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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 local authorities can now widely use regional and municipal loans to attract capital with various goals in mind, like eliminating a cash-deficit, speeding up privatization, concentrating resources for purchase of grain, fuel, etc. Loans can be issued by the regional Soviet or by the Administration, if so authorized. Property controlled by the local authorities can be used as a collateral on a loan. Loan terms depend on its goals and may vary.

Nizhni Novgorod has established and improved a loan procedur (cash deficit. When the cash crisis is safely over, bonds can be used for other purposes. Procedures for various commodity loans, a bread loan, for instance. Their goal is to accumulate capital, primary that of the population, in order to buy goods whose prices are expected to rise at a maximum pace. This will help to alleviate a price rise shock.



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Reforms in Russia started on January 2, and brought about a natural drop in rates of capital and series accumulation by the population of Russia (from 11.9% of expenses in December to 7.4% and 5.6% in January and June respectively). Enterprises experienced a similar sharp accumulation drop. To a certain extent it was a natural outcome of tough fiscal restrictions directed against both the population and enterprises. However, it was in part due to the fact that the government of Russia did not have any income adjustment policy aimed at introducing primarily a structural effect - to prevent "eating up" of resources, that is, their use for consumption.

High rates of inflation make the problem of savings more acute. People stop saving capital because there are no depreciation safeguards. The Savings Bank, which is the main holder of population savings, pays low interest on deposits. Commercial banks offer higher interest rates but they do not enjoy the confidence of the population. People stick to their deposits with the Savings bank, which is now one of the major credit suppliers in the inter-bank market. The local authorities have ample opportunity to compete with the Savings Banks in attracting the cheapest capital - the savings of the population.

Greater financial opportunities which the emission of public (regional) or municipal loans provides are becoming more and more attractive to the regional authorities. Potential goals of the loans to be issued may vary from investments (construction of a foreign-currency hotel) to simply receiving the difference between a loan interest and an interest rate on deposits where funds from loan emission can be allotted. Distribution of either a regional public loan (or municipal loan) or commercial securities faces one and the same difficulty, which is a narrow sales market. Therefore the loan distribution policy should pursue goals enjoying the confidence of potential investors, and provide high loan profits, and should have a clear-cut distribution strategy.


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