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In March, the State Duma passed the governmental proposals. More specifically, it approved amendments to the Budget Code of RF that suspend through January 1, 2009, the effect of articles in compliance with which the overall volume of sources of financing of the federal budget deficit not related to the use of resources of the Reserve Fund and the National Welfare Fund may not exceed 1% of the projected GDP. The government now can adopt an annual budget, rather than a three-year one. In addition, the Subjects of the Federation were granted the right until January 1, 2012 to allocate to local budgets within limits exceeding 10% of the overall volume of interbudgetary transfers other interbudgetary transfers, including those in the form of subsidies. The funds of the public corporations The Fund for Assistance to Reforming the Housing and Utilities Complex and Rosnano earlier earmarked to them in the form of contribution to their authorized - - RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES capital, now will be partly returned to the RF budget (the respective political decision has been already made).

In March, two important decisions were made with respect to the government cadres.

Mr. V. Okulov, the sun-in-law of the late first RF President stepped down as Director General of Aeroflot the post he has been keeping for 12 years. He was replaced by Mr. V.

Savelyev, the First Vice President of AFK Systema and the former Deputy RF Minister of Economic Development, while Mr. Okulov was appointed as Deputy Minister of Transport in charge for civil aviation. It should be noted that together with persistent rumors of AFK Systema acquiring the Bashkir petrochemical complex, this unique decision to appoint on a high post a scion of a large business group evidences a considerable growth of influence of Mr. V. Evtushenkovs corporation.

President Medvedev appointed Ms. E. Skrynnik, a long-standing head of the public JSC Rosagrolizing as the RF Minister of Agriculture. She became the third female Cabinet member. Rosagrolizing has for long been an intermediary between the RF government and enterprises of the agrarian complex, but its performance was assessed as an ambiguous one. Some believe that the costs of agrarian equipment it procured were not substantially lower than producer prices. Experts ascertain that this appointment is a victory for Mr.

V. Zubkov, the First Deputy Chairman of the government, and predict further possible changes in the area of the state regulation of the agrarian complex.

Changes once again rattle the Investigative Committee under the Attorney Generals office. The agency sees a new reorganization looming. All the stuff of the Head Investigative Department, including its boss, were placed under the temporary assignment, while the boss of the Head of Department of Internal Security and the head of the legal department were dismissed. Meanwhile, the Supreme Court discharged as illegal the verdict of the Moscow city court that a year ago had recognized the dismissal from the procuracy on discrediting motives of the officer who currently is the head of the Moscow city department of the Investigative Committee. The cockalorum with staff in the agency, its poor performance (it has been recently made public that the Attorney Generals office cancels every fifth resolution of instituting criminal proceedings; plus, the Investigative Committee lost in the court the cases that it had earlier declared successfully locked, that is, the assassination of A. Politkovskaya, demolition of rails under Nevsky express train and attempt on A.

Chubais) make the future of its Head, if not the Agency itself, fairly shaky at best.

In March, representatives of the RF government continued a not-so-articulated discussion on the subject of granting state aid to large enterprises. Mr. I. Shuvalov, the First Deputy Prime Minister, argued that corporations should not bank on the state support, while all the debts should be repaid and agreements should be honored. Meanwhile, commenting on Rusals problems (whose shares were put in pawns against credits) he noted that there was no need to have the then owners or the state maintain control over them at any cost.

Perhaps, creditors hoped that we would tell them that we would be ready to purchase the stake or restructure the debt; but I told them that they should not anticipate such declarations from us The government may not mind foreign companies receiving stakes in such companies as Rusal, if it is going to be the best way to repay the debt. However, this statement falls short of being a sufficient move, for in compliance with the recently promulgated law (initiated by Mr. V. Putin), to acquire a large stake in such companies, one must seek a permit from a special government commission led by the PM, i.e. Mr. V. Putin himself. If a company goes bankrupt, it is not quite clear what a procedure of obtaining such a permit should be1. But at a rendezvous with Mr. Shuvalov, President D. Medvedev later noted that Intolerable is the situation when this or that organization, even with 1 So far the Commission has considered solely transaction that involved stock acqusition THE POLITICO-ECONOMIC RESULTS OF FEBRUARY a legitimate set of requirements, would be able to bring a huge holdings operations to a halt. We may not sacrifice the destiny of enterprises, work of many thousand of collective to satisfying individual credit institutions ambitions. It is time we stopped the corporate egoism. In addition, Mr. Medvedev referenced to the fact that the government had not yet provided guarantees to any enterprise, while Mr. Shuvalov argued the process was in progress.

No one, of course, implies suspension of production operations. Rather, the subject is a change of corporations owners, of which Mr. Medvedev is likely to be aware. Judging other hints dropped at the meeting, the discussion implied a broadly known and taken to the trial precedent of the Rusals debt before Alfa-bank. Indeed, on the next day Messrs.

O. Deripaska and M. Fridman issued statements on the absence of contradictions between Rusal and Alfa-bank, after which the story got yet another intriguing spin. Despite the joint statement, Alfa-bank did not relinquish its action; furthermore a Moscow court satisfy its lawsuit worth a total of Rb. 500m-plus, with no further comments from D. Medvedev.

So, on the one hand, a peculiar situation when Mr. Medvedev express wish is not obeyed.

On the other hand, it is not surprising, if one trusts rumors of Alfa-bank being on intimate terms with the omnipotent Vice Premier I. Sechin, who in turn is close to the PM. So, the market has received a certain signal. In this context equally interesting is Mr. Putins recent statement of allocation until May 10 to the public corporation Rostekhnologii of Rb. 25bn for a subsequent transfer to its subsidiary- Avtovaz - in the form of an interestfree loan. Mr. Putin failed to specify any terms of the loan disbursement, nor he referenced to timetable of its repayment (for reference, GAZ, which is owned by Mr. Deripaska and also constitutes a symbol of the national auto-making industry, has long struggled to seek Rb. 10bn in just government guarantees).

Who is right in the dialogue The answer is, both sides. While Messrs. Medvedev and Shuvalov are correct in arguing that the government aid will be not be made available to everyone, and it will not be enough to help all the players, Mr. Putins truth is that some companies are going to get it, notwithstanding declarations of transparency and strict criteria. It will be Mr. Putin who will make decisions whom to shoulder and who will fall prey to creditors, and that will solidify his, rather than anyone elses, power.

Prior to the G-20 summit in London, Mr. A. Dvorkovich, the presidential aide, declared that Russia effectively renounced the bulk of its own proposals for the meeting (the core concept was Mr. Medvedevs idea to reform the world currencies system that is based on the IMFs SDRs or any other artificial global reserve currency issued by international financial institutions). Mr. Dvorkovich argued that the idea required a long discussion, which is true, but it is not clear then why it was voiced out as Russias initiative right on the eve of the G-20 meeting.

- - RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES INFLATION AND MONETARY AND CREDIT POLICY N.Luksha After several months, during which the crisis in the country was aggravating, in February, the trend of stabilization was observed. As of February results, inflation in Russia has somewhat slowed down having reached 1.7 per cent (against 2.4 per cent in January). The volume of foreign currency reserves remained practically unchanged: the decrease was minimal over the past six months, USD 2.8 billion or 0.7 per cent. The net outflow of capital from the country has significantly reduced, amounting as of the month results of USD 4.billion, nearly 6.5 times lower than in January. In February, the situation in the foreign currency market has been also stabilized, and the Bank of Russia for the first time within nearly six months has carried out a net purchase of foreign currency for its interventions.

The situation with liquidity in the interbanking market has improved. The value of the twocurrency basket has been virtually unchanged during the month, amounting to RUR 40.1.

The consumer price index in February made 21.7 per cent (against 2.4 per cent in the January of preceding year) (See Fig. 1.). The greatest input in prices growth in February was made by food staffs (+ 1.9 per cent). The utmost growth rates were observed like in preceding month, for granulated sugar (+8.5 per cent), fruit and vegetables (+4.9 per cent), as well as fish and seafood (+3.3 per cent). There was further reduction in sunflower oil prices (-3.1 per cent) and eggs (-5 per cent).

Significant growth was observed also in regard to non-food items, which prices have increased by 1.6 per cent on average. Like in January, the highest growth rates were noted for medicines (+5.2 per cent), electric appliances and other household devices (2.3 per cent), tobacco and audio-video articles (+2.1 per cent). Herewith, the price for gasoline was further downgrading (-1.6 per cent).

In February further growth was observed in prices for commercial services (by 1.4 per cent). The utmost growth was noted in international tourism (+5.5 per cent), pre-school education (+3.7 per cent). Growth rate in municipal housing services has declined (+2.per cent against +14.4 per cent in January 2009). Prices for public transportation and communication services have decreased by 0.3 and 0.2 per cent, accordingly.

Therefore, as of February results, the inflation rate in Russia has somew decreased as compared with January rate, what is based on significant decline in the sector of commercial services, where there was a sharp upsurge for housing and municipal services a month earlier. Moreover, the inflation was also restrained by significant redution of monetary supply, started from November 2008 (thus, within January-December 2008, the monetary base M2 has increased only by 1.7 per cent, while in January 2009 its decline reached 11.1 per cent).

Nevertheless, as compared with the relevant period of preceding year, inflation in February has been accelerated (by 1.7 per cent against 1.2 per cent). At this point, it is difficult to assess precisely, whether the inflation slowdown is sustained in March and get lower against the relvant period of 2008. On the one hand, the inflation pressure will be urged by the import prices growth due to RUR devaluation, as well as the federal budget deficit. On the other hand, there suppositions for inflation decline, namely: monetary supply decrease, consumer demand decline, as well as the reduction in bank creditting to the population.

Meanwhile, the Ministry of Economic development does not amend the officially estimated AND MONETARY AND CREDIT POLICY INFLATION 3,5% inflation rate for 2009, i.e., not less than 13 per cent. 3,0% The CPI1 in February 2,5% 2009 made 1.6 per cent 2,0% (versus 1 per cent in the 1,5% relevant period of preceding year).

1,0% Within February 2009, 0,5% the monetary base (in 0,0% broad definition2) has been virtually unchanged,, -0,5% having made RUR 4331.bln. The volume of the monetary base in broad Source: Russian Statistical Agency definition as of February Fig. 1.

1, 2009 reached RUR 4331.1 billion. Upon January monetary base downfall by 22.4 per cent, which has exceeded the average rate of that month due to the massive foreign currency purchases, the dynamics of the monetary base has returned to the previous trend, what allows to expect some stabilization in financial sphere. Let us consider the dynamics of the monetary base in broad definition by components.

As of March 1, 2009, cash in circulation with regard to the fund balances in credit organizations made RUR 3.7 trillion (1 per cent decline against February 1), correspondent accounts of credit organizations in the Bank of Russia made RUR 452 billion (-4.1 per cent), mandatory reserves made RUR 31.2 billion (+5.8 per cent), banks deposits in the Bank of Russia made RUR 137.1 billion (+69.1 per cent), the value of shares of the Bank of Russia with credit organizations made RUR 12 billion (-1.6 per cent).

In February 2009, the growth of excessive reserves of commercial banks3 has been resumed; that indicator has grown by RUR 36.6 billion, or by 6.5 per cent. The utmost growth rates were demonstrated by the bank deposits of the RF Central Bank, the volume of which has practically reached the level of preceding year. Herewith, the decline of funds on correspondent banks accounts in Russia can be regarded as insignificant in comparison with the double downfall in January. The improvement of the liquidity situation is also confirmed by the 1.5-fold downfall in the interbanking credit rates, decreased volume of repo transactions and unsecured credits, as well as virtually zero growth in the debt of credit institutions to the Central Bank.

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