Regional Leaders Criticized for Overspending

Prime Minister Vladimir Putin on Monday scolded regional leaders for spending too much and urged them to borrow carefully as the federal government faces its first budget deficit in a decade.

“This is a crisis year, but expenses are growing,” Putin said at a meeting with regional governors in Kislovodsk, in the Stavropol region.

Putin said regional administrations’ expenses had risen 4 percent so far this year. Some of the worst offenders are the Magadan region, whose expenses have risen 38 percent; Ingushetia with a 30 percent rise; the Murmansk region with 26 percent; and Moscow with 27 percent, Putin said.

“I call on all of you to live within your means — and this begins with yourselves,” Putin said, adding that the federal government had already cut its expenses by 30 percent to 45 percent for this year and next.

Putin told the regional leaders that everyone had less money to work with during the crisis and that the federal government would spend only 1 trillion rubles ($31.5 billion) on the regions in 2010, down 16.6 percent from this year.

“We will earmark 1 trillion rules to support the regional budgets next year,” Putin said. “This is quite a big, solid sum, which, in our view, will cover the bare necessities in the regions.”

The government earmarked 1.2 trillion rubles in 2009 to support the regional budgets, which have suffered from a drop in tax revenues of 18 percent in the first half of the year.

In addition to the budgetary funds, Putin said the government had provided an extra 70 billion rubles to help regions cover their deficits. The government has allocated a total of 140 billion rubles to help cover regional deficits this year.

Putin called on regional leaders to borrow carefully and suggested that they pursue three-year loans from the finance ministry at low interest rates instead of borrowing from debt markets.

“If you borrow this year, it’s not clear what you will do with your debts next year,” Putin said. “If you think that we will transfer billions of rubles to the regions to pay off some debts as we did this year, it may not happen.”

“Putin’s speech in Kislovodsk was the first serious signal from the federal center to the regions to take control of their spending so far,” Alfa Bank chief analyst Natalya Orlova said. “By contrast, talk in the first half was all about covering the regional deficits.”

The regions borrowed 76 billion rubles from banks in the first five months of the year. The Moscow city government said Monday that it would borrow 241 billion rubles in 2010 — nearly triple the amount it will borrow this year.

The 2010 draft budget foresees a deficit of 3.2 trillion rubles ($100 billion) in 2010, or 7.5 percent of GDP. This year’s deficit, the first Russia has faced in the last decade, may climb to as much as 10 percent, Vedomosti reported Monday.

Finance Minister Alexei Kudrin, who took part in the meeting in Kislovodsk, said it would take four to five years for the Russian economy to revive.

“I think that the revival of the economy from a 8.5 percent drop in gross domestic product this year and 1 percent growth in 2010 … may take four to five years,” Kudrin said, Interfax reported. He added that the government has now begun to “better understand the character of the crisis.”

Kudrin also swatted back rumors that the government may be considering another ruble devaluation. “As long as the oil price is high, we shouldn’t talk about the devaluation,” he said.

n Stavropol Governor Valery Gayevsky told Putin on Monday that he had recently prevented “a second Pikalyovo” in his region.

“The owner of a Georgiyevsk-based plant tried to close it and file for bankruptcy, saying he had used the plant as a collateral for a project in the Rostov region,” Gayevsky said, referring to Arzil, controlled by the Viktor Makushin’s MAIR-Group.

“We didn’t let him do that. I told him directly, ‘Sell your plane … and pay people wages, pay taxes.’ He is now thinking about it, but I reported him to the law enforcement agencies.”