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The structure of the Government has been radically reshuffled, a number of departments were closed, while others were considerably reformed. At last, there was implemented the principle of a three tier organization of the executive authorities, which has been for a long time discussed by the expert community as the most efficient method of organization of the Government. For the first time over four years, there were made most dramatic personal changes at the federal level of the executive authorities.

At the same time, these decisions signified only the beginning of the administrative reform. The most difficult and onerous work is ahead the administrative reform shall be implemented with respect to the lower tiers of the government apparatus and settle the problems of radical rise of pay of government officials, what requires the introduction of merit based budgeting mechanisms, a new system of human resources management, a new system of organization of work of public servants basing on the currently worked out administrative regulations, etc.

It is too early to evaluate the efficiency of the new Government. Most probably, about six months will be spent for adaptation of Ministries and agencies to the changed conditions. Yet ahead is the new significant wave of reshuffling at the level of Deputy Ministers and heads of departments in Ministries and agencies, since according to the new concept of the administrative reform each Minister should have only two deputies.

The decision to leave only two Deputy Ministers will be a shock for a number of Ministries, primarily those engaged in the implementation of economic reforms (the RF Ministry of Economic Development and Trade and the RF Finance Ministry) in the next two to three months. As concerns these Ministries, there the whole package of problems was distributed among two dozens of First Deputy Ministers and Deputy Ministers, and the largest number of decisions was taken exactly at this level.

At present, each Ministry should work out a new system of administration focusing on the probable enhancement of the role played by departments, their respective enlargement, the new higher status of departments, as well as selection and placement of the personnel. The reform, no doubt, will entail a significant outflow of trained professionals from offices of Deputy Ministers and heads of departments the recovery from such losses may take more than a few months. It will also result in a significant non-voluntary redundancy of officials due to the reduction of available posts.

March was marked not only by the developments relating to the administrative reform, but also the Presidential elections, which are directly related to economic reforms. As concerns the economy, the fact that V.

Putin won the landslide victory already in the first round of elections means that the liberal economic course pursued over the last four years will be continued. Moreover, this course may become even more consistent taking into account the statements Putin made at his meeting with his representatives and the new appointments in the Ministries responsible for economic and social policies.

O. Fomichev The State of the Federal Budget In January of 2003, the revenues of the federal budget (cash execution) made 20.9 per cent of GDP, while expenditures made 11.1 per cent of GDP (see Table 1). Therefore, the federal budget surplus made 9.8 per cent of GDP.

Table The monthly execution of the federal budget of the Russian Federation (in % of GDP2, cash execution).

XII`02 I`03 II`03 III`03 IV`03 V`03 VI`03 VII`03 VIII`03 IX`03 X`03 XI`03 XII`03 I`Revenues Profits tax 1.6% 1.2% 1.1% 1.4% 1.5% 1.4% 1.4% 1.4% 1.3% 1.3% 1.3% 1.3% 1.3% 0.9% Income tax 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Unified social tax (UST) 3.1% 2.4% 2.7% 2.8% 2.9% 2.9% 2.8% 2.8% 2.8% 2.7% 2.7% 2.6% 2.7% 2.3% Indirect taxes 8.9% 11.2% 10.1% 9.9% 9.6% 9.6% 9.2% 9.1% 8.9% 8.7% 8.6% 8.5% 8.5% 10.5% VAT 6.9% 8.5% 7.4% 7.2% 7.2% 7.2% 6.9% 6.9% 6.8% 6.7% 6.6% 6.6% 6.6% 8.1% Excises 2.0% 2.7% 2.7% 2.6% 2.4% 2.3% 2.2% 2.2% 2.1% 1.9% 1.9% 1.9% 1.9% 2.3% Taxes on foreign trade and foreign economic transaction 3.0% 3.4% 3.4% 3.4% 3.5% 3.5% 3.4% 3.4% 3.4% 3.3% 3.3% 3.4% 3.4% 3.6% Other taxes, fees and levies 2.1% 0.5% 1.7% 2.0% 2.2% 2.1% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.5% Total taxes and other payments ** 18.6% 18.8% 19.0% 19.4% 19.6% 19.4% 18.8% 18.7% 18.4% 17.9% 17.9% 17.9% 18.0% 19.9% Non-tax revenues 1.4% 17.5% 8.5% 1.3% 1.2% 1.7% 1.6% 1.5% 1.5% 1.4% 1.4% 1.3% 1.3% 0.9% Total revenues 20.1% 20.8% 20.6% 20.9% 21.0% 21.3% 20.6% 20.4% 20.0% 19.5% 19.4% 19.3% 19.4% 20.9% Expenditures State administration 0.5% 0.3% 0.3% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.5% 0.2% National defense 2.7% 1.5% 2.1% 2.6% 2.7% 2.7% 2.6% 2.6% 2.6% 2.5% 2.5% 2.5% 2.7% 1.8% International activity 0.3% -0.3% 0.0% 0.2% 0.2% 0.3% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% -0.1% Judicial authorities 0.2% 0.1% 0.1% 0.1% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.1% Legal protection and security 1.7% 1.1% 1.4% 1.7% 1.7% 1.7% 1.8% 1.7% 1.7% 1.7% 1.7% 1.7% 1.9% 1.1% Fundamental research 0.3% 0.1% 0.2% 0.2% 0.2% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.1% Services to national economy 1.5% 0.2% 0.4% 0.5% 0.6% 0.7% 0.8% 0.8% 0.8% 0.9% 0.9% 0.9% 1.1% 0.2% Social services 5.6% 1.5% 1.8% 2.0% 2.3% 2.2% 2.2% 2.2% 2.2% 2.1% 2.1% 2.1% 2.3% 1.4% Government debt servicing 2.0% 1.7% 2.9% 3.0% 2.3% 2.1% 2.0% 1.8% 2.0% 2.0% 1.8% 1.7% 1.7% 1.1% Other expenditures 3.8% 6.6% 7.1% 7.0% 7.0% 7.1% 7.1% 7.1% 7.0% 6.9% 6.8% 6.8% 6.9% 5.3% Total expenditures 18.7% 12.7% 16.4% 17.7% 17.7% 17.7% 17.5% 17.4% 17.3% 17.1% 16.8% 16.7% 17.7% 11.1% Surplus (+) / deficit (-) 1.4% 8.1% 4.2% 3.2% 3.3% 3.6% 3.0% 3.0% 2.7% 2.5% 2.6% 2.6% 1.7% 9.8% Internal financing 0.6% -6.6% -1.7% -1.0% -1.0% -0.5% 0.3% 0.0% 0.3% 0.2% -0.1% -0.3% 0.5% -8.8% External financing -2.0% -1.4% -2.5% -2.2% -2.3% -3.1% -3.3% -3.0% -2.9% -2.7% -2.5% -2.3% -2.2% -1.0% Overall financing -1.4% -8.1% -4.2% -3.2% -3.3% -3.6% -3.0% -3.0% -2.7% -2.5% -2.6% -2.6% -1.7% -9.8% * % ; ** As compared with the figures registered in January of 2003, the budget revenues increased by 0.1 p. p. of GDP in the first month of 2004, while expenditures decreased by 1.6 p. p. and budget surplus respectively increased by 1.7 p. p. of GDP. At the same time, without SST the budgetary revenues decreased by 0.2 p. p.

of GDP and made 18.6 per cent of GDP. As before, VAT accounted for the major share of federal tax revenues 40.7 per cent of the total tax revenues what is practically at the level observed in the respective period of 2002.

Because of the estimated data on GDP, the indices may be subject to revision.

According to preliminary estimates, the cash execution of federal budget revenues made 20.2 per cent of GDP in January through February of 2004, what was by 0.4 p. p of GDP below the level observed in the respective period of the preceding year. At the same time, the cash execution of expenditures made 17.9 per cent of GDP (16.4 per cent of GDP in January through February of 2004); therefore, in the first two months of this year, according to preliminary data, the surplus made 2.3 per cent of GDP.

According to the preliminary estimates of the Finance Ministry, in terms of fulfilled funding3 the expenditures of the federal budget in January through February of 2004 made 20.2 per cent of GDP (see Table 2), while in January through February of 2003 this indicator was at 20.5 p. p. of GDP. In January through February of 2004, the amount of revenues of the federal budget decreased by 0.4 p. p. of GDP in comparison with the figures registered in the respective months of 2003 and made 20.2 per cent of GDP. Therefore, the surplus of the federal budget in terms of fulfilled funding in January through February of 2004 decreased by 0.2 p. p. of GDP in comparison with the figures registered in January through February of 2003 thus balancing the federal budget in terms of fulfilled funding.

Table 2.

The monthly execution of the federal budget of the Russian Federation (in % GDP, fulfilled funding).

II`03 III`03 IV03 V03 VI03 VII03 VIII`03 IX`03 X`03 XI`03 XII`03 I`04 II`Total expenditures 20.6% 20.9% 21.0% 21.3% 20.6% 20.4% 20.0% 19.6% 19.5% 19.4% 19.4% 20.9% 20.2% State administration 0.6% 0.6% 0.6% 0.6% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.6% 0.7% National defense 3.1% 3.3% 3.2% 3.1% 3.0% 2.9% 2.8% 2.7% 2.8% 2.9% 2.7% 2.7% 4.0% International activity 0.1% 0.2% 0.3% 0.3% 0.3% 0.3% 0.2% 0.2% 0.2% 0.2% 0.2% 0.0% 0.2% Judicial authority 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% Legal protection and security 2.2% 2.3% 2.2% 2.2% 2.1% 2.0% 1.9% 1.9% 1.9% 1.9% 1.9% 2.1% 2.5% Fundamental research 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% Services to national economy 0.8% 0.9% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.1% 1.1% 0.5% 0.7% Social services 2.7% 2.7% 2.9% 2.7% 2.6% 2.5% 2.4% 2.3% 2.3% 2.4% 2.3% 2.5% 2.6% Government debt servicing 2.9% 3.0% 2.3% 2.1% 2.0% 1.8% 2.0% 2.0% 1.8% 1.7% 1.7% 1.1% 2.2% Other expenditures 7.5% 7.3% 7.2% 7.4% 7.3% 7.2% 7.2% 7.0% 6.9% 6.9% 7.0% 5.7% 6.8% Total expenditures 20.5% 20.9% 20.2% 19.9% 19.2% 18.8% 18.6% 18.3% 18.0% 18.1% 17.8% 15.6% 20.2% Surplus (+) / deficit (-) 0.2% 0.0% 0.8% 1.4% 1.3% 1.6% 1.3% 1.3% 1.5% 1.3% 1.6% 5.3% 0.0% According to the estimates of the Revenue Ministry, in February of 2004 tax revenues of the federal budget made about Rb. 97.1 billion (without the single social tax). In real terms the revenues made 204.0 per cent of the level registered in January of 1999, while the respective indicator was at 229.2 per cent in and 187.1 per cent in 2002 (see Table 3).

The execution of the budget in terms of fulfilled (actual) financing is equal to the sum of the funds transferred to managers of budget funds, while the cash execution of the budget is equal to the sum of funds spent by managers of funds (i.e. without account of funds remained on their accounts).

Table 3.

Actual tax revenues to the federal budget, according to the data of the MTC (in % of the data for January of 1999)4.

I II III IV V VI VII VIII IX X XI XII 100,0% 115,1% 122,0% 122,1% 104,5% 112,9% 127,0% 127,5% 124,3% 141,4% 160,8% 213,1% I II III IV V VI VII VIII IX X XI XII 149,3% 160,5% 181,3% 205,8% 233,1% 186,9% 181,0% 186,4% 173,1% 181,1% 201,7% 254,1% I II III IV V VI VII VIII IX X XI XII 204,4% 198,4% 227,6% 267,5% 252,2% 233,3% 231,9% 235,6% 219,4% 237,5% 247,3% 360,6% 2002* I II III IV V VI VII VIII IX X XI XII 218,7% 187,1% 234,8% 277,8% 239,6% 218,0% 284,4% 246,5% 254,8% 299,7% 241,0% 250,2% 2003* I II III IV V VI VII VIII IX X XI XII 230,0% 229,2% 265,5% 280.4% 233.2% 240.0% 260.4% 242.6% 248.7% 265.6% 231,0% 247,9% 2004* I II 230,0% 204,0% * .

135% 125% 115% 105% 95% 85% 75% 65% Profit tax VAT 55% 45% 35% Figure 1. Real tax arrears to the federal budget (in % to July 1999) The dynamics of real arrears relating to major taxes since January of 2000 are presented in Fig. 1.

On the whole, a gradual decrease in the level of accumulated arrears observed since early 2001 to the second half of 2003 was replaced by the stabilization of the level of accumulated indebtedness as concerns both the profit tax, and VAT.

It was decided to choose January of 1999 as the benchmark in order to render the comparison more reliable. January of 1999 is not a remarkable date in terms of tax revenues.

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar ' Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Table Execution of the RF consolidated budget (in % of GDP).

I II III IV V VI VII VIII IX X XI XII Taxes 28,7% 23,6% 24,3% 26,5% 26,6% 25,9% 26,4% 25,9% 25,2% 25,4% 25,4% 25,5% Revenues 32,9% 31,3% 31,4% 33,6% 33,6% 32,7% 33,3% 32,5% 31,7% 32,0% 32,1% 32,1% Expenditures 18,3% 23,7% 26,0% 28,4% 28,4% 28,8% 29,1% 28,9% 28,4% 29,3% 29,7% 31,1% Deficit 14,6% 7,7% 5,4% 5,3% 5,2% 3,8% 4,2% 3,7% 3,3% 2,7% 2,4% 1,0% I II III IV V VI VII VIII IX X XI XII Taxes 25,6% 24,4% 25,6% 27,4% 27.1% 26.0% 26.1% 25.7% 5.0% 5.0% 5.1% 25.2% Revenues 32,0% 30,3% 31,5% 33,4% 33.6% 32.2% 32.2% 31.6% 0.9% 0.8% 0.7% 31.1% Expenditures 20,7% 25,3% 27,7% 28,8% 28.8% 28.6% 28.7% 28.5% 8.2% 7.8% 7.9% 29.7% Deficit 11,3% 5,0% 3,8% 4,5% 4.7% 3.5% 3.6% 3.1%.7%.0%.8% 1.4% I Taxes 25,6% Revenues 30,6% Expenditures 18,5% Deficit 12,1% * The revenues of the consolidated budget in January of 2004 made 30.6 per cent of GDP, including tax revenues (without SST) at 25.6 per cent of GDP (see Table 4). Expenditures of the consolidated budget decreased by 2.2 p. p. of GDP in comparison with the figures registered in January of 2003 and made 19.5 per cent of GDP. As on February 1, 2004, the surplus of the consolidated budget made 12.1 per cent of GDP, what is by 0.8 p. p. of GDP above the level observed in the respective period of 2003.

A. Razin Monetary Policy According to the RF Goskomstat, in February the rise in prices in Russia made 1 per cent as compared with the figures registered in January of 2004 and 2.8 per cent in comparison with the levels observed in December of 2003 (see Figure 1). It should be reminded that in February of 2003, prices in Russia grew by 1.6 per cent with respect to the figures registered in January of 2003 and by 4.1 per cent in comparison with the levels observed in December of 2002.

This February, in Moscow and St. Petersburg the consumer price index made 100.3 (102.8 since the beginning of the year) and 100.9 (102.8 since the beginning of the year) respectively. It should be noted that the most significant increase occurred in paid services rendered to households (by 1.6 per cent), while the lowest rates of growth were observed with respect to the group of nonfood products (0.4 per cent), at the same time prices of food products rose by 2.8 per cent5.

The base consumer price index (BCPI), which excludes short term volatile changes in prices caused by individual administrative, non-recurrent, and seasonal factors made 100.8 in February (101.7 since the beginning of the year). It should be noted that both in January of 2002 and in January of 2004, base inflation rates were twice below the CPI values.

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