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. Last Updated: 07/27/2016

Is All Policy Linked to June Vote?

A series of flip-flops, retreats and unkept promises this month suggests that practically nothing the Russian government says or does anymore about economic policy can be taken seriously -- at least not until after the presidential elections.

At a government meeting Thursday the State Property Committee was ordered to explore ways to raise money to reverse last year's loans-for-shares auctions. Given that there is no uncommitted funds in the federal budget, actually buying back the shares remains a distant prospect. Nevertheless, the decision amounts to the first concrete step back from the privatization program widely hailed as Russia's greatest achievement in the reform process.

Also Thursday, Russian agricultural officials said they were developing quotas and new sanitation guidelines on a range of imported food products, ostensibly on health grounds but in fact an effort to court the country's farm lobby ahead of the elections. The move echoed the on-again, off-again ban on U.S. poultry imports earlier this year. On another front, the government has caved in to the demands of Russia's oil barons -- who, not so coincidentally, have lined up behind President Boris Yeltsin's re-election bid -- and revised in their favor a plan to drastically revalue companies' assets.

Perhaps most significantly, Russia has still failed to abolish export duties as promised by April 1 in its agreement with the International Monetary Fund for a critical $10 billion loan.

The common theme in all these instances is the way policy is being used for domestic political consumption (though in the case of export duties, the delay is also a sign of the treasury's desperate revenue shortage).

With an incumbent president seeking re-election at any cost, some measure of inconsistency is to be expected. But now it is difficult to tell if the government really believes in any policy besides its own survival.

The bond market is expressing its lack of confidence in the government's current policies -- and its electoral prospects -- by sending yields on state treasury bills through the roof in the last month and heavily undersubscribing Wednesday's auction.

A much greater shock to the system would be felt if the IMF were to suspend its April loan tranche. An IMF team is now in Moscow evaluating Russia's compliance with its reform program, amid indications the Fund's patience is wearing thin, government reassurances notwithstanding.

The ultimate test of the government's credibility will come not from bond traders or Western lenders, however, but from the Russian electorate. Yeltsin seems to be banking that waffling will win more votes than sticking to his government's policies.