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Russia: Duma Approves Draft Budget In Second Reading

Moscow, 21 January 1999 (RFE/RL) -- It was supposed to be an exceptionally smooth approval by the State Duma of Russia's 1999 budget (Jan. 19). But expectations of an easy second Duma reading were not met. Instead, the draft law underwent six hours of difficult debate and compromise between the communist-dominated Lower House of parliament and the government of Prime Minister Yevgeny Primakov before being adopted by 296 to 54 with five abstentions.

A third reading of the budget, expected to focus on specific allocations for individual industries, will take place next week (Jan. 29). Communist leader Gennady Zyuganov, who yesterday acknowledged in the Duma corridors that he could not control members of his own political group, forecast that the debate during the next reading will be the most difficult. A fourth and final reading, expected at the beginning of next month, is considered to be a formality.

Russian media slammed both the Government and Duma deputies for their willingness to change further a document that has already been widely criticized as unrealistic. The daily "Nesavisimaya Gazeta" wrote that "the government is the victim of financial compromise with the communists [and] the 1999 budget discussion sank in a sea of amendments." Another daily, "Segodnya," characterized the debate as a "victory of political over economic calculations.."

The leader of the pro-reform Yabloko group, Grigory Yavlinsky, told NTV television after the vote that "a political budget means carnival politics." Yavlinsky's group, unlike all the others in the Duma, had declared before the debate that its members would vote against the draft.

Most economic analysts had already called the approval of the budget a piece of political theater, since the draft is based on an average exchange rate of 21.5 rubles to the dollar and forecasts 30 percent inflation for the year. That contrasts with the estimate of the State Statistics Committee, which last month put last year's overall inflation rate at 84 percent. Most currency-exchange booths in Moscow today were trading the ruble at a rate of 23 to the dollar.

The fate of much-needed international loans is also seen as depending largely on whether the Primakov government can get parliamentary approval for --and, even more important, implement-- a feasible budget. An International Monetary Fund (IMF) mission is arriving in Moscow this week, and Russian and Western economic officials have said that Russia would have to make genuine and realistic cuts in its budget deficit in order to trigger the release of IMF and other international assistance.

IMF First Deputy Managing Director Stanley Fischer told an investment conference last week that Russia's 1999 budget is, in his words, "neither sufficiently ambitious nor realistic." The IMF froze a $22.6 billion loan package after Russia devalued the ruble and defaulted on some domestic debt last August. The Russian government, however, has included foreign loans in the 1999 draft budget, even though difficult negotiations continue.

This week's second reading of the budget was designed to coincide with the arrival of the IMF mission, but observers in Moscow doubt that the outcome of yesterday's debate will improve Russia's prospects. Surprisingly, legislators failed for the first time to show their usual political solidarity with the Primakov Government. Deputies --mainly those in the communist group-- largely refused to follow recommendations worked out by a conciliatory commission composed of government officials and members of the Duma's budget committee.

The recommendations included slashing expenditures on Government administration, foreign activities such as support for embassies, and some state funds for a total of 8,000 million rubles. First Deputy Prime Minister Yuri Maslyukov, who is in charge of the economy, tried to convince deputies that the plan agreed upon by the conciliatory commission should remain unchanged, on the eve of a new round of negotiations with the IMF.

But backbencher communist deputies initially refused to listen to Maslyukov. They considered a number of amendments, including proposals to cut by 40 percent revenues set for servicing state debts and financing rescue operations, in favor of increasing in social spending. Many observers believe these deputies are more concerned with their own prospects in forthcoming parliamentary elections than with the budget's prospects.

Only after Maslyukov warned that some amendments, in his words, "could lead to catastrophe," and Finance Minister Mikhail Zadornov said that the sum set for debt repayment "cannot be even one dollar less than the $9.5 billion" budgeted, did deputies scale down their demands. One senior government official acknowledged that the budget was far from perfect. But, speaking to RFE/RL on condition of anonymity, he said that having a "document that can be corrected later is better than having nothing at all."