Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Yeltsin Unveils Plans for Early, Austere Budget

President Boris Yeltsin outlined plans for an austere 1996 federal budget Thursday, pledging to hew to economic reform but also not to neglect the country's ailing social sector.


One day after a no-confidence vote in the government by the State Duma, the presentation at an uncharacteristically early point in the year appears aimed at securing passage of the budget in parliament before December's scheduled elections.


"Our task for the government next year will be to complete mostly financial stabilization and encourage the recovery of investment," Yeltsin said in a televised nationwide speech from the White House.


The budget plan projects a deficit of 4 percent of gross domestic product -- down from 5.6 percent in 1995 -- and monthly inflation of 2 percent next year. The International Monetary Fund has called for an inflation rate of 1 to 2 percent by the end of this year as a condition for Western aid.


Details, including the overall size of the budget, were not publicly released after the draft's presentation to an expanded meeting of the government. Spending in 1995 was set at 248.34 trillion rubles ($54 billion).


The government's final version of the budget is due to be sent to the State Duma, the lower house, by July 1, which one economist said would be the earliest date in the post-Soviet era. The 1995 spending plan was not presented to the lower house of parliament until November 1994 and only was passed in March.


Experts said the early submission was necessary because the budget would have little chance of passing if it were presented next year before a new parliament.


"The idea is to get the budget passed before elections. It takes two or three months for the Duma to get working, and if they wait until next year then you wouldn't have a budget," said one Western economist, who declined to be identified.


"That's the first order of business, that the budget is passed before there's a new Duma," said Maxim Elik, economics expert at the President's Analytical Center.


Yeltsin pledged Thursday to maintain the present policy of financing the deficit through non-inflationary means, and indicated that the government would not be in the business of handouts.


"The government's debt to enterprises, regions and individuals is inadmissibly big," the president said, adding that authorities would clamp down on "the untargeted use of funds for the agro-industrial complex."


But while stressing austerity, Yeltsin also said attention to the country's social ills would top the agenda next year.


"Russia will enter 1996 with a burden of complex social problems, such as unemployment, poverty, the unsatisfactory condition of the environment, etc.," he said, adding, "It will be necessary to enhance seriously government support for education, health care, culture and science."


"These and other problems will have to be tackled within the framework of tough budgetary constraints both on revenues and on expenditures," Yeltsin said.


The president also said Russia would reform its tax system to improve collection and encourage investment.


"I think it's realistic," Elik said of the budget. "I think it will be passed. Many deputies are thinking about the government, and the economy, and won't allow the country to begin 1996 without a ratified budget."


Andrei Illarianov, head of the Institute for Economic Analysis, praised the early submission of the budget but said its content was "not satisfactory."


"Very probably we will not have stabilization next year," said Illarianov, a frequent government critic, saying that a deficit of 4 percent of GDP would leave inflation at a minimum of 3 percent a month. "There's no case in world history of having such a deficit and financial stabilization."


But the budget's drafters defended its targets.


"The budget is designed to achieve a deficit of 4 percent of GDP as already specified in the standby agreement with the IMF," said Jochen Wermuth, head of the Economic Expert Group, a team of Western planners that works under the Finance Ministry. "The financing of the deficit is designed to ensure that the government does not have to use Central Bank credits."


The IMF's standby loan of $6.8 billion, approved in April, mandates strict adherence to a tight monetary policy as condition for release of the monthly tranches of aid.


Prime Minister Viktor Chernomyrdin, speaking after Yeltsin, said the budget "sets, as it should, a rigorous framework for the work of the government," and called on the Duma to pass the spending plan.


"If we want to consolidate the positive trends in the economy which have manifested themselves in recent months, we are duty-bound to stick to the parameters of the budget approved and to make sure that the budget for the year 1996 is adopted before December."


But Chernomyrdin, following the rebuke of no-confidence from the Duma, also accepted responsibility for the social costs of reforms, saying his cabinet has acted inconsistently."We have been taking many half-hearted and not very well thought-out decisions," the prime minister said. "The result was a slower than expected decline in the rate of inflation and consequently the growth of the social price of transformations pursued in the economy."


Chernomyrdin listed revisions to the tax code and raising more revenue from the privatization of federal assets as top priorities for the coming year.