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. Last Updated: 07/27/2016

Sound Budget Won't Happen Without Fight

The newly formed government met for the first time last week to consider the main economic and political question facing it: the draft budget for 1997.


The budget is based on forecasts of social and economic development that have been prepared by the Economics Ministry, the Finance Ministry and other economic departments, which predict that the budget deficit will be lowered to 3.3 percent of the Gross Domestic Product, inflation will be less than 1 percent per month and the yearly refinancing rate should fall to 30 percent or even 20 percent. It remains to be seen whether the government will attain these showings. But its stated intentions are evidence that it will continue strict financial policies.


Even if the government manages to hold inflation to 0.8 percent to 1 percent a month, Russian citizens should still expect a significant rise in the price of housing, public utilities and transport. Today these rates have been lowered for the population and raised for industry. This means that an apartment owner pays less for the same kilowatt of electricity per hour than company owners, and the revenues from cargo transport cover the losses of passenger transport.


From the Economics Ministry's point of view, such a system of subsidizing the population is illusory, since the rise in the cost of utilities for industry increases its production costs which, in the end, are paid for by the consumer. Moreover, continuing to subsidize the population at industry's expense decreases the ability of Russian industry to compete on the world market which means a loss of jobs for the recipients of these subsidies.


It was already clear in Soviet times that those who benefited most from low prices and rates were the highest paid part of the population, since it used more electricity and took public transport more often than the rest of the population.


At the government meeting, the first deputy Economics Minister Yakov Urinson expressed the view of his department that the time had come to move away from granting lower utilities rates to the population in general, and instead make them dependent on family income.


This is a rather bold direction in economic policy that could only be taken by newly elected officials who have at least four years before them.


If the authorities have until the next federal elections to carry out these unpopular but necessary policies, then another direction that was mentioned -- increasing control over prices of monopolies -- could run up against immediate and well organized opposition from these monopolies.


There are probably few people who know that the Railways Ministry is one of the largest traders of coal, minerals and timber in Russia. Producers of goods weighing many tons, such as coal and timber, are unable to settle their accounts with the railroads. Part of the payment is made in natural resources. And the rates of monopolies such as railroads and power plants are constantly growing.


In other words, by setting forward a realistic budget and sound economic policy, the government will encounter the discontent of monopolies and the population. Overcoming them will be far more difficult than convincing the International Monetary Fund that its economic policies are correct.





Mikhail Berger is economics editor of Izvestia.