In September 1999, the situation in the economy has remained relatively favorable. The industrial growth which was taking place between January through August 1999 made up 6% relative to the respective index of the prior year. The trade balance and the level of tax collection showed high values; the government has managed to pay of its pension debts, and inflation made up 1.6%. The tight measures which were introduced by the CBR with respect to regulation of transactions with the capital placed on ‘C’- type accounts, and the regular tranche from IMF allowed the Central Bank’ maintenance of the Rb. stable exchange rate, while the money supply remained practically unchanged.
Russia’s refuse from the World Bank’s credit because of the overestimation of efficiency of some projects may be regarded as a manifestation of rationality and responsibility of the country’s policy with respect to external borrowing. Nevertheless the problem of the Russian external debt has been the source of a potential danger for the economy. The success gained at the negotiations with the IMF has been neutralized in the second half of October by the news regarding the delay with the transfer of next tranche until late October. At the same time, the terms of the agreement with the London Club also require thorough consideration. The possibility to have even 50% of the debt, with the Vnesheconombank’s debt restructuring in the sovereign debt of the Russian Federation by itself is not as clearly favorable outcome for the national economy. Still, it is the terms and conditions of the restructuring which play a crucial part in this respect. The emphasis only on writing off the debt bears the danger of populism and may rather reflect primarily personal political ambitions of some government officials than an actual economic expediency.
The forthcoming elections and their growing impact on the economy during the period between late summer to early autumn 1999 showed themselves primarily rather in the identification of spheres of influence and financial flows than in the macroeconomic populism. The shining illustration of this process became the events related to the change of Transneft’s management, and the same trend was proved by the intensification of non- economic methods of economy regulation. The strengthening of the political background encourages the growing instability and promotes further deterioration of the business climate
The debates regarding possible scenarios of the President’s resignation, escalation of military operations in the Caucasian republics, and the wave of terrorism have led to the fall in the society’s interest in economic problems. At the same time, the conflict between the legislative and executive powers (even the impeachment procedure), to say nothing of Cabinet reshuffles and changes of Premiers did not influence the security market as much. The fall in the RTS index to the value which became minimal for the period of the last three months (a 50% downfall compared with the maximal value in 1999) which occurred in mid- September, showed that the possibility of introducing the state of emergency, cancellation of elections became the very news to which the business’s reaction was extremely negative.
The negative attitude of both legislators and the executive power to the idea to introduce the state of emergency, perhaps, may testify the major political forces’ interest in the legitimized transfer of power. The fact that the State Duma declined the majority of proposed amendments to the Constitution on the grounds that the concrete mechanism of their realization had not be developed also is an optimistic signal.
It is fairly predictable that it will be difficult to pass the budget through the Duma, since the that is determined by the realities of the pre- election period and to a less degree depend on a real quality of the document submitted. The government should be interested rather in the protracted Duma procedures than in the adoption of a populist variant of the budget. The monthly financing equal to one- twelfth of the 1999 budget gives the government some room for maneuver. The deputies, on the contrary, are oriented towards the expansionist budget, though the minimal figures set in the budget which more or less clear reflect actual financial possibilities of the state, sharply limit the room for lobbyism and even pre-election populism.
State of the federal budget
The data on execution of the federal budget during the period from January to July 1999 are represented in Table 1.
VAT, special tax and excises
Taxes on foreign trade and foreign economic activities
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