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19,70

19,43

19,73

Non-tax revenues

2,83

2,32

2,65

2,51

2,43

2,51

2,64

2,84

Overall revenue

24,9

15,31

16,80

18,58

20,82

22,21

22,07

22,56

Overall expenditure and loans minus repayments

29,07

18,22

20,11

23,50

25,31

26,21

26,76

27,2

Budget deficit

4,17

2,91

3,31

4,92

4,49

4,00

4,69

4,64

As can be seen from Figure 1, there was in July an increase in the volume of tax arrears into federal budget. Thus total volume of arrears made up 92 trillion rubles.

From the beginning of the year tax authorities collected 46 trillion rubles of arrears, of which 38 trillion rubles of arrears were paid voluntarily by taxpayers after they have been requested to do so.

Tax Policy Review

A joint letter by the Ministry of Finance, State Tax Service and the Ministry of Railways was drafted #04-03-10.B3-6-03.602 of 19.08.1997 On documental confirmation by railways of export services on transport of export goods as well as foreign transit goods trough the territory of CIS countries, which sets up a list of documents submitted by railways in order to confirm export or transit of goods beyond the borders of CIS countries.

A telegram of Finance ministry, State Tax Service and the Central Bank of Russia #3-1-05; E-6-28/627; 76-97 On prolongation of period for mutual payments on revenues and expenditures in Federal budget was drafted. According to this telegram the period mutual payments of expenditure on national defense, law enforsement activity and state security is being prolonged till 1 November 1997.

Letter of State Tax Service # -6-05/616 of 27.08.1997 brought to light the Instruction of State Tax Service #45 of 7 August 1997 On Calculation and Payment of Tax on the Purchase of Foreign Currency into the Budget (state register number 1378 of 25 August 1997).

The Instruction was drafted according to the Federal law #120 FL of 21 July 1997 On Tax Levied on Purchasing Foreign Currency which went into forse from the date of its publication.

The Letter says that in addition to responcibility of credit organisations in case of non-payment or delayed payment of taxes according to article 15 of Russia’s Law On the Basis of Tax System in the Russian Federation one should bear in mind that for violation of the Federal Law On Tax on Purchase of Foreign Currency can be applied other measures according to the Russian legislation.

Said Batkibekov

Monetary Policy

In August 1997 there was a deflation in the Russian economy. The consumer prices declined by 0.1%. According to our estimates, in September 1997 the inflation will amount to -0.2 – 0%, or -2.4 – 0% annualized.

The fact the deflation occurred in August for the second testifies the hypothesis of seasonal character of price growth in Russia despite of general trend to a decline of inflationary processes (see fig. 2)

Undoubtedly, the decrease in inflation in 1995 – 1997 influenced the dynamics of real macroeconomic aggregates and indicators. On the figure 3 there is depicted the change the real monetary aggregate M2 in the prices of December 1995.

Figure 2.

Figure 3.

As it looks, the decrease in inflation in 1995 – 1997 influenced the dynamics of real macroeconomic aggregates and indicators. On the figure 3 there is depicted the change the real monetary aggregate M2 in the prices of December 1995. As it looks, from January 1997 there was its growth. In particular, the month increment in the real money supply was equal to -1.5% in the beginning of 1996 against 2.4% in May 1997. A growth of the real monetary aggregate M2, that expresses a level of the monetary saturation of economy, has proceeded for the first half of year against the decreasing inflation. The simultaneous existence of these opposite processes explains by a significant growth in demand for money from a side of economic agents, that compensates increments in the real money supply. Nevertheless, nearly zero level of inflation in the current economic conditions does not look as constant one. The reduction in demand for money because of possible political events, a change of pace of exchange dollar rate's growth and any change of alternative value of money keeping may rise the consumer prices growth to the level of 1 – 1.5%.

As another example of the inflation's influence on the economic situation in Russia in 1997 we can offer the dynamics of real rate of national currency. Let us suppose, that the official exchange dollar rate in the end of December 1996 (5560 rubles/dollar) is 100. Then the real rate of the American currency dropped to 95.8 (see fig. 4). This means that during the same time the real rate of ruble has gone up by 4.15%.

Figure 4.

According to the forecasts of further dynamics of inflation and pace of dollar rate's growth, which were described in the two previous reports, the increment in consumer prices in 1997 will be about 13.2% and the increment in exchange rate – 7.81% (this corresponds to the attainment of 5994 rubles/dollar by the end of 1997). In the case of realization of these scenarios, the real ruble rate will increase by 4.13% in 1997.

The continue of the real ruble rate's growth means a comparative aggravation of situation in the export sector, which has the mining industry as a base, and a attainment of additional economic advantages by importers. Thus, in 1997 Russian importers have not the reasons to rise internal prices of products with foreign original. In this respect, the fixed structure of consumption with the large part imported products, foods essentially, may serve as a certain guarantor of low inflation level.

Arkhipov S.A., Drobyshevsky S.M.

Financial Markets.

The market for GKO-OFZ. In September the yields of up to six months' issues fluctuated in the range of 14 – 17% a year1. The yields of long-term issues did not change significantly and were within 15 – 16% annual (see fig. 5). The slope of term structure of GKO yields changed since the second decade of the month from zero to a negative one. This is a sure sign of the lack of liquidity. This fact was also approved by reduced volume of money reserved to participate at the market (see fig. 6).

Figure 5.

For the period from 1st till 23rd August the Russian Ministry of Finance placed three issues of annual (21089, 21090, 21092), two issues of six-month (21091, 21093) GKO and one tranche of OFZ (25017). The announced volume of placement amounted to 41.5 trillion rubles, demand – 47,5 trillion rubles by face-value. There was placed the securities at the sum of 34 trillion rubles, revenue reached 30 trillion rubles. It was matured 30 trillion rubles, 5 trillion rubles were placed at the secondary market, 2.6 trillion rubles of OFZ 24007 were matured until the time of maturity. So, the net gain of the Ministry of Finance summed up 2.4 trillion rubles.

Although a negative slope of the term structure is common for the last two months, the further decline of interest rates is unlikely: the RCB is satisfied with the present level of yields. This comes from its netto-position. The Central Bank should support yields within set margins during the shocked periods of demand and supply. However, since the negative slop of the term structure is not able to be persistent (if it is not supported by a decrease in interest rates), it is worth to expect the restoration of positive slop of the interest rates curve.

Figure 6.

Stock market. The slump in quotations of Russian stock market that had begun in the first decade of August 1997 ended by the beginning of September. As a main reason for such significant correction by the most stocks in the RTS-1 and the RTS-2 one can note a sale of large portfolios by big foreign investors. In September 1997 some stabilization by the most of quotations at the Russian stock market after the drop in August was occurred. However, a general situations at the same period was very slack.

The withdrawal of Western capital from the Russian market is caused by the follows: 1) there is an instability of the Asian exchange and stock markets; 2) there is some vagueness at the American markets due to both the Asian factor and the expected decision of the FRS about a change of the discount rate. One could not say, foreign investors sold their portfolios aggressively. Nevertheless, just this pressure formed the dynamics in the middle and end of August. Russian companies and banks, which enter the market because of its growth lasting for two months and the decrease in yield at the Government securities' market at the same time, had not able to support the market at the reached level. The good news about the entry of Russia into the Paris Club of lenders and the planning signing of contract with London Club increase an attractiveness of the Russian stock market. Nevertheless, it did not influence a situation at this market seriously. In much more extreme form for the last half of year prices of Russian stocks were affected by the Dow-Jones Index's fluctuations. As it was noted in the previous reports, the trend of American index and Russian one have a very high value of correlation. Clearly, there is not any significant and quick interrelation between financial situations, prospects, etc. of Russian and American companies. Foreign investors transferring assets between different emerging markets, apparently, have an significant influence on the situation in the RTS-1. But, the most of participants of the Russian stock market have a strong grasp of the Dow-Jones' dynamics. Thus, the stable reaction of Russian quotations belongs to a certain extent due to the category of self-realizing expectations.

On the figure 7 there are depicted the percentage changes in average prices in September 1997 by the companies, those part in the total turnover of the RTS-1 was about 60%.

Figure 7.

In September 1997 in spite of a sluggishness of the market, the structure by the volumes of transactions by different companies had practically not change. As it was before, the summary part of stocks of RAO 'UES Russia', 'LUKoil' and 'Mosenergo' exceeded 50% of the total turnover of the RTS-1 (see fig. 8).

Figure 8.

Figure 9.

Interbank credit market. In September 1997 there was a situation of ruble deficit at the interbank loans market. This led to the increase of the cost of borrowing by 5 – 10% on all terms (see fig. 9).

The shortening of ruble funds and the growth of interest rates caused the decline of volumes of given credits approximately by 10% against August 1997 (see tab. 3). The share of the most wide-spread overnight loans rose from 67% to 72%.

Foreign exchange market. Despite of the zero inflation in August – September 1997 the pace of exchange rate were rather high. In August the official dollar exchange rate increased by 0.55% or 6.38% annualized (from 5798 to 5830 rubles per dollar). The dollar rate on the Moscow Interbank Currency Exchange grew up from 5809 to 5840 rubles per dollar, i.e. by 0.53% a month (6.60% a year).

In September1997 the official exchange dollar rate will get 5865 rubles per dollar. That equals to 0.60% a month (7.45% annualized). On the MICEX the ruble exchange rate will reach the level of 5865 rubles/$, i.e. will rise by 0.43% a month, or 5.26% a year.

The exchange rate 'Deutsche mark/ruble' rose in August 1997 from 3170 rubles/DM to 3256 rubles/DM. It corresponds to 2.71% a month, or -37.88% annualized. It is expected, in September the Deutsche mark exchange rate will be 3340 rubles/DM. So, the increment of DM/ruble will be about 2.58% per month (31.33% annualized).

In August the gross turnover on the MICEX by the US dollar and the Deutsche mark amounted to 1986 and 108 billion rubles correspondingly. In September the tendency to turnovers’ growth will hold. According to preliminary assessments, in this month the gross turnover by the US dollar will increase to 2000 – 2050 billion rubles and to 140 – 150 billion rubles by the Deutsche mark.

Table 3. Indicators of Financial Markets.


month

May

June

July

August

September*

inflation rate (a month)

0.9%

1.1%

0.9%

-0.1%

0%

annualised inflation rate by the month’s tendency

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