Slow Economic Start Gives Yeltsin No Help

With Russia's campaign season intensifying, President Boris Yeltsin has touted a continued fall in inflation and the widely expected growth of industrial output as indicators that the lives of his people will improve this year under continued reform.

But statistics for the first of the year published by one think tank reveal that, if indeed an economic turn-about is in the offing, it is yet beyond the grasp of an incumbent president trying to justify his policies.

True, inflation has tumbled from 17.8 percent in January 1995 to 4.1 percent in January 1996 and an all-time low of 2.8 percent in February. As of March 25, inflation appeared to remain low at 2.3 percent for the month, according to the State Statistics Committee.

But meanwhile, budget revenue is down, internal debt is soaring and industrial production and gross domestic product are falling.

"It could be that for the next couple of months we're just bumping along the bottom, seeing a slight continuing decrease in output from certain sectors," said a Western economist who asked not to be named. "I'd be very surprised if there's any net growth in the economy."

Still, the economist said, the underlying trend of economic stabilization would continue, especially in export-related industries.

Roland Nash, an expert with the Russian-European Center for Economic Policy, cited seasonal factors for the year's slow start.

"January is always a really strange month," said Nash, noting high wage and bonus payments the previous month and the large number of vacation days in January.

"You'd expect something like this to happen after the massive monetary tightening that occurred in the last six months," he added.

One interesting correlation drawn in two reports by Nash's center is a simultaneous rise in T-bill yields and wage arrears. Despite promises by Yeltsin to pay off outstanding wages, arrears increased 2.2 percent in February compared with the monthly average for 1995.

The link may be intentional, the center noted in its Monetary and Financial Report, as enterprise managers and intermediaries find T-bill investment more profitable than paying their employees.

"The government should be more vigilant with the use of budget funds and seek to exercise stricter supervision over the activities of commercial banks arising from the management or transmission of such funds," the report noted.

Likewise, government T-bill yields have shot the country's internal debt up 5.6 trillion rubles in January to 82 trillion rubles, or 4.1 percent of GDP, and again to 91.1 trillion rubles in February, or 4.6 percent of GDP, according to the center's Russian Economic Trends report.

Revenues were a particularly weak area, coming in at under 70 percent of planned levels this year, Finance Minister Vladimir Panskov has said.

Prime Minister Viktor Chernomyrdin told Interfax on Thursday that Russia needed to raise its proportion of revenue in gross domestic product by at least 5 percent. For February, expenditures and revenues were 9.4 percent and 7.9 percent of GDP, respectively, compared to 13.6 percent and 11.8 percent in the same months of 1995.

"I think that in any case, whoever wins the elections will be faced with a quite daunting fiscal situation, and will have to take rather radical action," the Western economist said.

Industrial production was down 7 percent in January and February compared with the same period in 1995.

The top growth industry in the first two months of 1996 was electricity production, up 5 percent, according to the center, which relies on state figures. The food industry rose 1 percent.

Ferrous metallurgy, the most vital industry for 1995 with 9 percent growth over the previous year, fell 2 percent in the first two months of this year.

GDP for January and February was 3 percent below the same period in 1995, while capital investment fell 10 percent.

Aside from the falling inflation, the bright spots are real wages, up 2.2 percent in February compared with the 1995 monthly average, and a fall in the number of people living below the poverty level -- one in four for February, compared with one in three during the same period the year before.