95% 1,25% 0,89% tered by other federal structures Total revenues 23,67% 25,04% 23,54% 21,78% Source: RF Ministry of Finance, IET estimates As one can see from the data, presented in the Table, in January-May of 2007 the volume of tax and other revenues as broken down by individual administrative bodies has decreased in comparison with the data registered in the same period of preceding year. Tax revenues, administered by the RF Federal Customs Service, made 10.8 per cent of GDP, what is nearly 1.9 lower than relevant indicators of January-May of 2006.

The share of revenues, administered by the RF Federal Customs Service, accounted to 9.97 per cent of GDP, (11.19 per cent of GDP in 2006, i.e., the decline made over 1.2 per cent). Finally, the scope of revenues, administered by other Federal Agencies, have also decreased as of January-May results and made 0.89 per cent of GDP (0.95 per cent of GDP in 2006).

For more detailed analysis of the above mentioned tendencies there required the data, published by the RF Treasury. Though the data is available only for January-April of 2007 (i.e., one month less than the information, published by the RF Ministry of Finance), the tendencies of preliminary data for the first quarter are much the same as observed in the first five months of 2007. (See Table 3) The utmost decline in terms of GDP share in January-April of 2007 (as opposed the relevant period of preceding year) was observed in the following revenue sources: import customs duties (-2,2 per cent of GDP), tax on profit of enterprises (-1.p.p.), VAT for the goods, sold on the RF territory(-1.4 per cent). It should be noted, that those taxes totaled over 58 per cent of the gross revenues of the federal budget for January-April 2007. The highest growth in terms of GDP share was observed in the following budget lines: VAT on the goods, imported to the RF territory (+0.5 per cent) and import customs duties (+0.19 per cent). The share of those taxes in the total amount of federal budget revenues has reached somewhat more than 12 per cent as per budget execution results within the first four months of 2007. As concerns other budget lines, the changes were insignificant (within 0.1 p.p.). The above changes in the budget revenues, broken down by the types of taxes and duties, have resulted in the decline of the federal budget revenues versus GDP level both, for the first quarter and for the first five months of 2007.

Table 3.

Amounts of Revenues of the RF Federal Budget ( by Basic Lines) within 2005-2007 (in per cent of GDP) 2005 April 2006 2006 April TOTAL BUDGET REVENUES 23,72% 25,44% 23,58% 21,16% 1. Enterprise Profit Tax 1,75% 1,64% 1,92% 1,65% 2. Unified Social Tax 1,24% 1,19% 1,19% 1,28% 3. Taxes for Goods and Services, imported to the RF Terri5,16% 5,11% 3,82% 3,66% tory 3.1.VAT 4,75% 4,72% 3,47% 3,32% 3.2. Excises on taxable goods 0,41% 0,40% 0,35% 0,34% 4. Taxes for Goods and Services, imported to the RF Terri2,15% 2,20% 2,27% 2,71% tory 4.1. VAT 2,07% 2,13% 2,20% 2,63% 4.2. Excises on taxable goods 0,08% 0,07% 0,06% 0,08% 5. Severance taxes 3,95% 4,65% 4,11% 3,38% 6. Import tax duties 1,25% 1,28% 1,28% 1,47% 7. Export tax duties 6,25% 7,79% 7,12% 5,62% Source: RF Treasury, IET estimates.

The preliminary data, estimated by the RF Ministry of Finance on financing of Federal Budget expenditures in January-May of 2007 are presented in Table 4.

As one can see from Table 4, there was observed high volatility of total funding, depending on the period under review. Thus, as of the year results of 2006 the expenditures amounted to about 16.4per cent of GDP, within January-May 2007, they increased to 20.9 per cent of GDP. However, there has been a decline of funded expenditures as compared with the relevant indicator of the preceding year (21.2 per cent of GDP as of the end of May 2006).

Comparison of the structure of expenditures as broken down by sectors within January-May of 2007 with the relevant indicators of preceding year, shows, that the changes were variable. The outmost downgrading (in terms of GDP share) was observed in the following budget lines: Interbudgetary transfers (-1.34 per cent), Federal issues (-0.11 per cent), National defense (-0.14 per cent) and Social policy (-0.12 per cent). It should be noted, that the share of expenses for those budget lines made 68 per cent in the total expenses of the federal budget within the first five months of 2007. The utmost growth (in terms of GDP share) was observed in such budget lines as National Economy (+0.23 per cent), Housing and public utilities (+0.11 per cent), National security and law-enforcement activities (0.07 per cent). Expenditures under those budget lines have accounted to 22 per cent of the total expenses on the federal budget and resulted in the downfall of the total amount of expenditures in terms of GDP within January-May 2007 as compared with the relevant period of 2006.

Table 4.

Financing of the RF Federal Budget in 2005-(in per cent of GDP) 2005 May 2006 2006 May Federal issues 2,58% 2,68% 2,19% 2,57% Including expenditures associated with the servicing of federal and 1,06% 0,93% 0,65% 0,61% municipal debt National defense 2,71% 3,61% 2,57% 3,47% National security and law enforce2,05% 2,65% 2,08% 2,72% ment National Economy 1,17% 1,32% 1,31% 1,55% Housing and public utilities 0,04% 0,18% 0,20% 0,29% Environmental protection 0,02% 0,03% 0,03% 0,03% Education 0,73% 1,08% 0,78% 1,06% Culture, cinematography and mass 0,22% 0,24% 0,21% 0,25% media Health care and sports 0,42% 0,71% 0,56% 0,73% Social policy 0,88% 1,08% 0,81% 0,96% Interbudgetary transfers 5,77% 7,60% 5,68% 7,26% Total expenditures 16,58% 21,17% 16,40% 20,89% Source: RF Ministry of Finance, IET estimates There can be highlighted several reasons for the growth rates of the federal budget revenues, which were not as high as the rates of Russian economy in the first five months of 2007:

1) the federal budget revenues are highly dependant on proceeds from commodity economy (about a half of the federal budget proceeds in 2006 were made by export duties and tax on extraction of mineral resources). The volume of industrial production in the first quarter of 2007 has exceeded the same indicator of the relevant period of 2006 by 7.4 per cent and the volume of extraction of mineral resources increased by 2.4 per cent. The slower growth rates of commodity sector have resulted in decrease of the share of export customs duties and tax on mineral extraction tax in GDP.

2) it should be also mentioned that oil prices have been reduced in the first months of 2007 as compared with the relevant period of 2006 (See Table 5).

Table 5.

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