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Books by Grigory Yavlinsky
Economics and Politics in Russia
The Center for Economic and Political Research (EPIcenter)
Nizhni Novgorod-Moscow, 1992



The fiscal policy of the local government is not restricted to the region or city budgets. Decentralized management of the economy, mainly of financial resources, which is now taking place, and the formation of the financial market make it possible to attract extra resources in order to settle current problems or make breakthrough alterations which form the basis of economic growth. There is also an opportunity to concentrate relatively large resources on priority targets.

At the regional level the fiscal policy now makes use of such instruments as extra-budgetary funds, municipal loans, budget balance, and foreign investments. The property which the local government has at their disposal (land, real estate, capital assets of enterprises) serves as the basis for more active policy in the fiscal sphere.



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A tendency to increase the number of extra-budgetary funds and the volume of financial resources channelled through them was given powerful impetus in early 1991. The Council of Ministers of the USSR and the Supreme Soviet of the USSR decided to set up the so-called "extra-budgetary economic stabilization funds" both at the Union and the Republican levels. The USSR Pension Fund became an independent institution.

The government of Russia followed the same course when it was working on the budget of the Russian Federation for the first quarter of 1992. It was decided to set up several extra-budgetary funds at once: a road fund, population employment fund, conversion fund, and the fund for social protection of the population. Political aims were the priority. It was meant to demonstrate the government readiness to treat "weak spots" even under the shortage of budget appropriations, as well as to have more freedom of action. However, the economic goals were also important. They were to strengthen the purpose-oriented use of resources and to develop the financial market and its institutions.

By the month of September, 13 extra-budgetary funds were set up in the Nizhni Novgorod region:

1. Pension Fund of the Nizhni Novgorod region.

2. Road fund.

3. Employment Fund.

4. Regional Fund for Social Protection of the Population.

5. Conversion Assistance Fund.

6. Extra-budgetary Fund of the Regional Administration.

7. Regional Environment Fund.

8. Fund for support to the Agroindustrial Complex.

9. Fund for support to the Construction Complex.

10. Special stabilization Reserve.

11. Regional Currency Reserve.

12. Heat-and-power Engineering Complex Development and Energy Fund.

13. Foreign Trade and Purchase Operation Support Fund.

From January to June the expenses of regional extra- budgetary funds (aside from the Pension Fund) amounted to about 900 million roubles or 10.4% of the regional budget outlays over the same period. The Pension Fund's expenses, totalling almost 5 billion roubles in the first half of the year, reached 57% of all budget appropriations. The share of financial resources channeled through the extra-budgetary funds is sizable. Their amount balances are significant. Hence, effective use of their resources is of great importance.

Problems which arise in the use of resources accumulated in the extra-budgetary funds are similar to those other regions and republics of Russia are facing. These are:

-unsettled legal and organizational matters governing the formation and activities of the extra-budgetary funds. Some of these are not approved by the regional Soviet, and have no Regulations. The fund management procedures are not properly outlined. There are also some personnel problems, etc;

- the absence of proper control over handling of resources, resulting in their dissipation and misuse. Each department of the regional administration seeks to have "its own" extra-budgetary fund. Additional fund management related expenses are required. It is difficult to control the expenses (auditing services of the financial agencies are overburdened with work), fiscal discipline is often infringed, and money is not used the way it should be;

- temporary balances of unused extra-budgetary funds accounts.


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