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INSTITUTE FOR THE ECONOMY IN TRANSITION

RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES

February 2001

MONTHLY BULLETIN

Moscow

2001

© 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 February 2001 3

State of the federal budget. 4

Monetary Policy 7

Financial Markets 10

Investment in the real sector 18

The real sector: trends and factors 19

IET Monthly Trends Survey: February 2001 22

Foreign trade 23

Privatization in 2000: results and constrains 24

The evaluation of the interrelation between the crediting of the real sector and dynamics of production and output over the post-devaluation period 28

Russia’s military expenditure in 2001 32

Regulation of Foreign Trade in Agrifood Commodities 36

Economy and politics in February 2001

Russia’s external debt remained the main political subject of February. The government had to follow the current situation rather than to influence on that. A number of public statements of high authorities showed Russia’s readiness to follow the original debt repayment schedule for 2001, which means a substantial adjustment of the country’s stand towards negotiations on this issue. At the same time the chance to restructure the payments due in 2002-2003is still in place.

The absence of the progress in the negotiations on the debt problem has made the revision of the 2001budget parameters inevitable, particularly in terms of revising schemes of distribution of additional revenues. Despite the Cabinet’s failure to fully protect the proposed amendments, it is envisaged that that would not affect Russia’s ability to repay the debt in full. Proceeding from the situation, the IMF considered the restructuring of payments in 2001inexpedient.

Notably enough, the process of amending the budget with respect to the distribution of additional revenues and privatization plans showed the volatility of the current consensus between the government and major political factions.

This trend became especially visible in the course of the initiation of the non-confidence vote procedure, and there is a whole range of pretexts for that. First, the failure to re-negotiate the debt repayment restructuring that necessitated amending the 2001budget law; energy crisis; possible contraction in tax revenues (particularly in terms of the single social tax) compared with the projected values, due to the failure to complete the Tax Code. However the parliament’s passing the non-confidence vote to the Cabinet appears practically unrealistic.

At the same time the positive factor was the initiation of a formalized contact between the government and business elites through generating a discussion on the governmental projects on liberalization of economic operations, and consultations of high-rank authorities before their foreign visits. The changes in the composition of the Council for Entrepreneurship also speaks in favor of enhancement of an actual significance of the dialogue between businesses and the government.

However one can also note some increasingly visible trend to loosing the momentum in pursuance of transformations. The implementation of crucial reforms (land, pension, natural monopolies restructuring) became a hostage to debates in various advisory bodies. The result became the castration of the reform (the turnover of agrarian land should be come subject to another law), increase in the reform duration (as it occurred with the pension reform), or an actual discontinuation of reforms (for example, RAO UES restructuring). The same concern arises due to the discussion of the law on advertising, which in its current form would tighten sharply regulation in the respective sector

However, the main problems causing some delay in the pursuance of reforms compared with the original schedule (July 2000) are related to technical and organizational factors rather than political constraints. The present reform agenda requires a substantial legal and analytical development and justification, which requires more time than it was originally intended. While comparing in this respect structural reforms with the challenges of macroeconomic stabilization, the former are much more complex.

All the above raises questions on the part of foreign investors who hoped for a vigorous implementation of the government program. Hence, considering an extremely low willingness of foreign businesses to expand their operation in Russia, the only option available is to intensify the integration within the CIS. As long as a positive impact of the Customs Union (with Russia, Belarus, Kazakhstan, Kyrgystan and Tadjikistan holding membership there) is concerned, one cannot help but note some negative factors that may endanger Russia’s accession to WTO. In this context, the conclusion of agreement regarding the increase of the openness of the banking sector for foreign capital appears an especially positive step.

T.Drobyshevskaya, V.Novikov

State of the federal budget.

Table 1

The monthly execution of the federal budget of the Russian Federation (in % GDP).

99

I`00

II `00

III `00

IV`00

V`00

VI`00

VII`00

VIII`00

I`00

`00

I`00

00

Revenues

Corporate profit tax

1,8%

1,6%

1,6%

2,0%

2,3%

2,6%

2,6%

2,4%

2,6%

2,5%

2,4%

2,5%

2,6%

Personal income tax

0,4%

0,3%

0,3%

0,3%

0,3%

0,3%

0,4%

0,4%

0,4%

0,4%

0,4%

0,4%

0,4%

VAT, special tax and excises

6,8%

8,2%

8,3%

8,0%

8,1%

8,3%

8,1%

8,0%

7,6%

7,3%

7,2%

7,2%

7,3%

Tax on foreign trade and foreign trade operations

1,9%

3,1%

3,4%

3,5%

3,5%

3,5%

3,5%

3,4%

3,4%

3,3%

3,3%

3,3%

3,3%

Other taxes, duties and payments

0,3%

0,3%

0,3%

0,3%

0,3%

0,3%

0,3%

0,3%

0,3%

0,3%

0,3%

0,3%

0,4%

Total- taxes and charges

11,2%

13,6%

14,0%

14,1%

14,6%

15,1%

14,9%

14,6%

14,2%

13,8%

13,6%

13,7%

13,9%

Non- tax revenues

2,2%

1,9%

1,8%

1,8%

2,0%

2,1%

2,2%

2,1%

2,2%

2,1%

2,1%

2,2%

2,3%

Revenues, total

13,5%

15,5%

15,8%

16,0%

16,6%

17,2%

17,0%

16,7%

16,4%

16,0%

15,7%

15,9%

16,2%

Expenditure

Public administration

0,3%

0,1%

0,2%

0,3%

0,3%

0,3%

0,4%

0,3%

0,3%

0,3%

0,3%

0,3%

0,4%

National defense

2,6%

0,0%

2,5%

3,0%

3,0%

2,9%

2,8%

2,6%

2,6%

2,5%

2,6%

2,6%

2,7%

International activities

1,3%

0,7%

0,9%

0,8%

0,8%

0,6%

0,0%

0,2%

0,2%

0,2%

0,3%

0,3%

0,3%

Judicial power

0,1%

0,0%

0,1%

0,1%

0,1%

0,1%

0,1%

0,1%

0,1%

0,1%

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