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Besides, the priorities of the agrarian andfood sector in the budget policy of the state had always been expressed by thatthe percent of fulfillment of the projected expenditures for this sector ofeconomy had been higher than for the other sectors. In 1998, the fulfilleditems of the federal budget expenditures on the agrarian economy and fishingwere only 12% of the Rbl.12billion planned for 1998. The share of theagrarian item in the expenditure side of the consolidated budget reduced from3.6% in 1997 to 2.3% in 1998. The subsidies to the agrarian sector werefinanced only at 20%. What is characteristic is that the least efficientsubsidies were financed in the largest share: the sheep breeding, thecompensation of the energy and fuel expenditures of the greenhouse farms, andthe elite seed growing. The subsidies for which the largest growth of thesubsidies had been envisioned for 1998 (mineral fertilizers, flax growing, andcrop insurance) were financed in the least degree. All this shows the absenceof any serious controls of the agrarian sector in the hands of the federalpower: the sector is being subsidized in the inertial way, by the leastefficient channels.

As it has been already mentioned, theseasonal Government Act "On Economic Conditions of Functioning of Agrarian andFood Complex in 1998" was adopted only in April. It had never been adopted solate, after having adopted all the production programs in the agrarian and foodcomplex, received (or not received) all the credits, and began the sowingcampaign where the late Spring had allowed. This delay has the objectivecauses. However this is not the matter. The adopted document contained nothingradically new as for the state agrarian policy. The system of measures, eventhe form of the document, has been repeated every year, only the figures andsignatures have varied. Hence, the date of adoption plays no role for the realfunctioning of the agrarian and food complex.

Financial and crediting policy

In 1998, the 12 banks having won the tenderof the end of 1997 distributed the Fund of privileged crediting of the agrarianand food complex. With all this, the 5 banks of the 12 distributed 86% of allthe credits granted from the Fund (see Table2.21).

As a result, there was no competitionbetween the banks distributing the Fund. Almost a third of the territoriesworked with one bank, about one more third of the territories worked with twobanks, and only in the main agrarian regions, such as the Altai, Krasnodar,Stavropol provinces, Rostov region, etc., the competition was supported by thepresence of 4‑6banksin the financial market. As not all the selected banks had the networks ofbranch offices, they often had the correspondent relations with the localbanks, thus adding the margin and, hence, making the loans to the agrarianproducers more expensive. Thus, the percent of the credits to the so-calledexterritorial borrowers (indirect index of that the authorized bank does notwork directly with the producers) reached 50% for the MIB and 20% for theUNEXIMBank.; these are the typical examples of the banks having no regionalnetwork in the rural regions.

Table 2.21

Distribution of assets from Fund ofprivileged crediting of the agrarian and food complex by authorized banks,1998










































Source: data from SBS-Agro

Second, the local banks are, as a rule,dependent on the local administrations. Hence, they are able to strengthentheir influence when distributing the credits and again means the bureaucraticmechanism of crediting instead of the bank one. Thus, in the Altai province,the department of agriculture makes up the register, and then the local banksmake the contracts in accordance with this register. Here, as before, theegalitarian distribution of the credit resources and the basis for the red-tapecorruption are seen. In the Lipetsk region, the former Governor used thecrediting mechanisms to nationalize the agrarian enterprises (the new Governorlater lifted the relevant resolutions, but the possibility itself of such useof the federal crediting mechanism remains).

As the shares of the authorized banks arenot fixed (seemingly attempting in vain to incite a kind of competition in theloans market), the natural wish occurs to conserve the already "owned" (i.e.,distributed at the previous stage) sum of the loans.

As the problem of the debts of the agrarianenterprises had not been solved, the banks had to grant the credits notdirectly to the producers, but to the processors, suppliers of the resources(the best variant), or regional administrations (the worst variant). Thus, thestudy of some regional branch offices of the SBS-Agro of all the creditsgranted, only 12% to 30% were granted directly to the agrarian producers (atthe exception of Omsk with 44% and Tambov with 63%). Both the theory andalready accumulated Russian experience testify that in the conditions of theexchange in kind bargains, the agrarian economy always loses because it doesnot have the access to the whole set of the market information and itsinfluence in the bargains is lesser.

In certain regions of Siberia and Far East,50% to 80% of all the credits were granted to the territorial administrations;this actually meant the return to the administrative distribution of thefinancial resources in the agrarian economy. Thus, the new system of creditingof the agrarian and food complex did not create any competitive environment inthe agrarian crediting market, led to the inevitable conflicts between theparticipating banks and the management of the Fund, strengthened theadministrative management of the crediting process at the regional level, and,in some cases, made the credits for the agrarian economy more expensive. And,last but not least, this system was fully dependent upon the accumulated assetsallotted to replenish the resources. It does not envision any multiplier of themoney (the 10% annual that the borrowers pay cannot ensure any multiplyingeffect).

The indebtedness that the agrarianproducers accumulated to the beginning of the financial year in the agrarianand food complex (to the Spring sowing campaign) did not allow for a normalcrediting of the sector: because of the cardfile, the allotted money would havebeen at once transferred to the budget. Hence, the problem of restructuring ofthe debts became substantive already at the end of 1997. In April 1998, theGovernment adopted the Act on restructuring the debts of the legal entities (inwhole for the economy) to the Federal Budget. As for the number of the legalentities having debts to the budget, the agrarian sector is, maybe, the firstin the economy. At the end of 1997, the management bodies of the agrarian andfood complex submitted to the Government the demands to restructure the debtsof the agrarian enterprises, but the administration of the President did notsupport this. As a result, in 1998, the credit to the agrarian economy had theform of the commodity credit (in the events of crediting the I and III spheresof the agrarian and food complex) or of granting to the local administrationsthe authority to distribute the loans; for the one hand, this strengthened thebureaucratic management, for the other hand, this led to strengthening thebarter exchange in the agrarian and food complex.

The Government of Primakov again consideredthe issue of restructuring the debts to the agrarian sector; the relevantresolution was adopted. In the conditions of the new chance for the Russianagrarian and food sector, the quite doubtful measure of the overallrestructuring (meaning writing off) of the debts may have the real stimulatingeffect if supported by other measures.

Institutional and land reform

The discussion on the draft Land Code inthe Federal Assembly has not, yet, yielded any result. The attempt to reach acompromise on the main argued issues was made at the Round Table under theaegis of the RF President at the end of 1997. The results of the discussion bythe Government served the basis for drafting and adopting the Federal Program"Development of Land Reform in RF for 1998-2000". The Program is liberal enoughand defends the conception of the gradual formation of the controlled landmarket in Russia. However, its influence on the real processes in thelegislative sphere is extremely limited. The State Duma stays aimed atapproving its own variant of the Land Code, which in many aspects contradictsthe Federal Program. At the same time, the expert poll by the IET in August1998 showed that the specialists did not expect the adoption of this variant onthe Code in the short term.

At the same time, the permanentreorganization in the Government and, in particular, in the bodies managing theland relations, resulted in that the fulfillment of the Decree of the RFPresident of 7March1997 "On Exercise of the Constitutional Rights of Citizenson Land" was, as a matter of fact, suspended: the registration of the contractson use of the land shares was frozen at the level of the beginning of 1998. Asof today, only a little more than 40% of the allotted land shares have beenregistered.

External trade policy

During these last years, the external tradepolicy of Russia had the purpose to protect the domestic market against theimport. Since 1992, for the one hand, the control over the export of theagrarian produce and food has been being lifted; for the other hand, the systemof the import tariffs and other limitations of the food import has beendeveloping.

At the beginning of 1998, the Russianexternal trade policy was not much different from the one of the previousyears. The evolution of the external trade system was determined, first of all,by the regulation of the import, while no measures to support the export wereenvisioned.

In 1998, the special attention was paid tothe import of the alcohol. The austere control over the turnover of the alcoholwas due to the growth, during the past years, of the import of the cheapliquors (including smuggled). This and the growth of the illegal productionthreaten the legal domestic producers of the alcohol. To systematize the importof the alcohol in the RF, from 15February1998, the liquors stronger than28degrees were added to the list including the vodka and ethyl alcohol whoseimport is to be licensed. Besides, from 31December1998, the excise tax rateson the alcohol and tobacco were raised.

The RF State Committee for customs has madetougher the rules of the import in Russia of the milk products produced in theCIS countries. From 15June1998, the custom clearance of the certain milkproducts imported from the CIS countries became subject to the mandatorysubmittal of the certificate of origin of the goods.

In 1998, the strict control over the tradein the sugar continued. At the beginning of 1998, the quota of the duty-freeimport of the sugar was fixed for Ukraine, 600,000MT. Five Russian companieswere licensed for the duty-free import of the sugar within the fixed quota. Inaccordance with the agreement between Russia and Ukraine, of the 600,000MTquota, Ukraine was to supply to the Russian market 100,000MT in the first andfourth quarters-year, and 200,000MT in the second and third quarters-year.However, in reality, the volume of purchase by the Russian companies licensedto the duty-free import was much smaller. The main reason is the high, from theviewpoint of the world level, prices of the Ukrainian sugar.

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