State to Spend Big Chunk of Stabilization Fund

APUnited Russia activists holding a sign reading "We trust" Medvedev and Putin at a Manezh Square rally Saturday.��
A significant portion of the government's $215 billion stabilization fund will be spent to cover a budget deficit this year, Finance Minister Alexei Kudrin told the State Duma on Friday.

"This year is the peak of the crisis, and we're starting from the idea that a significant part of the Reserve Fund will be spent, but not all," he said during a meeting with deputies.

The country is facing a budget shortfall of 4.4 trillion rubles ($124.6 billion), or 5.4 percent of gross domestic product, and if the budget is not revised, the deficit could reach as much as 6.1 percent of GDP, Kudrin said. Real budget revenues for this year will be 6.5 trillion rubles, or 40.3 percent less than the 10.9 trillion rubles stated in the unrevised budget.

With oil prices down 70 percent since July, the government's exports revenues — largely dependant on oil and gas — will drop by more than 50 percent this year, to $269 billion from last year's $469 billion, Kudrin said. On a weakening ruble, imports will retreat from $292 billion to $245 billion and tax revenues may drop by $28 billion, he said.

On Jan. 22, Prime Minister Vladimir Putin ordered the Finance Ministry to revise its 2009 budget based on a new average oil price of $41 per barrel, down from the previously assumed $95.

Urals blend crude, Russia's main oil export, was trading at $43 a barrel on Friday, down from a July high of $143.

Last year the stabilization fund, supplied since 2004 by windfall oil and gas revenues, was divided into the National Welfare Fund and the Reserve Fund, which stand at 2.8 trillion rubles and 4.5 trillion rubles, respectively.

In December, the welfare fund loaned 340 billion rubles ($9.5 billion) to Vneshekonombank as part of a $200 billion bailout package aimed at revitalizing the financial sector.

Cabinet spokesman Dmitry Peskov confirmed that the budget was already in the process of revision and said the amendments could be adopted by the end of February. He said it was too early to talk about any specific changes, including cuts to social spending.

Oleg Smolin, a Duma deputy with the Communist Party, said, however, that social expenditures, including a 15 percent cut in education spending, were being discussed for the revised budget.

"First and foremost, the government should put money toward its citizens and domestic industry, but unfortunately it does everything the other way around," Smolin told The Moscow Times.

"They put the bailout money toward banks and large corporations, and the teachers, doctors and social workers in the regions aren't seeing one ruble," he said by telephone.

First Deputy Prime Minister Igor Shuvalov, speaking to the Duma on Friday, said the government would "most likely" have to cut back on expenditures this year.
 
Shuvalov did not elaborate on what exactly the government intends to economize on when it goes to revise the federal budget, but he said it was prepared to "expand" its anti-crisis plan.

Already in the works is a new $1.3 billion employment-stimulus package designed to help the regions combat the national 7 percent unemployment rate. The Agency for Housing Mortgage Lending has been charged with helping individuals who have difficulties making payments. Kremlin officials also announced Friday that they would consider cutting the value-added tax and carrying out other tax reforms.

Yulia Tseplyayeva, chief economist at Merrill Lynch, voiced doubt that the government would risk social instability by cutting back on social expenditures.

"But they will have to economize on everything else," she said.

She said it would be "advisable" for the government to make significant revisions to funding earmarked for financial-sector bailout.

"They spent all this money to help the banking sector, gave them ruble injections, and the banks took the money and bought foreign currency," she said. "In my opinion, the ruble would be in a much better position had the government not given the banks ruble liquidity."

Stanislav Belkovsky, head of the National Strategy Institute, said the government should stop bailing out big companies. "Let the banks and companies face their margin calls, and let their ownership change," he said. "Let others become the owners of Russian assets rather than letting Russian oligarchs continue to act totally irresponsibly."

Shuvalov earlier warned companies seeking government funding not to depend solely on state support for help out of the crisis. "They have to use their own resources in order to clean up the debt they created," Shuvalov said at the World Economic Forum in Davos, Switzerland, on Thursday.

Industry and Trade Minister Viktor Khristenko told Duma deputies on Friday that exporters would receive $6 billion in subsidized loans in the coming year to reinvigorate domestic producers and that he had authorized 50 billion rubles for direct subsidies to the defense industry.