Stakes in Duma Budget Debate: Cash or Chaos

The State Duma will hear the second reading of the draft budget Wednesday in a vote that could either spark the release of billions of dollars in Western money to help Russia's economy stabilize in 1995, or plunge it into chaos.


An International Monetary Fund team has been in Moscow for the past week negotiating an economic program with the government under which the fund could provide up to $6.4 billion in a standby loan.


"We have agreed all the parameters" with the IMF, First Deputy Finance Minister Vladimir Petrov told the Ekho Moskvy radio station Tuesday. "If the Duma breaches them, then it will mean a new stage of tough talks, where the likelihood of getting the credits will be almost negligible."


Government analysts have predicted inflation of 30 percent a month and a fall in the ruble to 15,000 per dollar by the end of the year plus political instability if Russia fails to secure external financing.


On Monday, Finance Minister Vladimir Panskov said the IMF had agreed to grant the standby loan if the Duma passed the budget's second reading. IMF officials contacted Tuesday, however, could not confirm whether such an agreement had been reached.


Concerns about the political and financial consequences of the war in Chechnya have cast a cloud in recent weeks over Russia's chances of getting support from the IMF, contributing to the ruble's slide of some 11 percent against the dollar this year and fueling inflation that reached 10.4 percent in the first 17 days of January. Nevertheless, some analysts say the government's economic achievements are still salvageable.


"On the economic side, the government is on track," said one Western economist. "If the Duma supports the budget on Wednesday, then the IMF is very likely to grant the money."


There have also been signs in recent days that members of the Group of Seven leading industrialized nations are encouraging the IMF to lend Russia the money to bolster the position of reformists in the government and prevent the country from sliding into economic chaos.


"It cannot be in Germany's interest to destabilize this country in the economic realm and send out signals that would undermine the forces of reform," German Economics Minister Guenter Rexrodt told German radio Tuesday in St. Petersburg.


The Western economist said: "At the end of the day, the G-7 will be the ones who will make the decision."


If accepted by the Duma, Russia's lower house of parliament, the budget still faces a third reading before it is passed to the Federation Council and then to President Boris Yeltsin for approval before becoming law.


Opposition to Russia's economic reform program is strongest in the Duma, however, and approval there is crucial if the document to be implemented.


The latest draft budget, revised by the Duma's budget committee, foresees revenues of 167 trillion rubles ($41.75 billion), expenditure of 240 trillion rubles and a deficit of 73 trillion rubles.


The government has penciled in some $12.7 billion in international credits to bridge most of the deficit. The IMF's $6.4 billion standby loan would be the biggest component of this, but the government is also relying on around $2 billion in a variety of loans from the World Bank, $2 billion in bilateral financing and some $2 billion from debt issues on the Eurobond markets.


The $6.4 billion represents Russia's full standby entitlement from the IMF, set when Russia joined the fund in 1992.


The IMF almost certainly would release the money in a number of tranches, each of which would be contingent on Russia meeting stringent conditions. Russia would have to repay the money over a period of three to five years.


Whichever way the IMF's decision goes, it is likely to have a big impact on the provision of other sources of external funding, because it will radically affect the macroeconomic picture.


A decision on a $600 million oil rehabilitation loan from the World Bank will be made later in the year, based on an assessment of the state of Russia's economy and the extent to which Russia has genuinely liberalized its oil export and trading system, said Charles Blitzer, the Bank's chief economist in Moscow.