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. Last Updated: 07/27/2016

Government Plans New Crisis Budget

The Russian Finance Ministry expects to put a new plan before parliament within the next two weeks that would reduce the 22. 3 trillion ruble ($22 billion) deficit contained in the budget that legislators passed last week, a ministry spokesman said Tuesday.

The crisis budget plan comes amid signs that the ruble may be starting to fall after a two-month period of stability. The currency fell Tuesday to 992. 5 to the dollar, down from 989 on Monday and 985 on Friday.

The president has another two weeks to consider the budget passed by parliament last week.

The Finance Ministry spokesman said that the president would in all probability return the budget to parliament and propose replacing it with a crisis package of spending cuts and revenue increases.

Prime Minister Viktor Chernomyrdin has already said that he will not accept the huge budget deficit.

Deputy Finance Minister Sergei Aleksashenko told Izvestia that the crisis plan would include increases in excise taxes and import tariffs on automobiles, alcohol and other luxury goods.

He also said that the government would cut spending by reversing its decision to raise the purchase price of grain in line with inflation and cut payments to public services, according to Izvestia.

The Finance Ministry spokesman said that the government has been able to meet its budget deficit targets so far this year, with the total deficit for the first nine months running at about 9 trillion rubles.

He said parliament's budget would involve a deficit of 5 trillion rubles each month until the end of the year.

But even without the extra spending from the budget, the government is facing growing pressure to fulfill promises made by various ministries and to meet other unavoidable commitments. Many workplaces and factories have complained of substantial arrears in funding for salaries.

Confusion over the budget is expected to drive down the value of the ruble, according to Nikolai Gusev, the head analyst for the Moscow Interbank Currency Exchange, where the ruble trades four times every week against the dollar.

Some 3-4 trillion rubles from credits issued to pay farmers and defense industry enterprises is likely to find its way onto the financial markets in the near future, he said.

Much of this speculative money would be used to buy dollars, driving down the value of the ruble, Gusev added.

Russian interest rates are still below the rate of inflation, he said, meaning that buying dollars is still the only attractive investment in Russia.

Gusev said that the high value of the ruble was also starting to make Russian exports uncompetitive on world markets and lower the price of imports. The exchange rate would have to fall to maintain equilibrium.

The ruble has held steady in value since mid-June when it hit a low of 1, 116 to the dollar and has traded in a narrow band between 980 and 990 for the last two weeks.