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INSTITUTE FOR THE ECONOMY IN TRANSITION

RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES

March 2000

MONTHLY BULLETIN

Moscow

2000

© Institute for the Economy in Transition, 1996. Licence, ¹ 021018 of 09.11.95

5 Gazetny pereulok, Moscow 103918, Russian Federation

Phone: (095) 203-88-16 Fax: (095) 202-42-24 E- Mail: todorov@iet.ru

Economy and politics in March 1999 3

State of the federal budget 4

Monetary Policy 5

Financial Markets 8

Investment in the real sector 15

Main trends in the real sector 16

Situation in industry 17

Oil and gas sector 18

Foreign trade 21

The population’s finance and the consumer market 23

Small banks in 1999 25

Privatization in Russia increasingly looses its urgency. 27

Economy and politics in March 1999

The early presidential elections became the key event in Russia’s political life in March. The election rally finished, and now that allows several remarks regarding specifics of the elections and prospects of the country’s further social and political development.

The specifics of the elections was that the pre- election rally did not have a significant impact on the political and economic situation in the country. The unanimous support extended to the acting President by regional authorities, a high popularity ( still) of the new leader among the population, ( despite some drop, according to the polls held in March), stability of the economic situation ( continuation of economic growth, minimal inflation rate), the military actions in Chechnya as consolidating factor,- all these conditions have determined a significantly higher probability of the acting President compared to his contenders.

In such conditions, the executive power could afford- and it was interested in that- to implement an actual sound economic policy oriented to the improvement of the situation in the country in the future rather than aimed at timely benefits, such as the growth in the pre- election rating. With all the>

At the same time, still there is no economic program of the government/newly elected President. Proceeding from the circle of personalities contributing to the elaboration o such a program, it should be liberal, and one may guess the degree of that liberal nature. However, judging bills submitted to the State Duma, one may assume that it is intended to intensify the government interference in the economy, furthermore, the administrative interference ( for instance, the bills on privatization and foreign exchange regulation that passed the first reading). At the present stage of creating conditions for a sustainable growth, such a dualism presents for the national economy a greater peril than the absence of the integral concept of development back-upped by the respective legal acts. The remaining uncertainty with respect to the economic course intended also darkens Russia’s foreign trade prospects, which was shown, in particular, by rather a moderate reaction of the securities market to the election of Mr. Putin the President. It is hard to predict in every detail, whether the new administration of IMF shares the merely pragmatic views of business circles or it again opts to demonstrate a political support to the continuation of market transformations in Russia. The fall in the share of monetary settlements by payments for natural monopolies’ products and the non- fulfillment of other components of the IMF/WB structural program is pregnant, at least, with complications that are related to disbursement of next tranches of the financial aid.

One may suggest several explanations of the present Cabinet’s dual economic policy: firstly, the need to keep some space for maneuver showed the unstable position of the acting President; secondly, the current absence of certainty with respect to the search for ways of the further development shows a tactical orientation towards the administrative resources as an alternative to close connections ( dependence) among the groups of influence for the period of the elaboration of a concept and strategic program of actions. In this case, the emerging liberal tends and the principle power’s distancing from the pressure groups ( which increase the probability of implementation of a consistent policy) may cause some optimism.

The new composition and first steps of the government would allow a more grounded justification of actual priorities and methods of the new President’s policy.

T. Drobyshevskaya

State of the federal budget

Table 1

The monthly execution of the federal budget of the Russian Federation ( in prices effective as of January 1998)

1998

I`99

XII`99

I`00

Revenues

Corporate profit tax

2592

1061

4693

2719

Personal income tax

3

1408

550

VAT, special tax and excises

14811

9849

19932

13824

Tax on foreign trade and foreign trade operations

3714

1631

4511

5184

Other taxes, duties and payments

298

174

864

540

Total- taxes and charges

21416

12718

31408

22817

Non- tax revenues

11736

1645

8351

3240

Revenues, total

33152

14362

39759

26057

Expenditure

Public administration

1388

131

1542

106

National defense

5566

1562

9273

47

International activities

530

5629

1227

Judicial power

557

17

614

4676

Law enforcement and security activities

3408

302

4957

1326

Fundamental research

486

10

1340

54

Services provided for the national economy

3082

54

3477

447

Social services

5985

1660

5655

2183

Servicing of public debt

5604

5473

9660

6314

Other expenditure

15569

2828

9559

4734

Expenditure, total

41644

12566

51705

21113

Loans, redemption exclusive

-8493

1796

-713

91

Expenditure and loans, redemption exclusive

38213

14187

50991

21204

Budget deficit (-)

-5061

175

-11233

4853

Domestic financing

1765

-7249

10297

-822

External financing

3296

7074

936

-4024

Total financing

5061

-175

11232

-4846

The data on the execution of the federal budget in January 2000 are represented in table 1. The deflation of indices was made using CPI. As the Table shows, the level of tax revenues and the general level of revenues in real terms are substantially superior to the respective index of January 1999, though inferior to the respective indices of December.

In January 2000, the level of revenues made up 17.3% of GDP ( for 1999 as a whole- 13.7% of GDP1, January 1999- 11.3% of GDP) and expenditure- 13.9% of GDP ( 14.8% of GDP for 1999 as a whole, January 1999- 11.1% of GDP).

The level of budget deficit was 3.4% of GDP (-1.2% of GDP for 1999, January 1999: - 0,1% of GDP)2.

According to preliminary data on execution of the federal budget, in February 2000 revenues made up Rb. 70.4 bln. ( 123% relative to the planned indices and 18.1% of GDP, the Federal Road Fund and the Federal Environmental Fund exclusive; considering the said Funds, the revenues made up Rb. 72.4 bln.), expenditure- Rb. 56.3 bln. ( 82.3 % from the plan and 16.3% of GDP), and proficit- Rb. 14.1 bln. In February 2000, the tax revenues to the federal budget by economic agents controlled by the RF MTC made up a. Rb. 43 bln, and the revenues of the targeted budgetary funds exclusive,- Rb. 45 bln. In January, the revenues controlled by SCC made up Rb. 25.8 bln., and those controlled by MinFin- a. 1 bln.

Table 2

Real tax revenues to the federal budget, by the data of MTC
(in prives of January 1998)

1998

1999

2000

XII

I

II

III

IV

V

VI

VII

VIII

IX

X

XI

XII

I

II

21542

10067

11586

12281

12287

10524

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