More on the debt problem
MOSCOW, May 7 (AFP) - Warning of economic meltdown if spiralling
debt is not reined in, Russia's new government outlined a three-year
budget blueprint Thursday in response to Kremlin calls for resolute
financial belt-tightening.
As the finance ministry outlined its plans to run a tight ship
into the next century, Prime Minister Sergei Kiriyenko and central
bank chairman Sergei Dubinin warned that failure to control the
crucial debt part of the economic equation would risk another
financial crisis.
"If we cannot solve the problem of government debt servicing
within the next two to three years, it will be a major blow to the
defence capabilities and economic security of the country,"
Kiriyenko told the cabinet, according to ITAR-TASS.
Dubinin said the debt problem could lead the country into a
downward spiral culminating in the type of hyperinflation which
wasted the economy in 1992 and 1993.
Russia's ballooning debt, which includes restructured Soviet
debt, eurobonds, domestic treasury bills and Paris Club obligations,
has mortgaged the country's future up to the hilt, forcing interest
rates up to punitive levels, and gobbling up exponential amounts in
debt servicing.
Finance ministry figures issued Thursday indicated that debt
servicing commitments had risen tenfold from 700 million dollars in
1993 to 6.85 billion dollars in 1998. Kiriyenko said last month that
foreign debt stood at 120 billion dollars.
The need to borrow so heavily has been necessitated by feeble
revenue collection and sometimes profligate federal and regional
spending, and President Boris Yeltsin called earlier this week for
fiscal rigour to break the vicious circle of budget shortfalls,
spiralling debt and slow growth.
Yeltsin added a postscript Thursday, saying on Russian
television that as there was "a hole in the budget" the government
should come clean with the public to "realistically determine ...
what we will not be able to manage, so that the people will not be
deceived."
The finance ministry was quick to respond to Yeltsin's call for
rigour and realism, with Deputy Finance Minister Vladimir Petrov
sketching a three-year budget blueprint which he said took the
government from "the policy of moderate rigour to the policy of
rigour."
Petrov said federal revenues would come in at 318.3 billion
rubles in 1999, 348.1 billion in 2000 and 376.3 billion in 2001.
Total spending will increase over the three-year period by 10.9
percent, though as a proportion of GDP spending will be lower in
2001 than in 1999.
This would leave a budget deficit of 113.4 billion rubles (18.49
billion dollars) or 3.6 percent of gross domestic product in 1999,
dropping to 88.7 billion rubles, or 2.4 percent of GDP, in 2001,
ITAR-TASS reported.
As for the crucial debt statistic, Petrov said that cash
earmarked for servicing Russia's foreign debt would amount to more
than 12 percent of total spending, down from 16 percent in 1999, but
up from 8.4 percent in 1998.
He added that Russia's reliance on the International Monetary
Fund, currently disbursing a 10.2-billion-dollar loan over four
years, would end when the facility expires in 2000.
"Starting in 2000 we will conclude our relations with the IMF on
terms of creditor and borrower," Petrov was quoted by Interfax as
saying.
An IMF team is due to return to Moscow later in the month to
review economic indicators with a view to disbursing further loan
installments, suspended since January due to worries over weak
revenue collection.
Russian equities were unimpressed with the government's rigorous
plans, stocks losing two percent on the day. However, short-term
bonds took heart, as yields edged downwards, though longer-term
yields inched up, according to ING trader Maxim Safonov.
"The government announcement was very positive to the market
because they are going to reduce internal debt and try to deal with
debt much more carefully to lessen the heavy cost of borrowing,"
Safonov said. |
