| One can tell a lot about where a country's economy
is headed by looking at
its budget. Since the budget is essentially the resource framework
for all
of a state's operations, it also serves as a barometer of government
efforts at economic and social reform. On Friday, the State Duma
passed the
draft 2003 budget in its second reading. Although the Duma must
still
consider the budget in its third and fourth readings before the
draft is
fully adopted by the lower house, the budget's basic parameters
and major
spending priorities have already been set.
In its basic spending priorities, the 2003 federal budget draft
looks much
like budgets from previous years, with most expenditure directed
toward the
military and law enforcement, debt servicing, social programs,
and
financial aid to the regions. However, a closer look at the budget
and the
circumstances surrounding it provides grounds for cautious optimism
that
determined efforts at structural reform are at hand.
The first and most obvious positive sign is the one at the bottom
of
Russia's balance sheet, denoting a surplus. While Russia has been
running
federal budget surpluses for the past three years, the fact that
the 2003
budget has a surplus is particularly impressive because the country
is
scheduled to pay a whopping $17.3 billion in debt servicing next
year. This
spike in the country's debt payments could offer a tempting pretext
for the
government to lapse, at least temporarily, back into deficit spending.
Yet
the government has resisted this temptation, planning a modest
surplus of
about 0.5 percent of GDP. Admittedly, the government does not
yet have
enough in its special reserve fund to cover its 2003 debt servicing,
but
Central Bank reserves are now sufficiently high (more than $40
billion)
that they could be used to fill the gap without major repercussions.
Barring a collapse in world oil prices, or some other external
shock,
Russia will move past its debt repayment peak with little difficulty
in
2003. And by getting out from under the worst of its debt burden,
Russia
will free up resources, which can be used for investment in infrastructure
and for transforming the economy over the next few years.
The second encouraging element in next year's fiscal plan is
the
significant increase in spending on judicial and legal reforms.
For years,
the status and independence of courts have been compromised by
a lack of
resources. The combination of underpaid and overburdened judges
working in
decrepit courtrooms has undermined both the performance of the
judicial
system and the public's confidence in it. In his state of the
nation
address this year, Putin acknowledged that enhancing the status
of Russia's
courts was not just a political task but an economic one as well.
In
response, the government's 2003 budget plan calls for a 33 percent
increase
in spending on implementing judicial reforms and on maintenance
of the
judicial system. With more substantial funding, and one of Putin's
closest
and most trusted advisors, Dmitry Kozak, in charge of the reform
effort,
there exists a real chance for steady improvement in the prestige
and
authority of the judicial system. Better-funded, more independent
courts
are a critical instrument for strengthening the rule of law and
for
enforcing property rights -- both of which lay the foundation
for long-term
economic growth.
Third, the government is presenting a far fuller account of military
spending than it has in the past. Under Boris Yeltsin, the military
was
successful in keeping the vast majority of the contents of its
budget away
from public scrutiny. By the late 1990s the Finance Ministry incorporated
nearly all federal spending into a new unified federal treasury
system, but
defense spending remained set apart and almost entirely secret.
Although Vladimir Putin's administration continues to make military
spending a priority, with a proposed increase of more than 20
percent for
2003, Putin has sided with the government's financial bloc and
the liberals
in the Duma in demanding greater budgetary transparency from the
military.
For 2003, Deputy Prime Minister Alexei Kudrin promised the government
would
make about 65 percent of the military budget's spending articles
available
to the State Duma during the budget's second and third readings
-- and so
far seems to have kept his word. This increased transparency is
important
not just for enhancing civilian control over the armed forces
and for
reducing the potential for waste and corruption -- it will also
provide a
basis for more informed and intelligent public debate on how best
to
conduct military reform.
Overall, these three aspects of the draft 2003 budget indicate
that fiscal
discipline and attempts at structural reform remain priorities
for Putin
and the government. They also confirm that the St. Petersburg
liberals,
especially Kudrin, remain highly influential in setting Russia's
economic
and fiscal policy.
Of course, these moves toward debt reduction, judicial reform
and budgetary
transparency are just a beginning. For any of these three positive
developments to have a lasting impact, they must be sustained
and built
upon for years to come. Clearly, Russia still has much to do to
create the
structural conditions for sustained economic growth and the measures
proposed in the 2003 budget may appear relatively modest.
Nevertheless, there is something to be said for a government
that is taking steps to pay off its creditors, to raise the profile
of its judges, and to keep an eye on its generals.
See also:
Budget
2003 |
