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. Last Updated: 07/27/2016

EDITORIAL: City's Books Overdue for A Cleanup

Moscow Mayor Yury Luzhkov tries to hold up his city as a beacon of fiscal probity. The city government, he says, acts in strict accordance with an annual budget that is passed by the city's elected legislative assembly.

It is true that Moscow is one of the richest and most creditworthy cities in Russia.

But as The Moscow Times reported in a series of articles Tuesday devoted to the city's finances, the official budget provides only the most cursory and incomplete of insights into what is really happening.

Rating agencies say Moscow's finances are almost uniquely impenetrable and this counts as a serious risk in assessing the city's creditworthiness.

About 25 percent of the official budget is handled by off-budget funds. The city says this is just a matter of accounting convenience, but the system makes it almost impossible for outsiders to assess the efficiency and probity with which funds are spent.

Even more worrying, the budget does not adequately reflect the city's huge investments in commercial projects, especially in real estate. The city has borrowed billions of dollars for investment in residential housing programs carried out by off-budget entities with almost no public accounting.

Investments in commercial property have bought handsome returns in the past - but these could turn into losses with the financial crisis.

Moreover, the lack of clarity provides fertile soil for potential corruption and misuse of public funds. The city regularly makes loans to private companies that have close relations with the city bureaucracy.

Luzhkov has made much of his investment in a few high-profile industrial companies but no one seems to be scrutinizing how the money is spent or whether it is justified. This year's budget allocated $138 million for purchase of shares in industrial companies, but last year these investments yielded just $7 million in dividends. Muscovites may have been willing to accept this opacity in the past but the financial crisis is already hitting the city hard. The official budget has been slashed by 13 percent for the fourth quarter of this year and the biggest cuts are coming out of social programs like housing and education. Moscow's credibility on financial markets will also suffer if it fails to tell a clearer story on how it is spending its money.

Ultimately, what is needed is a more open political process and better supervision from a more active Moscow City Duma. The City Charter now causing waves in St. Petersburg, which increases legislative control over the executive, may provide a useful model.