Budget deficit(accounting for the net servicing of the debt for thye GKOs)
Despite the critical situation with theexecution of the Budget implementation, the State Duma always attempted topromulgate the laws increasing the load on the Budget. Some of these werereflected in the laws on the amendments to the Budget of 1996.
These convulsiveness and absence of adistinct and economically valid policy could not help influencing the situationwith the Budget implementation.
The eagerness of the Government to repay, inaccordance with the promises of the President, the indebtedness for the laborremuneration for the people employed in the Budget-financed branches became animportant factor influencing the structure of the Federal Budget expendituresin the first half of 1996. During the above period, the specific weightof the labor remuneration in the total expenditures made 30% against theplanned 15%; moreover, by branches the actual values of the Budget executionshifted significantly from the planned ones. The priority items of financing,for which the planned values were exceeded were the national defense (by almost10%), the coal industry (by more than 20%), the rural economy (by almost 20%),and the transfers to the pension fund (by more than 100%). At the same time,the investments in the industry (75% less than planned), transport andtelecommunications (60% less than planned), culture and art (60% less thanplanned), public health and fundamental research (40% less than planned), andeducation (30% less than planned), were sequestered.
Besides the properly economic sense, thesedata may serve an indirect characteristic of the comparative lobbying forces ofcertain groups in the today’s system of the Russia’s economic policy interests. The power of the coal industry andrural economy is especially indicative in comparison not only with the otherbranches of the national economy but also with the comparatively lower level ofexcessive implementation for the defense items. As for the branches havingreceived insufficient financing, the gap between the economic and socialspheres is obvious. The latter, with a lesser lobbying potential, turned outthe most affected at allocation from the constantly decreasing mass of theFederal Budget resources.
Federal Budget deficit and itsfinancing
The growth of the Federal Budget deficit inthe first quarter-year (from 2,8% of the GDP in January and February to 3,37%of the GDP to 1 April) was financed, mainly, by the growth of the domesticloans (from 1,69% of the GDP to 2,34% of the GDP for the same period) bymobilizing assets in the GKOs-OFZs market (see Table 1.5,1.9). According to thereports for May and June, the deficit of the Federal Budget calculated inaccordance with the methodology of the Ministry of finance had the trend fordecrease by about 0,3% of the GDP; in the first half-year it made about alittle more than 4% of the GDP. In the absolute figures, the deficit made 70%of the value approved by the law for 1996.
The dynamic of estimation of the secondarydeficit taking into account the interests on the GKOs20 was similar:6,7% of the GDP for January to April; 6,5% of the GDP for January to May; and6,1% of the GDP for January to June. In the first half-year, the primarydeficit was financed, approximately equally, from the interior and exteriorsources (the exterior financing reduced by almost 0,4% of the GDP).
The above growth of expenditures onservicing of the State debt was determined by the dynamic of theprofitabilities of the State securities which was, as shown above, greatlyinfluenced by the pre-elections factors and the necessity of a massiveexpansion of the Ministry of finance in the domestic loans market under theconditions of the crisis of the tax inflows to the budget. In such situation,the Ministry of finance had to have recourse to the high scale placements ofthe GKOs notwithstanding the market situation. A natural result of this was theexcessive reduction of the State securities quotations. In the first half of1996, at the nominal 2‑fold increase of the circulating GKOs volume (see Table 1.5), theactual increase was also significant: by 86.9%.
This means that, during the electoralcampaign, the Government choose between the fiscal reform aimed to increase thetax collection and the further increase of the State debt in favor of thesecond strategy. This was predetermined by the taxation crisis occurred duringthe electoral campaign when it was absolutely necessary to finance certainexpenditures from the political viewpoint. At the same time, this process was,as we think, a logical consequence of the political incertitude21. In Russia,due to the economic, and, mainly, political unexpediency of the rejection ofthe strict financial policy, the above reasons resulted not in a softerbudgetary policy but in rejection of the fiscal reform (or, more specifically,the active position of the Government as for the tax evasion issue) in favor ofgrowth of the interior debt.
The political efficiency of the expansionistbudgetary policy aimed, first of all, to repay the debts for the laborremuneration, was minimal. Our analysis of influence of a series ofsocio-economic parameters on the results of the elections in certain Federationsubjects may serve a certain confirmation of the hypothesis on the absence oflinks between the repayment of the debts for the labor remuneration and theresults of elections in regions. However, an interesting result of the abovestudy is the observation that a more close link exists between the results ofpayment and the January, not June, indebtedness. Hence, the pre-electionrepayments of debts had practically no influence on the voting results inregions.
One more prerequisite for the carefulfinancial activity of the Government should be noted. The Russian laws ensurethe real independence of the Central Bank, whose management, formed at the endof 1995, was inclined to the stabilization policy and would not have cooperatedwith the Government in the clearly inflationist course. Nevertheless, onecannot say that the Central Bank was fully neutral in the electoral run.Objectively, its activities in the securities market and in support of thecurrency corridor in favored the campaign of the acting President.Nevertheless, this can be explained by at least two groups of factors. Firstly,its actions did not break the limits of the solution of the macro-economicstabilization task. (And when one of the actions of the Government, namely theconfiscation of the Rbl. 5 trln. of its profit contradicted, by the CentralBank’s opinion, suchpolicy, it was decisively against). Secondly, the oppositional team had clearlyenough signaled its disagreement with the course for stabilization of thenational monetary unit; hence, this reflected in the position of the CentralBank.
According to the monetary program approvedfor 1996, the RF Central Bank was to ensure the growth of the monetary mass M2by 20% during the first half of 1996. Actually, from 1 January to 1 June, themonetary mass M2 grew by 20.9% (see Table 1.16). The average rate of theM2 growth for the first half of 1996 was 3.2%. Thus, from January to June 1996inclusive, the emissional activity of the RF Central Bank was practicallyconsisted with the milestones fixed in the monetary program coordinated withthe IMF.
As a result of this policy, in the firsthalf of 1996, the trend to reduction of the prices growth continued. While inJanuary the consumer prices index was equal to 4.1%, in June the consumerprices grew by only 1.2%. In whole, during the first six months, the inflationmade 15.6% which is 5‑fold lower than the prices growth in the first half of 1995 (seeFig. 1.10).
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