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Russia: St. Petersburg Pioneering Public Treasury System

  • Brian Whitmore

St. Petersburg, 12 September 1997 (RFE/RL) -- St. Petersburg is forging ahead to create Russia's first treasury system for public funds, a move that will increase accountability over public funds.

St. Petersburg Governor Vladimir Yakovlev, in a speech opening the city's Legislative Assembly last week, said completion of such a system by the end of this year is one of his main priorities. He noted that the City Hall Finance Committee has made much progress.

Igor Artyemev, Chairman of the city's finance committee, said that 10 of St Petersburg's 25 municipal committees already have their budgets in a treasury account. An RFE/RL correspondent reports that while exact figures for the amount of money involved were unavailable, several of City Hall's largest committees are among those operating under the new system, including the economics and Industrial Policy, Transport and Building Committees.

In Moscow, the Russian federal government's attempts to set up a treasury system faltered last week. At a federal government meeting, First Deputy Prime Minister Anatoly Chubais backpedaled from a September 18 deadline to move the government's $948 million customs funds from accounts at commercial banks to a new federal treasury account in the Russian Central Bank. He pushed the deadline back to December 1.

In the absence of a treasury system, the St. Petersburg government, just like the federal government and the administrations of Russia's other regions and republics, has relied on a system of "authorized banks" as a temporary measure. Critics have alleged that it amounts to a feeding trough for the insider banks authorized to hold budgetary accounts and to service government payments. In addition to providing these banks with plenty of liquidity to play with, it also provided insider banks with the opportunity to build other profitable relationships with the government, for example during the loans-for-shares privatization scheme in 1995.

The Federal Audit Chamber, an independent government watchdog organization, revealed that during the series of infamous auctions that took place under loans-for-shares, several authorized banks were not only able to buy blue-chip companies from the government for a song, but many did so with the government's own money that had been deposited in budgetary accounts.

St. Petersburg's version of the authorized bank system has also seen numerous problems, including the collapse of two of the city's authorized banks last year and several cases where City Hall committees used government funds to make questionable purchases.

Under the city's old authorized bank system, each committee of the city government had a separate bank account, to which the Finance Committee would transfer funds, from its own bank account, as allocated by the budget. The committees would then withdraw funds from their accounts to spend according to their respective budgets.

This system was slow and inefficient. It was also difficult for the Finance Committee, which administers the budget, to keep tabs on just how each committee was spending its funds. Artyemev said "There are examples of buying cars and taking business trips. Of course we conducted audits but if funds were spent incorrectly we only knew about this a couple of months later."

Artyemev said that the new system eliminates the bank accounts of each committee, instead concentrating the entire city budget in an account held in one bank by the Finance Committee, that directly distributes funds to municipal committees. But no funds are transferred before a treasury department, which operates under the authority of the Finance Committee, gives its permission. Each committee, before receiving funds, must present a detailed list of its expenditures to the treasury, which compares this to a list provided by the Finance Committee.

"Once this is done, the money goes straight from the treasury account to the budget organizations," said Artyemev, adding that the treasury system will work much faster than the old system. And after spending its allocated funds, municipal committees must provide receipts.

With a treasury system working, Artyemev's next step is to decide which bank or banks will handle the funds. Currently, the city's budget is held by several banks, including Promstroibank and Bank Sankt-Peterburg.

Presently, the city government is deciding between two options: holding an open tender to decide which bank will hold the treasury account or simply using the St. Petersburg branch of the Russian Central Bank.

Considerations of a bank's safety are important given the city's experience with Astrobank and Severny Torgovly Bank -- two commercial banks which had handled many of the city's municipal accounts and which collapsed last year.