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. Last Updated: 07/27/2016

Compromise Budget Still Faces Battle

The government's new 1995 draft budget, designed to be more realistic and palatable to the parliament, will still face a tough battle in the State Duma because it fails to please powerful lobby groups, a top legislator said Monday.


Amended by a conciliatory commission of deputies and top government officials after the State Duma rejected it last month, the draft budget scraps the government's plans to bring monthly inflation down to 1 percent next year, forecasting monthly inflation of about 2 percent by the end of 1995, and assumes a more realistic average ruble rate of 4,400 to the dollar.


But Oksana Dmitriyeva, head of the Duma's budget subcommittee and a member of the conciliatory commission, said in an interview Monday that the commission did not address specific demands from agricultural and military lobby groups, which may again block the draft budget when the State Duma considers it Wednesday.


Dmitriyeva predicted that the 1995 budget will be even harder for the government to push through the Duma than the 1994 budget, which the parliament did not pass until spring of this year.


"The deputies felt they had to pass the budget because it was already the middle of the year," Dmitriyeva said. "Now, 1995 is coming and the government has not done anything. The feeling of disappointment is much stronger than it was this year."


But she discounted reports that Russia's military involvement in Chechnya would undermine the 1995 budget, saying that the war's estimated cost of 3 trillion rubles ($882 million) was insignificant compared with proposed spending of 227 trillion rubles.


Although the Finance Ministry has not yet officially released the budget guidelines worked out by the conciliatory commission, Dmitriyeva gave The Moscow Times the basic figures that the parliament will consider Wednesday.


She said the commission set revenues at 156 trillion rubles (about $45.9 billion) and expenditures at approximately 227 trillion rubles. Both figures have been raised compared to the original draft, but they still leave a deficit of about 71 trillion rubles. The deficit figure, constituting about 7.8 percent of gross domestic product, remained unchanged compared with the government's previous draft. Previous reports said the deficit had been increased, but Dmitriyeva said the commission later decided to reduce the deficit by 181 billion rubles.


Higher inflation expectations, however, contradict the apparent tightness of the latest version of the budget.


The new draft predicts an average monthly inflation level of 3 percent as opposed to 2 percent in the original proposal. Prices of consumer goods are expected to double, while the previous draft forecast a 70 percent rise.


The most drastic change in the budget was the adoption of a new average ruble rate to the dollar as the basis for calculating spending and revenues. Instead of an unrealistic 3,200 rubles to the dollar envisaged in the old draft, the new one sets an average rate of 4,400 rubles to the dollar.


The change seemed to simplify the task of covering the budget deficit. The $12 billion in loans from international financial institutions, on which the government relies to cover much of the deficit, equals 52 trillion rubles at the new conversion rate, requiring the government to raise almost 20 trillion rubles by selling bonds inside the country.


But the international financing is far from secure. Top International Monetary Fund officials have said the previous draft budget was not tough or realistic enough to warrant a $6.1 billion stand-by loan and a $6 billion currency stabilization credit.


Meanwhile, the acceptance of the budget will to a large extent depend on the Agrarian party faction, which, according to Dmitriyeva, has made its vote contingent on how much money the agricultural lobby will receive from the budget. The conciliatory commission declined to handle specific allocations, leaving the Agrarians' demands unanswered.


Another factor likely to make conservatives vote against the budget is the conciliatory commission's failure to heed the military's calls for increased funding. A centrist deputy, who is also a top Defense Ministry adviser, quit the commission in protest last week.