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INSTITUTE FOR THE ECONOMY IN TRANSITION

RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES

May 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


The economy and politics in May 2000 3

State of the federal budget 3

Monetary Policy 6

Financial Markets 7

Investment in capital assets 14

Foreign investment in the Russian economy 16

IET monthly trends survey: May 2000 17

Dynamics of GDP and the populace’s living standards 19

Structure of balance sheets of banks with the government
participation in their capital as of April 1, 2000 21

Foreign trade 23

Forecast of international oil prices 26

The economy and politics in May 2000

The first month of Mr. Putin in the office has already been signified with a number of transformations that may have a real impact on the country’s development, both in the short- and long run. Along with the announcement of anew economic program and formation of the new Cabinet, the political and economic intrigue of the month became focused on problems of reforming the federative composition of the country.

The thorough analysis of the process of the formation of the new cabinet allows several remarks.

First, despite of the absence of a program of actions, the number of votes in support to the new Premier once again has demonstrated the level of the Kremlin’s influence on the new State Duma.

Secondly, with a clearly liberal nature of the program developed by Mr. Gref’s Center for Strategic Research and the first steps the newly formed government undertook in the economic field ( legislative initiatives aimed at lowering the tax burden) in place, unfortunately, there are certain grounds to doubt that the new tem is ready to undertake practical measures on structural transformation of the economy in the short run and to develop the development strategy in the long run. Such doubts are caused by some vagueness of the economic block, both from the viewpoint of the government’s structure and assuming ideological preferences of heads of main ministries and departments of this block.

Meanwhile, the April data on the cease of the industrial growth, problematic nature of the further latent subsidizing of the economy through the lowering of tariffs for energy sources, the long- lasting fall in the quotations in the Russian securities market,- all the above once again proves the thesis about the urgency of the radical structural transformation.

In the meantime, with all their revolutionary nature and complexity, the President’s initiatives on strengthening the vertical of power ( creation of the federal Okrugs, the envisaged change in the principle of formation of the Federation Council, the possibility of the dismissal of the elected head of regions (as well as municipalities) should they violate the Constitution) raise more questions than comments, and the tactical and strategic goals of the process have not been formulated as well.

Obviously the current situation, in which the legislation of the overwhelming majority of the regions (especially national autonomies) to some extent contradicts the Constitution, is the result of a long period of the political impotence of the central executive power. It is also obvious that today the federal center has political resources sufficient for conducting transformations aimed at the creation of a single legal space. The lowering of the governors’ status to the role of the regional manager who, in addition, does not enjoy the right for immunity, creates broad opportunity for the strengthening of the control ( primarily the financial) over the legal authorities’ activities, and, consequently, that creates real grounds for introducing a transparent budget federalism system. Finally, the permanent presence of the federal center’s representatives in the regions and regional representatives in Moscow, is likely to allow some improvement of the quality of management of the national economy.

Hence, one the one hand the implementation of the planned transformations potentially should help enhance the transparency of financial flows and efficiency of the functioning of the state economic system as a whole. On the other hand, however, the absolutely crucial matter of the circle of obligations and powers of the federal representatives remains unresolved.

T. Drobyshevskaya

State of the federal budget

The data on the execution of the federal budget in between January through March 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, more than 2 times, superior to the respective index of 1999.That became possible, apart from the growth in tax revenues from large taxpayers, thanks to the renewal of the growth in world prices for export commodities.

Table 1

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

1998

I`99

II `99

III `99

XII`99

I`00

II `00

III `00

I`00*

II `00*

III `00*

Revenues

Corporate profit tax

2592

1061

989

2095

4693

2719

2831

5253

1,8

1,7

2,2

Personal income tax

3

3

4

1408

550

603

713

0,4

0,4

0,4

VAT, special tax and excises

14811

9849

8016

9751

19932

13824

15428

15075

8,9

9,2

8,8

Tax on foreign trade and foreign trade operations

3714

1631

2467

3043

4511

5184

6793

7214

3,3

3,8

3,8

Other taxes, duties and payments

298

174

511

345

864

540

576

779

0,3

0,3

0,4

Total- taxes and charges

21416

12718

11986

15238

31408

22817

26231

29034

14,7

15,4

15,6

Non- tax revenues

11736

1645

65

2760

8351

3240

3002

3973

2,1

2,0

2,0

Revenues, total

33152

14362

13413

16672

39759

26057

29233

33007

16,8

17,3

17,6

Expenditure

Public administration

1388

131

504

574

1542

106

724

890

0,1

0,3

0,3

National defense

5566

1562

2140

4352

9273

47

8625

7982

0,0

2,7

3,3

International activities

530

1052

868

5629

1227

2008

1345

0,8

1,0

0,9

Judicial power

557

17

127

119

614

47

171

226

0,0

0,1

0,1

Law enforcement and security activities

3408

302

1678

1649

4957

1326

2846

2911

0,9

1,3

1,4

Fundamental research

486

10

420

287

1340

54

303

371

0,0

0,1

0,1

Services provided for the national economy

3082

54

758

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