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. Last Updated: 07/27/2016

INSIDE RUSSIA: 1998 Offers Dim Prospects For Growth




It's a new year and all is quiet on the political and social front.


Last year was a sad one for Russia, and the prospects for the coming year are gloomy.


The skirmish between the government reformers and business magnate Boris Berezovsky left the reformers wounded. And First Deputy Prime Minister Anatoly Chubais showed himself to be surprisingly passive in the fight. But his foe didn't hold back, and engaged in the cheapest kind of populism he could manage, which smelled as harsh as country moonshine, and was intended for precisely the part of the population that typically drinks it.


Uneximbank hasn't done much to help the reformers. You may recall how Chubais announced that revenues from customs would be transferred from Uneximbank to the Central Bank. The next day, the Central Bank said the money was transferred from customs accounts serviced by Uneximbank to Finance Ministry accounts also serviced by Uneximbank.


The weakening of the government led to a ridiculous 1998 budget. The State Duma tacked on an extra 17 billion new rubles in expenditures. When the government sent the Duma the tax laws intended to raise the money, the deputies spit on them with great ceremony.


The collapse of Southeast Asian markets laid to rest the 2 percent growth rate that was accounted for in this year's budget. The ruble was then left to the mercy of the treasury bill market. But the growth in interest rates buried any hopes that Russia's banks would finally move to real investment.


Moscow's biggest mistake, however, was the huge public-relations campaign on paying back pensions and wages that are owed by regional governments.


Half of the 10 trillion rubles owed to state workers were supposed to have been paid by local government and half by the federal government. As a result, the government ended up playing the role of a ruined nobleman who sells his last stitch of clothing in order to throw a dinner for his friends, and finds there still isn't enough food to go around. Taxpayers have been squeezed dry. And the local governments that neglected to pay their share still blamed Moscow.


But the budget is not the only problem.At a meeting of coal reform commission Dec. 28, Chubais said the industry had been paid all 6.5 trillion rubles that were due from the non-sequestered budget, and at a coal miners' meeting in the Kuzbass on the same day, workers stamped their feet and demanded the resignations of all the capitalist ministers responsible for not paying their wages. Yet 100 percent of the wage arrears as of Dec. 28 stemmed from nonpayments by employers (read: unscrupulous directors).


Russia's ruling class, the industrial managers and regional officials who feed off nonpayments, has managed to put the blame for the crisis on Moscow. Of course, Moscow shares much responsibility. But the situation reminds me of the story of how when Francis Drake plundered the Pacific shores of South America, the Spanish accused him of stealing treasures weighing twice as much as his ship. And so it has been in Russia, where for every ruble lost because of the federal government's mistakes over the budget, three rubles are stolen from below.


Yulia Latynina is a staff writer for Expert magazine.