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Russia: The Secret Budget War -- An Analysis

Moscow, 21 April 1997 (RFE/RL) - Russia's First Deputy Prime Minister Anatoly Chubais says Russia has "a monstrous budget crisis, the scale of which calls into question the ability of the state to perform its function." In the first three month of the year, Chubais said the budget deficit had ballooned to $1.9 billion. As he is legally required to do, Chubais has proposed sequestration measures -- essentially, a rewriting of the revenue and expenditure items -- that are to be presented to the State Duma this week.

At the same time Chubais was making his announcement last week, Anders Aslund, an economist with a Washington think-tank and frequent promoter of Chubais's views, claimed the Government was operating on a secret budget, designed by the International Monetary Fund (IMF), that called for halving the deficit spending provided in the budget law. Aslund said the IMF agreement with the Kremlin calls for a deficit of four percent of Gross Domestic Product, not eight percent as public claimed.

The IMF attempted to deny it was manipulating Russia's budget spending. IMF officials openly admit, though, they are pressing for increased tax revenues.

A report by the Ministry of Finance to the Duma, itemizing expenditures for the first two months of the year, provides evidence of government priorities that violate the budget law. While tax revenues for the period fell short of target by 47 percent, and the budget procedure allows for a proportional reduction of spending, in fact, state obligations to science, culture, and agriculture were all cut by much more. Among the items that were favoured, relatively speaking, police received 68 percent of budget and the army 51 percent. To make good on Chubais's promises to repay wage and pension arrears, the pension payment reached 124 percent of budget; military salaries, also 124 percent.

This under-spending and over-spending is part of the "secret" budget Aslund exposed. So too are the Finance Ministry's desperation measures to find additional sources of cash. One, the sale of precious metals out of state stockpiles to the Central Bank, reached $733 million by the end of February -- four and a-half times more than the sales figure of $166 million authorized by Parliament, and signed by President Boris Yeltsin.

The reason the IMF and the government pursued this budget in secrecy is simple. It's illegal.

According to Oksana Dmitrieva (Yabloko, St. Petersburg), who chairs the Duma Subcommittee on Budget, responsibility for the current crisis rests squarely on the Government. Had the new budget code, which Yeltsin endorsed in his speech to Parliament last month, been voted, Dmitrieva said "the government would never have presented such an unrealistic budget, and we would never have adopted it." The code, which Dmitrieva and the Yabloko faction in the Duma drafted, was given its first reading in the Duma last Friday. It tightens the procedures the Finance Ministry must follow in submitting and implementing the budget.

"Sequestration has to be declared now," Dmitrieva said. "Under the new code, it should be declared much earlier, when it is clear the government can't cope. If sequestration is not declared, the government is subject to the code's rules for compensation and sanctions."

Dmitrieva added that, "to be realistic, the government should sequester 30-to-35 percent of the budget total, and aim at 60 to 65 percent of the adopted budget's targets."

Although Yeltsin claimed to back the tougher controls, Chubais and the Finance Ministry are opposed, and they are seeking the votes to block them. At the same time, these officials have sought to put the blame for the budget crisis on shortfalls of tax payments from major tax debtors like Gazprom, as well as on Parliament for over-spending.

This is secret budgeting, outside the law, that enables Chubais and other officials to keep a personal grip on state finance, without being accountable to Parliament, the voters, or the law. It was this system, Duma deputies also charges, that was exploited to buy votes during the presidential election campaign a year ago.