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Russia: Chubais Prepares For Budget Battle

Moscow, 9 June 1997 (RFE/RL) - Can the Russian economy be blooming in the dark? After months of manipulating the economic statistics, the Russian Government has now admitted the answer is no. Forecasts of a turnaround this year aren't going to come true.

In a detailed letter to the Russian parliament, First Deputy Prime Minister Anatoly Chubais made the concession late last week. Economic indicators released at the same time by the State Statistics Committee (Goskomstat) confirm the worst. The latest figures give the lie to claims, given wide circulation in Western financial media, of growth fueled by Russia's service and small-business sector, or the so-called gray economy. According to Chubais, Russia's Gross Domestic Product (GDP) will continue falling this year by two percent. All earlier Government forecasts, together with those issued by the World Bank, the European Bank for Reconstruction and Development, and major investment banks, have been predicting growth of between one-and-two percent.

A European financial newspaper recently suggested the annual blooming of Moscow's tulips symbolized the end of Russia's long, harsh economic Winter. "The great depression of the Russian economy has halted," declared Yury Yurkov, Goskomstat's director, when the GDP figure for February showed positive at 0.9 percent.

It's obvious now why this early signal of improvement in Russia was deceptive. A spurt in world non-ferrous metals prices drove up output and revenues for Russian metal producers. This was lucky, but brief. According to Goskomstat, non-ferrous metals production rose six percent in the first quarter, compared with the same period of 1996. This, say the experts, was the only driver of macro-economic growth.

At the same time, electricity output plunged six percent. That's a sensitive measure of activity throughout the economy, because not even smugglers and other "gray" businessmen can operate without light and power. Other indicators of first-quarter production are not more reassuring. Fuels and ferrous metals dropped by 0.6 percent and 0.5 percent, respectively. Timber and paper fell eleven percent; so did construction materials. Light industry dropped six percent, food processing by eight percent.

What Chubais and Goskomstat have revealed is no news to parlimantary deputies, who are refusing to pass a revised budget, because they argue the Government is still unrealistic in its estimates. This forced Chubais to disclose the Government's real predictions for the year.

Most damaging for Chubais himself is the disclosure that investments are projected to contine to decline, and is the first admission that the policies Chubais has pursued so vigorously for almost a year now are failing to work.

In a contracting economy, the kind of tax, credit, and Government-spending squeeze Chubais has been implementing will kill investment, and kill production. The Russian economic reality is that producers can pay tax, or pay their workers, or invest. Chubais is claiming the credit for getting them to do the first: pay taxes. He isn't apologizing for the wage-arrear or the investment decline, which are naturally related.

This is the dead-end which President Boris Yeltsin recently congratulated Chubais for accomplishing.

Chubais this week (Wed, June 11) is again scheduled to brief the State Duma on the Government spending-reduction proposals, and to provide additional economic details. His reception is expected to be hostile, as the Duma this week is also expected to adopt a resolution, condemning the Government's privatization practices when Chubais was privatization minister.

Chubais and Security Council Secretary Ivan Rybkin have suggested that the Duma might be dissolved, if deputies fail to approve the Government-proposed economic plan.