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By Georgy Ilyichev

Looking for trouble
Economic growth could provoke a new political crisis

Izvestia, July 11, 2001

Commenting on economic progress over the past six months, Deputy Finance Minister Alexei Ulyukaev told the nation that economic growth for 2001 may be higher than expected. He believes that the revival in the domestic economy by April was so great that additional budget revenues by the end of the year "may exceed the planned sum by 100 billion rubles", and that "inflation could drop to zero in August and September". Paradoxically, some politicians may take such successful economic development as a personal offence.

Analysts from Yegor Gaidar's Transition Economy Institute did not miss the opportunity to spoil the minister's apparently triumphant report. In June, analysts studied the situation at about 1,000

Russian enterprises and failed to detect any major economic progress. According to their report, the expected improvement in Russian industry compared to May 2001 did not happen. Furthermore, the economic situation has deteriorated slightly. Growth in consumer demand has halted; therefore enterprises are accumulating stock that they can't sell.

Although industrial output did rise slightly in June, after remaining virtually unchanged in May, the increase was really insignificant. Decline continued in the electricity and forestry sector, and emerged in the chemical, petrochemical, and ferrous metals sectors.

Wholesale price growth has slowed for five months in a row. Sales problems have led 20% of industrial enterprises to curb price growth. This trend is especially perceptible in ferrous metals (53%), forestry (39%), and light industry (30%).

However, it is not all bad news. The forecasts for changes in consumer demand have been stable for four months running. Russian enterprises are still hoping for a big jump in cash sales. The brightest outlook is observed in metals, machine-building, and light industry. The absolute record for optimism - seasonal, apparently – is held by construction enterprises.

Yevgeny Gavrilenkov, head of the Economic Analysis Bureau, views the situation even more favorably. In his opinion, the results for a single month do not provide any grounds for drawing pessimistic conclusions. The June drop in business activity is seasonal – and therefore natural. Most importantly, investment has started to rise over the past month, rising by 4% in some sectors of industry. Last year, fuel and energy sector accounted for most investments; but this year the range of investment has considerably expanded into processing. Both demand and real incomes continue to grow. So Gavrilenkov believes that there are substantial reasons for revising the budget indicators upward.

Of course, anyone would be happy to earn more than expected. But smouldering discontent is growing among Russian politicians. Some Duma deputies are especially sensitive about unexpectedly high economic growth. Last year's squabbles in the Duma, when members of various factions did their best to get their hands on extra budget revenues, are still remembered in parliament. This time, the "budget battle" scheduled for September could be much worse: the Communists have adopted recently a very strong anti-government stand. Even before the reports about possible extra revenues, many senior Communists said they would move another vote of no-confidence in the Cabinet this autumn, and even raise the issue of disbanding the Duma. Now that a major proportion of the extra 100 billion roubles is likely to end up in the jurisdiction of the despised "capitalist ministers", the Communists could really cut loose.

The position of Yabloko is also worth noting. Last Monday, Grigory Yavlinsky strongly criticized the Cabinet's policies; according to the Yabloko leader, "the state is reneging on its social responsibilities to its citizens". Yabloko views the Cabinet's economic programme as a transition to "the so-called ancillary state which guarantees welfare only for the most vulnerable social strata".

Yabloko predicts a repeat of the early 1990s radical right-wing reforms. To all intents and appearances, the Yabloko democrats will get no less worked up than the Communists over the question of distributing such a large sum of extra budget revenues. Therefore, it is safe to say that economic growth in Russia is unlikely to improve the political climate. It would appear that politicians find it extremely difficult to work in normal conditions.

Izvestia, July 11, 2001

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