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The Moscow Times, October 16, 2003

2004 Budget Passes Duma Untouched

By Alex Fak and Lyuba Pronina

For the first time in history, lawmakers in the State Duma have passed the government's draft budget in a second reading without changing a word.

Moving to grant President Vladimir Putin's request to have the 2004 spending bill on his desk before the Dec. 7 parliamentary elections, deputies on Wednesday passed the $88 billion draft budget by a margin of 236 to 157.

The vote, however, was not accomplished without some horse-trading. In exchange for agreeing to pass the bill without amendments, deputies got the government to allocate an extra 69 billion rubles ($2.3 billion) in pre-election spending. That money will essentially come out of this year's planned surplus of $5.3 billion.

"The key point is that the government has managed to preserve the integrity of the [2004] budget by spending some excess revenue they managed to collect this year," said Alexei Moisseyev, chief economist at Renaissance Capital. "I think it was a very good move."

The Communists, Agrarians, Yabloko and most of the Union of Right Forces deputies voted against the budget, demanding an increase in government spending on social programs.

The Union of Right Forces had also insisted that the government reveal the classified items in the $13.6 billion provided for defense, but the Defense and Finance ministries declined to detail procurement spending by type of weapon. Unlike previous years, however, they did itemize research and development and weapons system spending.

Yabloko voted against the bill because it says the government intentionally underestimated revenues by $7 billion, a view that is gaining adherents in the private sector.

Chris Weafer, chief strategist at Alfa Bank, said this year's accumulated budget surplus should be nearly $15 billion by the end of this month, based on higher-than-projected oil prices and other unexpected revenues. However, the government's official stabilization fund is expected to total about half of that by the end of the year.

Whatever surplus there is, it is supposed to go into the newly established stabilization fund. But no one yet knows what the fund will be used for or whether it would be more transparent than the current reserve fund.

Weafer said that either the government secretly spent the extra money or is hiding it to discourage an election-year binge.

"Not showing a large pool of cash to politicians ahead of elections is a very sensible thing to do," he said.

Christof Ruhl, chief economist for Russia at the World Bank, said the government has two choices. It can either set the money aside for emergency or structural support the day oil prices collapse, or use it whenever oil prices fall below a certain benchmark, in which case a fight over the kitty would break out each year, he said.

Government officials are already divided over how the fund should be used. Some say it should be raided only in the case of a sharp drop in oil prices, while others want to use it to pay off debt early.

In 2004, foreign debt payments are scheduled to be about $16 billion -- $7.1 billion in interest and $8.96 billion in principal.

"It makes no sense to keep the debt and make such high interest payments," Moisseyev said.

The third of four required readings, in which deputies will debate each spending item, is set for Nov. 21.


See also:

the original at

Budget 2004

The Moscow Times, October 16, 2003

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