. Last Updated: 07/27/2016

Duma Deputy Blasts 'Populist Promises'

A senior State Duma deputy lambasted the Russian government Friday for its shift in economic policy to focus on paying off wage arrears while ignoring the shortfall in budget revenue and cutting state investment.

"No one is thinking about economic consequences," Mikhail Zadornov, head of the Duma budget committee and a member of the liberal Yabloko faction, told a news conference. "All these shifts and controversial statements seem ... just to make sure President [Boris Yeltsin] wins the elections.

"These steps of the government recall the agony of the government of the Soviet Union in 1989 to 1990, when external borrowing instead of economic change is used by politicians to cover current spending and populist promises," Zadornov said.

The budget committee head said Russia was becoming dangerously reliant on borrowing -- from foreign sources and domestic securities -- as revenues were coming in at only 60 percent of projections. Investment and defense expenditures were being slashed to make up for the shortfall and meet the government's pre-election social spending promises, he said.

Zadornov's sweeping indictment came as the government started implementation of a plan to retire all the country's wage arrears to federal employees by the end of March.

Prime Minister Viktor Chernomyrdin said the Russian government would provide interest-free loans -- expected to total about 2.5 trillion rubles ($517 million) -- to regional authorities to help pay off the debts, Interfax reported Friday.

Overall, arrears to the country's workers have been estimated by the State Statistics Committee at 20.4 trillion rubles. Zadornov said the amount due state employees by early March was 8 trillion rubles, with an additional 5 trillion rubles of local budget arrears.

The Moscow region is reported to have received by Saturday the entire sum of 146.5 billion rubles it was earmarked, while the Novgorod region collected 30.4 billion rubles, or 92 percent of the sum allocated by the government, Interfax reported.

Efforts to date, however, were far from enough and are jeopardizing the health of the overall economy, Zadornov said.

"As we see, delays in the payment of wages are continuing, certain sectors are being underfinanced and the economy is actually not being financed," the deputy said.

Budget expenditure was 60 percent to 65 percent of the projected level in the past two months, and most of the money was used to pay wages, Zadornov said. Capital investments, which were funded at only 50 percent of the planned level in 1995, slumped to 30 percent of the amount reserved for the first two months this year, and defense spending was 30 percent to 35 percent of budgeted levels.

"It's likely this system will continue until all wage arrears have been cleared," Zadornov said, adding that the Duma would seek changes to the budget law but would not increase expenditures.

Revenue also was coming in at 60 percent, or 20 trillion rubles, under forecasts, he said. If the trend continued, the 1996 budget would be 85 trillion to 86 trillion rubles short, beyond the already projected 88.5 trillion ruble deficit.

"You can't talk here about the traditional cash flow gap [in the first two months]. This is, essentially, a malfunction of the whole system and evidence that the current government policy is not working," Zadornov said.

To compensate, issues of government securities were 30 percent above planned levels, he said, and the government was planning to use a 4 billion Deutsche mark ($2.7 billion) loan announced by Germany last week to pay off the wage debts.

Russia would receive $3 billion to $3.5 billion this year from the International Monetary Fund, Zadornov said, rather than the $4 billion indicated when the major three-year loan deal was given preliminary approval last month. The package must still be approved by the IMF board later this month or in mid-April.

Yaroslav Lissovolik, an expert at the Russian-European Center for Economic Policy, said the government's drive to pay off the wage arrears may still produce dividends.

"Clearing the wage debts is not the worst kind of populism, even if it's some kind of populism," he said. "All those debts would need to be paid sometime anyway."