The Communists turned out to be the second “favorite” of the election campaign. And this fact did not arise simply from Russia’s notorious “leftist traditions”. As a mater of fact, the CPRF today is living like a plant in a greenhouse – no administrative resource or “black PR” are applied against it, it has found, quite miraculously, the means to cover the cost of numerous propaganda materials printed in millions of copies, their distribution, and large-scale observation. The party’s style itself is quite characteristic – while criticizing the various flaws of the Russian reality, it carefully avoids any direct criticism aimed at V. Putin. In fact, it can be supposed that communists are acting if not with the direct support of the authorities, then at least with their consent, envisaging for themselves the role of a “scarecrow” in the future parliament in order to shade off “United Russia” to its better advantage – first of all, in the foreign eyes.
As for the non-parliamentary opposition, it has failed to develop any single strategy for its activities during the election campaign. On the whole, three recommendations have been voiced: to vote for one of the parties other than “United Russia” (for example, M. Khodorkovsky), to spoil election bulletins (“Other Russia” of G. Kasparov – E. Limonov); and to boycott the election altogether (M. Kasyanov). The second recommendation appears to be the least successful – as demonstrated by actual practice, e.g., during the March election in St. Petersburg, where this particular method was recommended by “Yabloko” after having been excluded from the election, only a small number of citizens are capable of such an elegant way of protesting.
As for the first and the third options, they appear to be much more sensible, considering the “plebiscite” role of an election – a considerable share of votes both against “United Russia” and boycotting the election can represent a serious argument – if not from a legal point of view, then at least in terms of common sense.
The issue of the election’s legitimacy had, by the way, been raised even prior to the onset of the election campaign. It is noteworthy that in addition to the problems associated with the opposition’s participation in the election (by the moment of the lists’ registration, even the SPS was not yet speaking against Putin) and honest calculation of votes (impossible, at least, because of the large-scale “electronic calculation of votes” without the possibility of manual checks, as well as the uncontrolled issue, by the authorities, of certificates to voters of their having been struck off the voters’ lists), a formal reason was also found – the delays in issuing visas to representatives of the OSCE Office for Democratic Institutions and Human Rights. As a result, the Bureau simply refused to act as an observer. However, it is difficult to predict the West’s reaction on the whole: as follows from experience, they voice their ultimate conclusions after an election is over. The arrests of some well-known personalities during the opposition’s demonstrations on 24 November in Moscow and St. Petersburg, for example OGF’s leader G. Karparov, despite their relatively “soft” character (Kasparov was sentenced to 5 days of administrative arrest), were met with strong indignation abroad – this time, the victims were supported not only by the EU, but also by US President G. W. Bush.
November saw a continuation of the “police wars” at the top level, which had been initiated in the previous month by “the Bulbov case”1. This time, RF Deputy Minister of Finance S. Storchak was arrested. The same Investigation Committee under the Procuracy of Russia initiated criminal proceedings against him, as well as against the “Sodeksim” Company’s General Director V. Zakharov and President of the Interregional Investment Bank V. Volkov. According to the investigation team, the accused created an organized group A general in Gosnarkokontrol [the State Department for Control of Narcotics], a power agency headed by V. Chaekesov, and his close associate.
for purposes of stealing money from the federal budget in the amount of $ 43 million under the pretext of covering “Sodeksim”’s costs. As far as one can judge, the prosecution’s “specialists” have no real evidence at their disposal – they simply assumed, in the manner that has become fashionable in recent years, a task of assessing the “profitability” or “unprofitability” of the actions of certain officials, just as they once had taken it upon themselves to determine “fair” prices, etc. It is of especial interest that this case builds upon a decision that has never been made at all, that is, Storchak and the others are suffering for simply having prepared a draft decision for a collegial discussion concerning Algeria’s debt to the USSR. Vice Prime Minister and RF Minister of Finance A. Kudrin has expressed his full support to his Deputy, which, however, has not resulted in the latter’s release. On the whole, this case can be viewed as an attack on the Government’s economic bloc as a whole, if not on the person of the Prime Minister, who is known to be on friendly terms with the Minister of Finance.
Besides, in November several important appointments on official posts were made. One of the deputies of the RF Ministry of Economic Development and Trade, K. Androsov, resigned and left for private business, which, in fact, means the departure of the majority of “Gref’s team” (he had followed the example of V.
Saveliev and A. Sharonov). To his post A. Levitskaya was appointed, who had previously occupied a similar post in the Ministry of Public Health Care and Social Development. Another new Deputy Minister has become K. Iskhakov, formerly the President’s Plenipotentiary Representative in the Far Eastern Okrug.
To Iskhakov’s post, former Deputy Minister of Internal Affairs O. Safonov was appointed, who had a reputation of being V. Ivanov’s confidant, who in his turn was replaced by Head of the Economic Security Department under the Ministry of Internal Affairs Ye. Shkolov, a former co-worker of D. Medvedev.
One of Putin’s old friends, S. Chemesov, got a promotion – he left his post of “Rosoboroneksport”’s Director for that of the General Director of the State Corporation “Rostekhnologia”. “Rosoboroneksport” (now headed by Chemesov’s deputy A. Isaikin) merged with a new corporation acting under a special law, which has greatly increased its economic independence by comparison with the status of a GUP (state unitary enterprise). And the post of Head of “Rostekhnologia”’s Supervisory Board was given to Minister of Defense A. Serdiukov, which can also be regarded as a promotion – he had not been the only candidate to that post.
In November, the situation in Ingushetia became rather tense once again: the Republic is being rocked by protests against the policy of the federal center’s appointee President M. Ziazikov and the activities of power structures. The degree of unrest can be judged about by the fact that all (!) “United Russia”’s promotion billboards were destroyed, and power structures had to be attracted for the protection of such constructions.
The mass meeting on 24 November ended relatively peacefully; nevertheless, it is the second noticeable exacerbation in the last half-year.
Budgetary and Tax Policy Î. Kirillov, À. Mamedov In October, the substantial growth was recorded in federal budget expenditures, as well as revenues. The increase in expenditures happened largely due to the two factors: the reduced backlog versus the estimated budget execution and the forthcoming elections of Deputies to the State Duma and the RF President. There was also recorded the significant growth in revenues, administered by the Federal Tax Service. As a result, the share of this category of revenues in GDP for the first time in 2007 has exceeded the relevant indicator of the preceding year. In November, the Central Bank of Russia has proposed to perform the exchange operations with the RUR portion of the Stabilization Fund into foreign currency in the open market.
Let us review the dynamics of revenues and expenditures of the federal budget. Monthly revenues and expenditures of the federal budget in 2005-2007. (% versus GDP) are presented in Fig. 1-2. Reviewing the dynamics of revenues, one can make the following conclusions. In 2005-2006 the volume of the federal budget revenues, broken down by months, was practically in line with the general trend of their dynamics.
However, significant changes were observed in the dynamics of 2007 as compared with preceding years.
First, an upsurge in revenues in absolute terms, as well as in percentage of GDP was noted in October 2007. Reviewing the growth of revenues for preceding month as broken down by individual administrative bodies, one can observe an explicit upsurge in revenues, administered by the RF Federal Tax Service and "other administrators" (apart from FTS, Federal Customs Service, Federal Property Management Agency).
For more detailed analysis of the grounds for those trends there required the RF Treasury data on budget execution within October, which will be available only next month.
Second, irregularity of proceeds to the federal budget has increased in 2007 as compared with previous years Third, the level of revenues in the first months of 2007 was lower than in 2005-2006. As mentioned in previous surveys, the downgrading of budget revenues in terms of GDP share at the beginning of the year was provoked by two factors: accelerated GDP growth (versus preceding years) and the introduction of the new notification procedure for VAT refund on the goods sold in the RF territory.
40% 35% 30% 25% 20% 15% 10% 5% 0% September November January March May July Fig. 1. RF Federal Budget Revenues in 2005-2007 (in % in GDP) Let us consider the expenditures of the federal budget. It should be noted that their dynamics is similar to the indicators of the past three years. In 2007, as earlier, there observed a trend to the growth of expenses by the end of the year. One of the typical factors is irregular spending of the budget assets by government agencies within the year (see comparison of income and expenditure indicators versus budget estimates, shown below).
In 2007, an additional factor to be taken into regard is the political component, i.e., election of Deputies of the State Duma in December of the current year and the RF President elections in March of the next year. In general, one can note that the volume of expenditures for 2007 is in general higher than the indicators of 2005 and 2006. Therefore, gradual extension takes place in federal budget expenditures, as well as their share in GDP.
The structure of tax revenues to the federal budget for the period under review as broken by individual federal administrative bodies is presented in Table1.
As one can see from the data, presented in the Table, in January-October of 2007 the volume of some tax revenues has decreased in terms of GDP share, while other revenues have grown in comparison with the relevant period of preceding year. This trend is typical in particular to the Federal Tax Service. As mentioned earlier, an explicit upsurge of federal budget revenues, administered by this government body, was observed in October. Due to this factor, for the first time within 2007, the FTS revenues have exceeded the level of the relevant period of preceding year.
Monthly dynamics in oil and gas revenues and deficit of other than oil-and-gas proceeds to federal budge are presented in Fig. 3. Oil and gas revenues are derived from the following sources: tax on the extraction of minerals in the form of hydrocarbons, export duties on crude oil, natural gas and oil refinery products. Other than oil-and-gas sources deficit is the difference between the total budget expenditures and revenue thereof (i.e., the aggregate revenue less oil and gas proceeds). The deficit is a key indicator for the assessment of external risks in terms of the stability of national finances. As one can see from the charts below, there is a trend to gradual reduction of federal budget revenues from oil and gas in GDP share. This is an evidence of certain decrease of the national budget dependence on the natural resource sector of the Russian economy.
30% 25% 20% 15% 10% 5% 0% January March May July September November Fig. 1. RF Federal Budget Expenditures in 2005-2007 (in % in GDP) Table 1.
Amount of Revenues to the RF Federal Budget in 2005-(per cent of GDP in terms of cash basis execution) 2005 October 06 2006 October Taxes and other payments administered by 12,33% 11,37% 11,27% 11,81% the Federal Tax Service Taxes and other payments administered by 9,73% 10,61% 10,76% 9,86% the Federal Customs Service Receipts administered by the Federal Agency for Management of Federal Prop- 0,27% 0,21% 0,26% 0,19% erty Revenues of the federal budget adminis1,35% 1,04% 1,25% 1,91% tered by other federal structures Total revenues 23,67% 23,22% 23,54% 23,77% Source: RF Ministry of Finance, IET estimates However, the share of oil and gas revenues, despite a slight decline, still remains at a high level. The nonoil-an-gas deficit in the federal budget stayed generally within 2-6 per cent of GDP in the period under review.
This reflects the serious risks to the stability of public finance, demanding to restrain excessive mitigation measures in fiscal policy on the part of the government. One should specially highlight the explicit upsurge of other than oil-and-gas deficit in November-December 2006 due to the grown expenditures at the end of fiscal year (the information on irregular expenditures of the federal budget is provided below).
14% 12% 10% 8% 6% 4% 2% 0% ÿíâ.06 ìàð.06 ìàé.06 èþë.06 ñåí.06 íîÿ.06 ÿíâ.07 ìàð.07 ìàé.07 èþë.07 ñåí.-2% -4% Non-oil-and-gas deficit Oil and gas revenue Fig. 3. Oil and gas revenue and other than oil-and-gas deficit of the federal budget in 2006-2007. (in % of GDP) Tentative data on financing of federal budget expenditures in January-October 2007, provided by the RF Ministry of Finance, can be seen below.