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The second point has to do with propaganda. Traditionally, the Message is permeated with sharp criticism of the USA, the latter being accused of any possible sins: from the Russian-Georgian war to the global financial crisis. It was promised that a new anti-missile defense (AMD) system, equipped with the Iskander missiles, would be deployed in Kaliningrad Oblast in response to NATOs deployment of AMD elements in Eastern Europe. Another matter of interest is that the Message has completely ignored the signs of crisis displayed by the Russian national economy, this theme being reduced to promises to come out of the crisis even stronger, spend every single ruble reasonably, and make that same Ruble a currency for international settlements.

The general conclusion that may be drawn from the Presidential Message is approximately as follows: President D. Medvedev has demonstrated in it that the Russian authorities, as before, envisage no options involving any significant modification of the political regime in its current state, or its partial liberalization. At the same time, the prospects for V. Putins return into the presidential office in 2012 are becoming quite real. As for Medvedev, the only original component in the program offered in his Message humanization of the judicial system has had no legislative backing so far; as for the rest, it contains nothing new as compared to the political trends of the past few years.

Beside D. Medvedevs Message, November offered few new developments of purely political character. There was a congress of United Russia. However, it was devoid of anything worth mentioning with regard to cadres or ideology, except for V. Putins announcement that the rate of profits tax was going to be lowered. According to plans, the party Union of Right Forces (SPS) was dissolved, and the creation of a new pro-Kremlin party declared, co-chaired by L. Gozman, G. Bovt and K. Titov. However, as it has become known, this new entity will be unable to take part in the next springs election cycle, because it has no time to get registered even at the federal level, while the key legal requirement is the registration of a majority of regional branches, which represents a rather remote prospect for the new party. Therefore, it seems that even the fundamental approval by the Kremlin of the new organizations existence cannot help in relieving it from the serious problems of growth under prevalent legislation, which places severe restrictions on any opportunities for exacerbating political competition.

More that 90 % of the court verdicts in criminal cases.

A planned congress of the Communist Party of the Russian Federation (CPRF) was held, which reelected G. Ziuganov at the post of the partys leader. The new program adopted at the congress, centering around a certain


Russian issue2, has confirmed the assumption that CPRFs degree of opposition is going to be further decreased. Besides, November witnessed a very savory situation involving one of the persons imprisoned in connection with the Yukos affair the lawyer S.

Bakhmina, who submitted an appeal for pardon to President D. Medvedev, which it was not easy to decline, since Bakhmina was very shortly going to give birth to a child, an event that actually took place in late November. Instead of preparing any direct answer to the appeal, the authorities concealed Bakhmina from public and even isolated her from her own legal counsel, while the heads of the Main Department for the Administration of Punishments were making declarations, which were not confirmed by any independent entities, that Bakhmina had allegedly recalled her appeal.

At the same time, there were quite a few important developments in the economic sphere. The RF Central Banks head, S. Ignatiev, said that he could not rule out increased elasticity of the Rubles exchange rate with a certain tendency of its weakening relative to foreign currencies, explaining it by a number of reasons the necessity to purchase currency in order to settle the debts of big companies, capital withdrawal, and buying-up of foreign currencies by banks and physical persons. Simultaneously, the Rubles exchange rate began to slightly decline. If the present rate of devaluation persists, by the years end the exchange rate will go down approximately 10 %, and by next spring - 15 %. It can be stated that the Government has made the decision as to a soft decline of the exchange rate, having recognized the difficulty of preventing any decrease altogether in face of panicky tendencies and escalation of budget obligations, both actual and declared. From both the special and political point of view, this decision is much more correct that the option of a one-time collapse of the Ruble.

On 20 November The Prime Minister of Russia, V. Putin, suggested that the rate of profits tax be lowered by 4 % as early as 1 Januery 2009 at the expense of its federal part, equal to 6.5 % of the total tax rate. The press, making references to the data released by the RF Ministry of Finance, estimated the surplus budget expenditure in 2009 as a result of the new tax initiative to be 556 billion rubles (of which 400 billion rubles will be accounted for by the loss of profits tax). Considering these facts, we believe that it would be worthwhile to rethink the declaration, previously voiced by RF Minister of Finance A. Kudrin, that the Reserve Fund (3.6 trillion rubles) will last for a period of 7 to 15 years. As for Kudrin himself, he remarked that the budget losses will be compensated by an increased rate of economic growth. However, this does not sound very convincing in a situation of crisis; besides, it is evident that in present conditions a Minister of Finance can hardly argue with the Prime Minister.

As for the corporate world, the crisis has resolved the shareholder conflict faced by GMK Norilskii nikel. O. Deripaska and V. Potanin declared that they were going to manage the company on the terms of parity Potanins candidate, the General Director V. Strzhalkovsky, will be joined by an executive director appointed by Deripaska, the parties will enjoy parity in the board of directors, while the former Chief of Staff of the RF Presidential Executive Office, A. Voloshin, will be appointed chairman of the board of directors. Both parties have become more agreeable due to the necessity to use a significant part of their blocks of shares as collateral against Vneshekonombanks loans granted for recrediting to foreign banks and providing financial backing to the operations aimed at increasing the stakes of both parties in Norilskii nikel. Now there is a new issue on the agenda that of the companys soft nationalization, which has not been put an end to despite the termination of the conflict between the two major stakeholders.

In November the first companies became known that had been denied access to government finances as a means of settling their outstanding debts against credits: Vneshekonombank refused the requests of the owners of the retail chains The Seventh Continent and X5 Retail Group (Perekriostok, Piatiorochka, etc.). The State, quite justly, decided that the replacement of a chains owner would not give rise to any noticeable political problems. At the same time, as before, the information concerning the terms and volumes of loans to private businesses from the state budget remains closed to public. This is fraught both with potential for offenses and tenseness on the currency market, the This is by no means a nationalistic program with specific demands, designed to catch voters attention. Rather, the program contains a set of oaths of faithfulness to the Russian people and declarations that they are endowed with some special positive traits, which is more appropriate in a philosophical discourse than a political program.

market players having no ides as to how much money the State has spent and is going to spend in the future on supporting private companies.

In November, Vneshekonombanks head, V. Dmitriev, declared that 85 billion rubles had been spent from the National Welfare Fund on buying out shares in Russian companies within the framework of the RF Governments decisions made in October.

In November the market was actively discussing two episodes, unrelated to the issues of credits and recrediting. The second biggest airline, Siberia, announced that it had received a proposal, from an undisclosed party, to participate in the companys capital. There was an opinion that the buyer was backed by either Aeroflot or Rostekhnologii. In both cases this means that the State, not quite understandably, is going to purchase the assets of an effectively operating company. However, it is possible that this transaction will not take place, after all. The other episode has to do with the company Uralkalii. In late 2006 a disaster happened at Uralkaliis mine in the Upper Kama deposit of potassium salts, and the mine was flooded. Then, a special commission of RF Rostekhnadzor (Federal Service for Ecological, Technological and Nuclear Supervision) recognized the fact that the disaster had been caused by factors beyond Uralkaliis control. However, two years later Vice Prime Minister I. Sechin gave a public assignment to Rostekhnadzor to organize a second investigation and calculate the loss inflicted by the disaster on the State. This may mean both the compensation of the cost of construction of a new railway (up to $ 600 million) and the claims to the company against lost reserves of mineral resources. Uralkaliis capitalization fell more than by half, despite the assurances of its management that they were prepared to increase the funding of infrastructure. The story of Uralkalii in many of its aspects resembles that of Mechel, when a company sufficiently large to be of interest, but still too small to have close relationship with the first persons of the State, is picked up to become a victim. Thus, hardly anything has changed in the relations between the authority and business in a situation of crisis: the State still can present both formal and informal claims to any companies, no matter what their financial status might be.

Budgetary and Tax Policy N.Lukshin As of October results, the CPI in Russia amounted to 0.9 per cent, which is lower than in the relevant period of the precedings year (1.6 per cent). However, the consumer prices growth within January - October has reached 11.6 per cent, what is higher than the growth in prices during the same period in 2007 (9.3 per cent). In October the financial crisis was deteriorating in the country.

Foreign currency reserves have decreased by 13 per cent and in the period from October 17 to 24 a record decline in reserves was recorded at 6 per cent (USD 31 billion). Capital outflow has also doubled as compared with September, having reached USD 50 billion within the month. To restrain prices growth rates and maintain stability of the financial system, the Bank of Russia has taken a number of measures. From November 12 the refinancing rate was raised by 1 p.p. at a time, to 12per cent, as well as the interest rates on credits and deposits of the Rf Central Bank.

The consumer price index in October made 0.9 per cent, having decreased in comparison with the relevant indicator of October (see Fig. 1.). ). The utmost growth rates were observed in prices for food stuffs, which have grown October by 1.6 per cent (even greater indicator, 1.8 per cent would be observed with no regard to fruit and vegetables). Significant growth was observed in regard to international tourism (+2.2 per cent), public transport (+ 2 per cent), education (+ 2 per cent) consumer services (+1.4 per cent) and entertainment (+1 per cent). Herewith, granulated sugar continued further downgrading in October (-2.4 per cent), sunflower oil (-1.3 per cent), fruit and vegetables (-0.4 per cent). Moreover, in October prices for grits and beans have decreased (-0.3 per cent).

In October, the growth was observed also in regard to non-food items, which prices have increased during the month by 0.8 per cent. The highest growth rates were noted in October detergents and cleaning agents (+2.2 per cent), medical supplies (+2 percent), for tobacco (+1.7 per cent), underwear (+1.6 per cent) and knitwear (+1.6 per cent). Herewith, prices for gasoline was further downgrading (2.2 per cent ) due to the decline of energy carriers on the national and global level.

Prices for public services in October remained unchanged. However, when reviewed by components, one can see, that prices for culture services organizations have increased in preceding month (+ 3.1 per cent), physical training and sports (+3.4), utilities and medical services (+1.3 per cent). Herewith, due to changes in the schedule of long-distance passenger trains, tariffs of transport services have become cheaper by 3 per cent. At the same time the cost of international tourism services has decrased (-1.1 per cent), as well as health and recreational services (-0.6 per cent).

Therefore, as of ten-months results, the CPI was somewhat higher than the relevant indicator of September, having reached 11.6 per cent in annual terms, which further increased the gap in inflation rate of the current year versus price growth, recorded during the same period of 2007. Herewith, there are reasons to believe, that the decline in consumer demand due to the development of the crisis will slow down the growth of prices by the end of the year. Moreover, the sharp decline in commodity prices, particularly fro oil and metals, observed throughout the fall, can make pressure on producers prices and, with some lag, on consumer prices. On the other hand, government measures to support the Russian economy will be partially balance the of those factors.

The basic consumer price index3 in October 2008 made 1.3 per cent (versus the level of the relevant period of preceding year 2.1 per cent). According to our estimates, the CPI in November made about per cent.

The Growth Rate of the CPI in 2002 - 2008 (% per month).

3,5% 3,0% 2,5% 2,0% 1,5% 1,0% 0,5% 0,0% -0,5% Source: Rosstat Fig. 1.

In October 2008 the monetary base (in broad definition4) has been decreased by RUR 35.7 bln, to RUR 5282.1 bln (- 0.7 per cent). The volume of the monetary base in broad definition made as of October 1, 2008 made RUR 5317.8 billion. Let us consider the dynamics of the monetary base in broad definition by components.

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