Dr. Ulukaev

Russia's Public Finance in 1998-1999

(Summary)

 The aggravating of the financial crisis in august 1998 was caused by number of economic fundamentals including great gap between the volume of the public obligations and the capacity to mobilize funds required for their financing, lack of the reforms in the budget spheres, untrunsparency of the public finance, rapid growth of the state debt and the debt interest.

New Russian government does not do necessary fiscal adjustment. In fact it weakens the revenue side of the state budget by introduction individual agreements with major tax-payers, rejection of the fast bankruptcy procedure for persistent tax non-payers, reintroduction of offsets, reduction of the VAT rate and so on. Federal budget for 1999 is unrealistic, it overestimates budget revenues and the exchange rate of ruble, underestimates inflation rate. It creates obstacles for negotiations with IMF and other creditors.

In that very situation it is necessary to increase revenues of the federal budget to at least 10% of GDP, first of all to come back to current VAT rate. It could garnet minimum necessary level of the financing of the budget sphere and will give a way to reach the agreement with IMF.

 Dr. Afanasiev

Russian Federation: The Budgetary and Fiscal short-term Policies (Summary)

The economic events of the august ?98 created a lot of economic and political problems in Russia and discredited the general idea of economic reform and reformers themselves. Thus the Mr. Primakov's government is trying to solve most of these problems by effective political means which are to be matched by an adequate economic program including institutional and macro-economic measures. The main adopted economic document now is the Russian Federal budget for 1999. It is rather a political document seeking for approval of political fractions in the State Duma. Most macro-economic indicators of this budget are mostly optimistic. Our serious concerns are in particular inflation and budget revenues.

There is a hope that nominal money printing (without real economic growth) will not exceed the projected figure in the budget law and that the rouble/US$ exchange rate will not fall by more than 1/3 during 1999. But even under this optimistic scenario all economic indexes show that the forecast for 1999 inflation is over 60% and not 30% as officially assumed in the budget. Moreover, there are two other scenarios of further developments: intermediate (realistic) scenario and pessimistic scenario. Intermediate scenario assumes higher growth of money supply and zero external financing for the budget except of financing covering principal debt service (firstly, IMF and IBRD debts) planned in 1999 budget. Under intermediate scenario econometric models give us 1999 inflation of about 130%. Pessimistic scenario assumes the possibility that Russia won't get any external financing for budget at all. In this case we will have annual inflation of more than 250%. The Russian government assume to respect Russian obligations and try to avoid default on IMF and IBRD debt.

The lack of concrete economic estimation is also associated with tax revenues in the budget sphere. It is very important to estimate short-term effect of the recent changes in the tax law however positive these might be in the long-term perspective. Those changes will lead to an overall drop in the consolidated budget of 2% GDP, compared to the projections in the budget.

The budgetary and fiscal short-term policies in Russia will depend on further development of the current policy of political stabilisation, social reorientation of reforms, increase in efficiency of state control and regulation, and public sector management.

 Dr. Abalkin

Medium-Term Budget Reform, Monetary Policy Change and Restructuring of the Financial Market

(Summary)

In the paper the author is making assessment of the economic crisis in today's Russia as a systemic crisis which includes political, socio-economic and psychological aspects. Withdrawal form the crisis requires the significant change of the budget as well as revision of the monetary policy and restructuring of the financial market.

Financial crisis of August the 17th 1998 which resulted in the loss of confidence to the government as well as to the national banking system and the national currency of Russia (Rouble) is logically consequent upon the failure of the IMF policies in Russia. The key objective for Russia today is to revise effectively the social and economic policy, and the national priorities.

During the first stage (the near 2-3 years) a number of disproportion within the economy should be balanced; the feature of Russian economy as the debt one is to be removed off; financial resources for the production growth are to be mobilized. Despite the huge losses of Russia the nation is still rich in development resources that include depreciation deductions and profits, the enterprises assets and savings which have to be involved in the capital turnover through leasing, mortgage loan, house building and consumer credits, stimulating small business. Involvement of the foreign direct investment in the real sector of the economy will be encouraged. The economy then starts to be gradually monetized.

On the second stage of the reform the financial market is to be restructured. The share of the government securities will diminish along side with expansion of the corporate securities, but with regard to the national priorities. All of this is to provide access of the foreign investment to the domestic financial market that be designed to work for the real sector of the economy.

The price regulation on natural monopolies? products and services as well as on the goods of first social need will continue to be in operation.

The banking system is to be reformed. New financial foundations are likely to come into the market, those are the National Bank of Development and the Export-Import bank of Russia. The Russian banks which are now in action are expected to be specialized by their profile activities (investment and mortgage, federal and regional, and including foundation of other financial communities of different types).

Reforming the taxation as a part of the budgetary system will require much more time. The experience has shown that the problem can not be resolved by《one-step》approach. The preconditions are to exist, i.e. reforms on the population income net, withdrawal from the debt economy, settlement of the arrears, decrease of the excessive transaction costs.

 Mr. Glaziev

PROSPECTS OF ECONOMIC RECOVERY

AFTER FINANCIAL CRASH

(Summary)

In 1999 traditional passage that "the New Year will be decisive for Russia's economic development?, acquires real meaning. Financial catastrophe of 1998 summer destroyed many myths and stereotypes of recent years. The necessity of radical correction of the economic policy, of relinquishing the IMF-impelled dogmatic approach to conducting economic reforms, which led to severe destruction of scientific and production potential of Russian economy, has been acknowledged widely.

The report is based on the analysis of mistakes, made in the course of reforming Russian economy, and on the positive international experience of overcoming structural crises under the conditions of market economy. It substantiates the system of measures to overcome the depression and to encourage sustainable growth of Russian economy. Special emphasis is put on the measures to increase investment and innovation activity, stimulate scientific and technological progress and final demand, and increase competitiveness of Russian economy. It analyzes possibilities of revitalizing the production on the basis of utilizing existing scientific and production potential, currency turnover revival, financial and banking system and industrial enterprises restructuring, and conducting active industrial policy.

Prof. Zaitsev

Russia-Japan Economic Relations:

New Perspectives and Old Problems

(Summary)

Japan is, and in the foreseeable future will remain, the major Russia's economic partner in the region. Both countries have great potential to cooperate. In the strategic context, the following measures could provide new stimuli for enhancing Russia-Japan economic cooperation.

1. The federal and regional authorities should establish the Far Eastern Development Bank to stimulate investment and structural policies through concentration of resources.

2. At the moment, foreign investors mistrust Russia's attempts to ensure foreign investments. So, it is of primary importance to establish a multinational Insurance Fund for East Asia that can guard investors against entrepreneurial risks, and guarantee a complete replacement of capital, invested in the development of the RFE. The creation of such a Fund, which would act independently or in cooperation with Russia-Japan Investment Company, could generate more interest from private business circles of East Asia.

3. With or without economic growth, Russia will be capable to export large quantities of electricity and energy resources as long as it has idle energy facilities, including that in Siberia and the RFE. If the economic growth starts in 2000 it will imply greater but not full utilization of the performing stations, and thus lower prime costs of the energy destined for export. Russia can supply Japan with electricity, gas and crude oil, which currently are not the items of Russia's export to Japan.

4. To support sustained economic development, energy deficient countries of East Asia, including Japan, need to secure long-term and large-scale export deliveries of oil, gas, coal, electricity, and switch from the environment damaging to ecologically friendly types of fuel.

The Russian and Japanese governments could initiate the establishment of East Asian Energy Forum as a compact multilateral international organization of the countries concerned. The major tasks of the Forum would be accumulation of funds from private and public sources, and its investment in large-scale energy projects in Siberia and the RFE. The Russian governments (federal and regional) must collateralize raised funds with natural resources deposits.

5. The Russian government should consider a possibility of providing a status of a developing region for the RFE, and negotiate opening the ways for ODA inflows to the region. Russia can also benefit by this status if it will join the Asia Development Bank.

The Japanese government could pass a necessary bill in the Diet to able to use ODA money or its equivalent for the Russian Far East. Moreover, it might even set aside a part of ODA (or its equivalent) for prefectural governments to stimulate Japan-Russia cooperation on the regional level.

6. Japan can expand environmental protection assistance to Russia through proving a special Ecological Credit. It can be used for sewage treatment, garbage disposal and upgrading ecological standards of industrial enterprises. Particular importance should be given to the treatment of nuclear wastes, including the utilization of the nuclear submarines commissioned in the RFE

7. The Japanese government should encourage the private sector to help the conversion of the defense industry. The experiences gained in the past decade show that instead of aiming at direct conversion of military enterprises. It might be more helpful and effective to train engineers and managers employed by the defense industry to start small and medium size private enterprises with the help of the relevant Japan-Russia programme to support small businesses.