Russian Duma OK's budget

foreign lenders unimpressed

Analysts say plan is based on unrealistic assumptions

February 06, 1999|By LOS ANGELES TIMES

MOSCOW -- Russia's lower house of parliament passed a federal budget yesterday that calls for minuscule spending, by U.S. standards, but nonetheless left international lenders cold.

The budget starkly testifies as to how far the former superpower has fallen in its difficult transition to a market economy. This year's $1.7 trillion U.S. budget dwarfs Russia's planned spending -- a mere $25 billion: Russia plans to spend in a year about what the United States will spend in an average five days.

And yet International Monetary Fund officials, who had been watching the progress of the budget closely, walked away dissatisfied, announcing yesterday that they were leaving Russia without agreeing to release suspended loans.

An IMF statement reported by the Itar-Tass news agency said officials will return to Moscow once the government of Prime Minister Yevgeny M. Primakov puts together a program worthy of international support.

A chorus of Western analysts almost universally condemned the budget as unrealistic in its assumptions on inflation, the ruble exchange rate and revenue.

"At this stage it's clear that an IMF agreement is not around the corner," said London-based economic analyst Charles Blitzer of investment firm Donaldson, Lufkin & Jenrette. "As with previous Russian budgets, this one is not in any sense going to to fulfilled."

Russia's federal budget has become the point of dispute between Moscow and international lenders, who say the Russian government must do more to raise tax revenues and curtail social spending.

In Russia, however, the budget is seen as the toughest that has ever passed through Russia's Communist-dominated lower house, the Duma. Otto R. Latsis, editor of the Noviye Izvestia newspaper, called it "the most anti-social and tightest budget among all other previous budgets."

The budget is built on several highly dubious assumptions, analysts say:

That billions of dollars in revenue will come from foreign lenders -- including a $4.3 billion loan installment from the IMF, frozen last year.

That inflation will remain at 30 percent and the ruble will remain steady at 21.5 rubles to the dollar -- already higher than this week's average of about 23 rubles to the dollar.

That Russia's tax collectors and other revenue raisers will meet a $20.5 billion target, despite government plans to cut the value-added tax.

Moscow-based analyst Charlie Ryan of United Financial Group consultants said the only way Russia will get IMF help is if it immediately rewrites its budget in an effort to prove it is serious about collecting taxes.

"No one believes they have the political will to collect taxes," he said.

Pub Date: 2/06/99

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