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INSTITUTE FOR THE ECONOMY IN TRANSITION

RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES

April 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 April 2000 3

State of the federal budget 4

Monetary Policy 6

Financial Markets 8

Investment in the real sector 16

Foreign investment in the Russian economy 18

The government’s participation in recapitalization of the national banking system 19

The real sector: factors and trends 24

IET Monthly Trend Survey: April 2000 25

Oil and gas sector 27

Concepts of the Russia's agrarian policy: two approaches 28

Foreign trade 30

Economy and politics in April 2000

The emergence of the economic situation in the country in April has matched optimistic projections. The economic growth continued, inflation rate was below the projections set in the budget, the plan on tax revenues to both the federal and regional budgets was fulfilled and even overfulfilled (while, according to Goskomstat, 89% of such payments was made in ‘live money), foreign reserves were growing, and, with no external financing, the country followed the schedule of payments for credits from the international financial institutions from the RF MinFin’s resources.

The completion of the presidential election rally decreased political risks. Though there was some element of uncertainty determined by the absence of an official information of a new government (both the composition of the Cabinet and possible changes in the structure of management) and its economic program, one should not exaggerate the impact of the factor on the domestic economic life and foreign investors’ attitude. That is proved, in particular, by both a relative stability of the domestic financial markets during the April panic at the world exchanges1 and the statements of international agencies regarding a possibility of raising Russia’s investment rating.

The newly elected President and his team are challenged by an unprecedented field of opportunity to an actual reforming of the economic environment in the interests of a stable economic development. The favorable attitude of the Lower House of has manifested itself in the adoption of the laws that for many years had been doomed for failure in the previous two Dumas. Genuinely more shrewder than the Duma, the Upper House demonstrated its readiness for cooperation, which was strengthened by the Federation Council’s eagerness to solve the problem of extension the governors’ tenure, creates a possibility of a more detailed consideration of problems of local self- governance and budget federalism. Having resisted the lobbyists’ pressure and populism during the election rally, the executive power still keep its stand of Supreme Arbiter in the conflicts of groups of interests (the conflict between the two RAO=s) and to maintain its credit of confidence among the population (despite an open dissatisfaction of the government of the position taken by the State Duma regarding raising the minimal wage rate, even under the condition that this index would not be used any more as the basic one to identify the value of social payments).

The whole range of signals allow assumption that the executive power realizes the unique nature of its position and wishes to seize the opportunity: the proposals on changing Tax Code and Budget Code (which has been enacted just recently and are in principle important from the viewpoint of establishment of the institutional base for economic development, albeit bearing the imprint of political compromise), re-activation of the work on the Land Code, the concept of funding the social sector, etc., — all these processes witnesses that the new power think of the country’s prospects. The liberal ideas are subject to an increasingly consistent development. The Government initiated the cease of Duma’s consideration of a bill that provided the strengthening of the administrative control for banking activities under the banner of struggle against capital flee.

The contacts held between the government and economic community and representatives of the IMF and the World Bank testify to a serious interest of the latter in the reformatory intentions of the new power. Furthermore, statements on a possible amending the IMF- Russia cooperation program due to be considered in the course of a new round of talks in summer 2000allow the assumption that the outcome of such contacts bring about a certain optimism to foreign investors.

At the same time, one should note certain negative factors whose emergence is pregnant with the darkening of the prospects for sustained growth- namely, the possible complications with regard to the budget situation. The military actions in Chechnya are still funded, though there is no such item in the 2000budget law. The announcement of the future revision of the cooperation program with the IMF automatically implies the continuous payments for the international financial institutions’ credits from the budgetary funds. The refusal to revise export duties and to raise the minimal wage rate allows the assumption that the government is aware of such perils.

T.Drobyshevskaya

State of the federal budget

1


( 1998 ).

1998

I`99

II `99

XII`99

I`00

II `00

Revenues

Corporate profit tax

2592

1061

989

4693

2719

2831

Personal income tax

3

3

1408

550

603

VAT, special tax and excises

14811

9849

8016

19932

13824

15428

Tax on foreign trade and foreign trade operations

3714

1631

2467

4511

5184

6793

Other taxes, duties and payments

298

174

511

864

540

576

Total- taxes and charges

21416

12718

11986

31408

22817

26231

Non- tax revenues

11736

1645

65

8351

3240

3002

Revenues, total

33152

14362

13413

39759

26057

29233

Expenditure

Public administration

1388

131

504

1542

106

724

National defense

5566

1562

2140

9273

47

8625

International activities

530

1052

5629

1227

2008

Judicial power

557

17

127

614

47

171

Law enforcement and security activities

3408

302

1678

4957

1326

2846

Fundamental research

486

10

420

1340

54

303

Services provided for the national economy

3082

54

758

3477

447

940

Social services

5985

1660

2756

5655

2183

3074

Servicing of public debt

5604

5473

3733

9660

6314

4552

Other expenditure

15569

2828

2151

9559

4734

3752

Expenditure, total

41644

12566

15318

51705

21113

22400

Loans, redemption exclusive

-8493

1796

1382

-713

91

862

Expenditure and loans, redemption exclusive

38213

14187

16700

50991

21204

23263

Budget deficit (-)

-5061

175

-3287

-11233

4853

5970

Domestic financing

1765

-7249

1254

10297

-822

-4335

External financing

3296

7074

2033

936

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