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Russia: Battle Over Spending Cuts Looms

Moscow, 29 April 1997 (RFE/RL) - Russia's new Cabinet has promised to submit a plan to slash spending to the State Duma by tomorrow in a bid to bring order to the government's finances, but debate on the proposal is likely to be delayed for several weeks.

The Cabinet approved a plan on Friday to cut budget spending this year, but released no details of the proposal. Deputy Prime Minister Anatoly Chubais has said that at least 100 trillion rubles, or $17 billion, need to be cut to bring Russia's budget in line.

The 1997 budget requires the government to seek approval from the Duma for spending cuts when revenues fall below 90 percent of targets. Government officials have said the overall revenues for the first three months of the year were running at about 60 percent of budgeted levels, signaling that cuts would be drastic.

Much of the revenue shortfall has until now been made up by income from privatization. Real tax collection was only about 40 percent of forecasts.

The government's proposed spending cuts are expected to be met with stiff opposition in the Duma, which took months to approve this year's budget. Many deputies have said the government should simply print money in order pay off wage and pension arrears, but the proposal was quickly dismissed by the Cabinet's reformers.

Some analysts have speculated that the government has taken a tactical decision to unveil politically-sensitive plans to slash spending just before Russia embarks on scheduled holidays celebrating May Day and Victory Day.

As one Finance Ministry official, who asked not to be named, put it: "The whole idea is that they do not discuss the spending cuts before the May holidays and avoid giving the communists any extra weapons in their protest actions."

Originally, Chubais was scheduled to present the proposals to the Duma on April 23, but government officials said more time was needed to work out the details of the spending cuts. Now the Duma is scheduled to debate the plan on May 21.

Over the weekend, Chubais expressed confidence that he could strike a deal with deputies over a new spending plan, but acknowledged that the government would not be able to win Duma approval for all the cuts.

Although tax collection is improving, the government appears to have resigned itself to not being able to meet the spending or revenue targets outlined in the current budget. The new budget plan will set new spending levels and revised revenue forecasts based on the dismal tax collection record so far this year. Essentially, this will mean deep cuts, opening up a new budget battle.

Perhaps sensing the tough fights ahead, Chubais has said the government would try to raise an extra $5 billion of revenue through the sale of precious metals and additional privatization sell offs.

There is currently intense speculation about the details of the government's proposed spending cuts. The budget law requires proportional cuts across the board, but protects certain spending items, including wage and pension payments, healthcare, education, maintenance of nuclear facilities, and financing of government debt.

If those items are financed in full, cuts in other areas, such as agricultural subsidies and payments to support military production facilities, will be drastic. However, some officials have suggested that even protected items could be put on the chopping block, although such proposals are likely to be shot down by the Duma.

Chubais said on Sunday that the spending cuts would provide much needed transparency to the government's finances.

"Cutting the budget will deal a serious blow to corruption," he said.

He said realistic spending levels would remove opportunities for government bureaucrats to parcel out funds on an arbitrary basis.

Most analysts predict that the government will reach some kind of an agreement with the opposition-dominated Duma on the spending cuts. But the debate is likely to be protracted. Regardless of whether a deal is reached, the government will continue to hold down spending, as it has in the past, in order to keep the budget deficit in line with International Monetary Fund guidelines.

As one market analyst puts it: "The government still holds all the cards."