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Political practice indicates that the Stabilization Fund is a factor of economic destabilization in its own right. The presence of considerable financial resources constantly urges the elite to search for the areas where these resources could be spent in order to achieve its own political aims. And it is very difficult, if not impossi ble, to resist this pressure9. The criticism aimed at the Stabilization Fund is two fold. For one thing, it is affirmed that the resources of the Stabilization Fund are in efficiently managed, that is, they do not yield any considerable income, while in the political sense they are used in order to strengthen the economies of foreign states (in whose securities they are placed). For another, the ever increasing number of areas where this money could be spent is being suggested time and again from social and infrastructure projects (the worst scenario) to the lowering of taxes (a softer variant).

The debate on this problem is very complicated because, within its frame work, the Ministry of Finance has to present some weighty technical arguments in response to the political demands put forth by the opponents to the current course.

But any dialogue between the parties that use arguments belonging to different systems of coordinates is impossible in principle. Moreover, for the problem of managing the resources of the Stabilization Fund is indeed a most difficult one.

Profitability must be combined with high liquidity, which can be ensured only when absolutely reliable and low yield financial instruments are used. But these in struments are the securities of the most developed western countries, which gives It seems that the most radical approach to solving this problem in a similar situation was found in Ancient Athens. After the Peloponnesian War (431 404 B.C.), the Athenians formed a reserve fund and took a decision that he who, except in an event of the state of emergency, proposes to tap the reserve of 5000 talents kept in the Temple of Athena should be sentenced to death (Van Kreweld, M. Rastsvet i upadok gosudarstva (The rise and decline of the State). Moscow: IRISEN. 2006. P. 50.

RUSSIAN ECONOMY IN trends and outlooks rise to a political counter argument that such a policy is not patriotic (it would be patriotic to invest money in high yield domestic securities and to lose it exactly at the time when a crisis situation develops and these resources are most urgently needed by the budget).

Initially, the resources of the Stabilization Fund were being spent on repaying external debts. As a result, in 2005 the debt to the International Monetary Fund was repaid in full and before schedule, and in June 2006 Russia completely repaid its debt to the Paris Club. Therefore, Russias external debt fell last year to 5 % of GDP a figure unprecedented in modern developed countries. The policy of repay ing this debt ahead of schedule has made it possible to slow down the nominal growth of the Stabilization Fund and to explain, to the opponents, the importance of a further accumulation of its resources. After having repaid the debts, it became necessary to find new arguments in favor of preventing the excessive funds to be injected into the economy because of the danger of serious negative macroeco nomic and structural effects.

Last year, President V. Putin also joined the discussion concerning the Stabili zation Fund. His arguments and proposals are to the effect that it would be inad missible to spend the resources of the Fund on resolving any day to day prob lems. But it is likely that even the President cannot afford to impose a direct veto on the spending of these resources. His proposals are two fold. On the one hand, it is suggested that in 2007 and in the medium term the growth of the expenditures of the federal budget fixed as a percentage of GDP should be effectuated at a rate which would be adequate to the rate of growth of the economy10. It is clear that this would mean abstaining from such a use of the Stabilization Funds re sources that could imply a higher rate of growth on the expenditure side.

On the other hand, the President has proposed to draw a clear distinction be tween the means being reserved in the Stabilization Fund, in order to minimize the negative consequences of a decline in oil prices (the reserve part) and the re sources being formed in excess of this volume (the future generations fund). It is advisable that the volume of the reserve part should be set as a percentage of GDP11. This proposal makes it possible to distract the attention of political and other lobbyists from the ongoing sharing out of petrodollars and to reorient the dis cussion toward long term issues.

While elaborating these issues throughout the past year, the RF Ministry of Fi nance persistently emphasized the necessity to continue the policy of accumulat ing in the Stabilization Fund the market dependent revenues of the budget. In this connection it is planned to subdivide the Stabilization Fund into two parts, the re serve fund and the future generations fund12. It is planned to increase the receipts Putin, V. Biudzhetnoe poslanie Federalnomu Sobraniiu O biudzhetnoi politike v 2007 godu (The budget message to the Federal Assembly On budgeting policy in the year 2007.

Ibid.

Osnovnye rezultaty i napravleniia biudzhetnoi politiki v 2007 godu i srednesrochnoi perspective.

(The major results and directions of budgeting policy in the year 2007 and in the medium term per spective). Moscow: Minfin Rossii (the Ministry of Finance of Russia). 2006. Pp. 5, 42.

Section The Socio Political Background of the Stabilization Fund not only by the proceeds from oil export, but also by those from the export of other raw materials (that is, also market related) first of all, from the export of natural gas (and, possibly, metals). Such an approach can be characterized as justified because it clearly demonstrates the state of the budget, the degree of efficiency of the economy and its capability to generate real and not only market dependent revenues.

The existence of a reserve part of the Stabilization Fund is an issue readily un derstandable from a practical point of view, but it is not the most important one. A fall in revenues from oil and gas cannot be continually compensated for by the re serve resources of the budget. In the event of any worsening of market situation, the Government should have at hand a sensible set of measures (in the sphere of budgeting, monetary, tax, etc. policy), aimed at adapting the economy to a new situation. The resources of the Stabilization Fund will be able to play a certain lim ited role in relatively softening the process of adaptation, and practically in nothing else. As far as the day to day budgeting issues are concerned, the issue of us ing the resources of the Stabilization Fund for covering current budget expendi tures can emerge as soon as 2007 if the trend of oil prices falling below 60 USD per barrel, which emerged in late 2006 early 2007, should persist.

By contrast, the issue of the future generations fund will certainly become the subject of a most serious discussion. This fund should not be considered as some untouchable and continually growing stock, which our clever descendants will put to a better use than that which our contemporaries can think of. The waiting for the clever descendants to come usually finishes with all the funds being spent (or stolen) during the lifespan of a current generation. And it is equally pointless to expect the exhaustion of natural resources because the exhaustion is not so much a physical phenomenon as an economic one (the irrationality of developing natural resources at a given price level) and a technological one (the emergence of alter native resources and a fall in demand for traditional resources).

Possibly, the most efficient way of using some of the resources of the Stabili zation Fund as a future generations fund is to spend it on the refinancing of the pension system in the future, that is, to compensate for the lack of resources in the future system of pensioning. A decision of this kind would considerably hamper these resources being spent on populist goals at the present time and would confer political concreteness (and sensibility) to the withdrawal of market dependent superprofits from current circulation.

1.1.4. State institutions and socio economic development The speed of socio economic development is predominantly determined by the possibility to keep the political window of opportunity open in the long run13, in order to be able to introduce necessary adjustments into state policy, while the re sults of this development are determined by the possibility to guarantee the quality of state policy and by the long term applicability of regulatory decisions, or, in See John W. Kingdon, Agendas, Alternatives, and Public Policies (NY: Longman, 2002).

RUSSIAN ECONOMY IN trends and outlooks other words, by the rejection of populism. Apparently, all this depends on the de gree of development of state and social institutions.

The openness of the political window of opportunity implies the strengthen ing of the institutions which could make it possible to ensure the correspondence between the problems appreciated by society, the political agenda of the dominant political forces, and the existence of alternatives put forth by the community of ex perts. The lack of anything from this list would result in political stagnation and in the aggravation of the problems either unattended to or ignored by experts and politicians. At present, the major instrument which could be used in this sphere by the State is administrative reform as the method for improving the quality of state administration, including such components as transparency14, accountability, and the participation of citizens in decision making15.

The year 2006 was not marked by any significant progress in these areas.

Thus, the Draft Federal Law On Ensuring the Access of Citizens and Organizations to the Information on the Activity of State Agencies and Bodies of Local Self Gov ernment, prepared by the Ministry of Economic Development and Trade as early as 2004, was submitted to the Government only in December 2006. The delay was caused by the long wait for the Federal Law On Information, Informatization, and the Protection of Information to be adopted. Another draft federal law, On Ensur ing the Right of Citizens and Organizations to Obtain Information on the Judicial Ac tivity of the Courts of General Jurisdiction in the Russian Federation is waiting to be submitted to the State Duma.

This situation was not changed by the contest involving the federal agencies of executive authority and the supreme executive agencies of state authority of the subjects of the Russian Federation, which was held in 2006 for the purpose of pro viding support for the implementation of administrative reform in the year 2006:

most of the funds were allocated not to the rationalization of administrative proc esses but to the sprucing up of the various offices and bureaus. Although it was done for the undisputed benefit of the citizens, the whole initiative could be seen not as an example of an administrative reform being implemented but rather as an example of state purchases for logistic needs.

The continuous openness of the window of opportunity can be guaranteed only by the possibility to continuously adjust economic policy, but not by the quality thereof. It depends, first of all, on the role and position of the community of experts.

However, the rendering of an authentic expert opinion suggests that the experts are sufficiently independent of the State, whereas this independence is still being undermined by the high budget expenditures on scientific research in the sphere of state policy (in 2006, 48.9 billion roubles was earmarked for research in the sphere of national economy and issues of national importance alone), which, in Russia, have approached the level of expenditures on one of the branches of power, the judiciary (59.9 billion roubles). It is apparent that in such a situation the expert In 2004, the 40th place out of 48 in the non transparency index of the Kutzman Group.

According to the World Bank, only 25 % of countries had worse results by this indicator in the year 2005.

Section The Socio Political Background capabilities of political parties are incomparable to the capabilities of the executive authorities which the parties and Parliament are expected to control.

1.1.5. Political processes and the economy Last year, the ongoing political processes were demonstrating a degree of stability quite natural in a situation characterized by the presence of a popular president and a stable party majority in Parliament. Draft laws were passed quickly and with no difficulties, and the effect of the failures suffered in the course of the monetization of benefits was gradually weakening.

The pre electoral character of the year 2006, by definition, suggested a cer tain turn to populism. However, in the concrete situation of contemporary Russia it is unlikely that the scope of such developments will be large. The stability of the po litical system and the fact that political processes are effectively controlled by the ruling elite make populism practically unnecessary. Moreover, in order to limit the influence of electoral campaigning on the budgetary process, V. Putin has pro posed that the Government and the Federal Assembly should adopt the Law on the 2008 Budget as early as the first half year of 2007.

Of course, in the years 2006 and 2007 there was a certain boosting of the budget expenditures not fixes as a percentage of GDP (by almost 25 % per annum in nominal terms). However, it can be expected that the authorities would some what reduce their budgeting activity and return, unless something unexpected happens, to the conservative course after the elections are over. Fluctuations of this kind are well known to researchers of the political business cycle as compris ing the non party or opportunistic model (the strengthening of budgetary populism before the elections and the conservative consolidation in the post electoral period whatever the ideological orientation characterizes the party at power might be)16.

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