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by Yevgenia Borisova

Budget Gets First 'Yes' Vote In Duma

The Moscow Times,Monday, Oct. 1, 2001

The State Duma easily pushed through the draft 2002 budget in a first reading Friday despite sharp criticism that the plan would strangle the economy in its effort to ensure funds were available for foreign debts.

"The budget is realistic, socially oriented and aimed, as much as possible, at the future," said Vladimir Pekhtin, head of the pro-Kremlin Unity faction.

But most lawmakers agreed that volatile oil prices could easily upset all budget projections.

The 2.12 trillion-ruble ($67.3 billion) budget, which was approved by the Cabinet earlier last week, sets spending at 1.94 billion rubles and foresees a surplus of 178 billion rubles, or 1.63 percent of gross domestic product. GDP -- budgeted at 10.95 trillion rubles ($347.6) -- is expected to grow by 4 percent after a projected increase of 5.5 percent in 2001.

The surplus is to be spent on debts. Of the surplus, 68.56 billion rubles is to go for maturing foreign debt next year, while the remaining 109.76 billion rubles is earmarked for a peak of $19 billion in debt payments in 2003. The surplus is to go into a yet-to-be-formed state debt reserve.

The draft budget is based on the so-called optimistic scenario -- the average price per barrel of Urals blend next year is set at $23, a couple dollars more than the price Urals is currently trading at.

The exchange rate will average 31.5 rubles to the U.S. dollar, and inflation is set at 10 percent to 13 percent compared with the 16 percent to 18 percent expected this year.

The draft, which was approved 262-125 with two abstentions, was backed by most Duma factions. Communists and Agrarians, traditional government opponents, rejected the bill, while all 12 members of Vladimir Zhirinovsky's Liberal Democratic Party did not vote.

Faction leaders almost across the board criticized the government for making foreign debt repayment the priority for 2002.

"The privilege to pay off all debts is for a well-off country, and we are not such a country," said Oleg Morozov, head of Russia's Regions.

"[Russia has] catastrophically archaic assets, aging infrastructure and skyrocketing technological degradation," he said. "A couple more years and such an economy will become a self-devouring monster because it is not renovating its main components."

Boris Nemtsov, leader of the Union of Right Forces, called for debt restructuring negotiations with Western creditors.

"Pakistan had its debts quickly forgiven. Such a window of opportunity for Russia has also opened," Nemtsov said, hinting at a possible deal in which Russia might participate in the counter-terrorist operation in Afghanistan in return for debt forgiveness.

The West recently rescheduled hundreds of millions of dollars of Pakistani debt after the country agreed to cooperate in the hunt for terrorist suspect Osama bin Laden.

Audit Chamber head Sergei Stepashin, meanwhile, took some deputies by surprise by announcing that the government has yet to create a system to administer foreign debt repayment and even lacks documentation proving that $5.7 billion in Soviet-era debt has been repaid.

"How is this possible?" said Gennady Raikov, leader of the People's Deputy faction. "Already a year ago we commissioned the government to look thoroughly into the foreign debt situation. Who did not let them do so?"

Pro-Kremlin faction leaders and the opposition alike voiced concern that the budget is prone to the unpredictable fluctuations of oil prices after the terrorist attacks in the United States.

"You are mistaken having budgeted $23 per barrel of oil. You must put it at $15 per barrel," Zhirinovsky said.

Oil, metals and gas account for a third of hard-currency budget revenues.

Prime Minister Mikhail Kasyanov has said a $1 drop in the price of a barrel of oil translates into a loss of $1 billion for the federal budget.

Lawmakers urged the government to decrease the budget's dependence on oil exports and consider investment into high-tech industries that could give Russia a competitive global edge.

"This budget offers no such strategic programs," said Igor Artemyev, a member of the Yabloko faction. "We must make the economy more diversified and pay special attention to the development of small business."

Morozov agreed, adding that the country must mobilize the billions of dollars kept by the population under their mattresses and the "super profits of natural monopolies."

Pekhtin said that Unity supports funding for the "new economy" -- industries that can "fill in the budget even with the downfall of oil prices." He said such industries included civil aviation and space technologies.

Vyacheslav Volodin, head of the Fatherland All-Russia faction, also called for an increase in investment in the real sector, naming as priorities roads, metro stations and high-tech industries.

Agrarian head Nikolai Kharitonov spoke emotionally against cutting farm subsidies.

"Russia imports almost half of its food products. We can't understand why with the increase in revenues this year, expenditures on agriculture are cut by 7 percent," he said.

Some 22.3 billion rubles are budgeted to support agriculture next year.

"We need at least 40 billion rubles in state support, and 60 billion rubles would be better," Kharitonov said. "Agriculture is now funded at 33 percent of what it needs."

Communists came to the session Friday with their own budget, which they said would better control revenues.

Sergei Glazyev, a Communist deputy, said that the 2002 budget foresees higher revenues from exports but does not take into account the fact that this year alone the government lost billions of dollars from such revenues.

"Last year $88 billion did not come back to Russia and losses to the federal budget reached $15 billion," he said. "We don't know of any criminal case opened against such exporters."

Lawmakers appeared united in saying the draft budget required a substantial overhaul to win their votes in a second hearing scheduled for Oct. 19.

However, Finance Minister Alexei Kudrin, who looked very satisfied after the vote, said he expected no problem getting the budget passed in the second reading.

"The second reading will be more difficult, but a compromise, like in the first reading, will be found. The budget will be adopted," Kudrin said.

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See also:
Budget 2002

The Moscow Times,Monday, Oct. 1, 2001

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