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. Last Updated: 07/27/2016

Moscow Set to Intervene in Debt-Saddled Regions

In 2007 federal arbitration courts will be able to appoint special financial administrations to intervene in heavily indebted regions, according to amendments to the Tax and Budget codes approved at last week's Cabinet meeting.

According to the drafts, temporary financial administrations will step in for any region whose debts amount to over 30 percent of its income, excluding transfers from the federal budget.

Who, precisely, will be appointed to haul regional finances out of the red is not yet clear.

Nor is it clear what the role of the region's finance officials will be during the intervention year. The amendments are believed to be part of a package of laws now being prepared by a presidential administration commission, headed by Dmitry Kozak, that deals with the redistribution of power between the regional and federal administrations.

Exactly which regions are financially troubled has not yet been established.

Deputy Finance Minister Tatyana Golikova, who presented the amendments to the Cabinet last Thursday, did not name any region that may become subject to the new law.

Another deputy finance minister, Anton Siluanov, told Rossia television's Vesti program last Thursday that today, "None of the regions are up to these criteria, and it is too preliminary for the regions to worry about it."

Vesti did, however, name Ulyanovsk as one region that is lagging far beyond the criteria, with a debt burden equal to 52 percent of its regional income. In Ulyanovsk, though, the acting head of the region's finance committee, Irina Batrakova, refused to confirm or deny the figure, saying that the information is "confidential."

And Ulyanovsk is not alone. Vesti also said that the Kostroma, Kursk, Tver, Murmansk, Altai, Krasnoyarsk and Chukotka regions have debts that exceed 20 percent of their incomes. In Omsk and Kurgan, Vesti said the regional debt burdens are closer to 30 percent. The program did not give sources of its information.

Governors have mixed feelings about proposed intervention of federal financial controllers.

"I believe that it is fair," Krasnoyarsk Governor Alexander Tkachyov told Vesti. "The federal center has the unique capability to control regional finances. There are regions where debts are higher than the budget itself."

But Yaroslav Governor Anatoly Lisichkin argued that such intrusion violates the rights of people living in the regions.

"People elected the governor, they trust him. So the federal authorities must trust them too," he said, speaking on the same program.

Felix Ejgel, an associate with public finance ratings company Standard & Poor's, said it is impossible to point fingers at so-called bad regions, because there is more than one way of calculating debts.

"A lot will depend on how the payable debt will be calculated and how tough the criteria is that is used to assess the debt," Ejgel said. "Now, there is no simple, standard method to calculate it."

"Say there is a debt incurred by an administration and a debt incurred by budget-financed entities. There might be no administrative debt because the budget may be fully met, but entities may still be indebted."

Ejgel said it is very important to clearly and transparently outline the mechanism of the application of the law because otherwise the complexity of the issue may be used to put political pressure on "bad governors."

"Abroad, such temporary administrations are being introduced to benefit people. Here, the tool can be used as a form of pressure on the regions and their administrations. It is very important that the tool is used to help people, but not as a lever the Finance Ministry can use to change an administration," he said.