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. Last Updated: 07/27/2016

Yeltsin's Deficit Budget

Three powerful committees in the Duma -- defense, economic policy, and industry -- have created a list of proposed changes to the government's budget project that is now making the rounds at the Duma. The essence of these changes is a 28 trillion ruble increase in the expenses and revenues sections of the budget. I personally saw how noted experts in economics laughed heartily when they read this list, which we can only suppose was compiled primarily by the chairman of the economic policy committee, opposition leader Sergei Glazev. The funny thing is not that they are suggesting that budget expenditures be increased by 28 trillion rubles, including nearly 18 trillion for the army and the military-industrial complex. The funny thing is that the initiators of the changes are seriously trying to argue that the proposed budget shortfall can be made up by increasing the profits -- by 15 trillion rubles -- from privatization, by eliminating 6.6 trillion rubles of export privileges, and by introducing a new tax on manufacturing costs. One does not have to be a specialist in economics to understand that an increase of taxes on manufacturing costs will lead to sharp retail price increases at a time when the retail market is already facing serious problems. Virtually everyone today acknowledges the retail crisis. Moreover, if one recalls the government's lack of success in collecting taxes last year, then the supposition that no one is going to be able to collect the new taxes seems well founded. Likewise, it would seem that today in Russia no one has the money to contribute an additional 15 trillion rubles to the government's coffers in increased privatization costs. The obvious conclusion is that the proposal being discussed in the Duma is an patently inflationary budget. Nonetheless, one must take the proposed increase in expenditures, which is supported by President Boris Yeltsin, quite seriously. It is obvious that Yeltsin, who initially supported the government's budget proposal, began to feel considerable pressure from the military and the military-industrial lobby. It cannot be considered a coincidence that in the days preceding Yeltsin's declaration of support for the new version of the budget, he was visited in the Kremlin several times, according to reliable sources, by Yury Skokov, the former head of Yeltsin's Security Council. The most dramatic figure in this tale of the transformation of the budget seems to be Prime Minister Viktor Chernomyrdin, who up to the last minute tried to keep the deficit down. It is known, though, that he faced pressure from all sides. On the one hand, the democrats who wield influence in the president's administration protested against what they felt was an excessive increase in expenditures. On the other hand, Chernomyrdin faced the same old industrial and military-industrial lobbies. It even got so bad that, according to informed sources, Chernomyrdin found himself in the minority in his own government, supported only by the Finance and Economics ministries. The remaining government offices united around Deputy Prime Minister Oleg Soskovets and demanded an increase in expenditures. The optimally balanced variant of the budget that Chernomyrdin proposed did not seem to satisfy anyone, except perhaps the Agrarian faction which, in the first version, received basically everything it had sought. As a result of this standoff, which was broken only by the president, the prime minister suffered a serious blow. Chernomyrdin was shaken, but this time he held on. It seems likely that all the rumors that were going around recently about government shakeups were an indirect manifestation of this struggle. It would seem that we, perhaps without realizing it, were witnesses to a pointed governmental crisis, in which the prime minister's fate was on the table. But as we have seen, the president did not lose confidence in Chernomyrdin, and the holes in the budget will be plugged with help from Yeltsin's latest economic decrees. At the same time, the president's support for a deficit budget created new conditions on the political scene. It would seem that the democrats -- primarily, Russia's Choice -- are in the most complicated position. They must now decide whether to support the president, whom they usually support but who now has taken a position in opposition to their program, or whether to remain true to their principles. But no matter what they decide, it is clear that Yeltsin is moving away from the democrats and toward the "economic generals." The main benefactor in this budget crisis, the army, also presents a problem. The military leadership has now demonstrated openly that it is stronger than the president and that Yeltsin is dependent on the military's support. It is unlikely that Yeltsin will be satisfied with such a situation. Logic dictates that he will have to undertake some measures to reduce the army's influence. The best means of achieving this is to activate the military reform that had been put off. It is even possible that the president retained Sergei Shakhrai as deputy prime minister precisely in order to use him as a kamikaze by putting him in charge of military reform. At any rate, rumors to this effect are circulating in the corridors of power. Finally, the fact that an inflationary budget, supported by the president, will be accepted gives us cause to make one conclusion: Russia should not expect the promised stabilization in the economy this year. Consequently, political instability will also continue. Sergei Chugaev is a political observer for Izvestia. He contributed this comment to The Moscow Times.