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. Last Updated: 07/27/2016

Before Vote, Little Choice But to Spend

Election campaigns are a difficult time for governments in any country to control spending. The experience of 1994 has shown that Russia is no exception.


Russia has now had two bouts of election-driven spending this year. President Boris Yeltsin showed himself to be an accomplished pork barreler ahead of the April referendum, competing with parliament in extravagant promises to the electorate.


The most notable example was a decree freezing the retail price of gasoline, a move designed to please motorists that led to unnecessary hoarding by producers and cost the government some 200 billion rubles.


When Yeltsin dissolved parliament and called elections in September, the radical monetarist economists who seemed to be ascendant in the cabinet swore that such spendthrift policies would not be repeated.


Yegor Gaidar, the man who invented economic shock therapy and now deputy prime minister in charge of economic reform, pledged that the government would follow a "tough financial policy" based on controlling the budget deficit and fighting inflation first, despite the impending election.


The goal was to win support from the international financial community and create a stable economic environment in Russia.


While tight financial policy remains a fashionable political buzzword, the government has in fact given in to many demands for extra spending in the hope of keeping the peace and winning votes.


Fall is a bad time to start cutting government expenditure in Russia, since it is the season when the biggest demands are made on the public purse. Harvests have traditionally been funded by the government. The Far North needs money for winter and the onset of the first snows is always a good time for coal miners to make demands.


This week the government has announced that all these pressures will result in excess spending of about 1. 5 trillion rubles. This will increase the budget deficit by about 25 percent.


Gaidar himself now admits that the government will have to push back until the end of next year its plans to lower inflation to 5 percent per month.


This does not mean that the monetarists have failed completely. In many cases, they were paying the price for promises made before they came to power. By their efforts, they have had some success moderating the inevitable wave of spending.


But they have come up against a much bigger political reality, namely that they are part of a divided government with no real mandate. It will be up to the next government, hopefully with the backing of a popularly elected legislature, to set about the dangerous task of stabilizing Russia's finances.