Russia is looking bleaker and bleaker.....
10/22 Russian Government Approves Emergency Spending Plan as Food Shortages Loom
Russia Approves Spending Plan as Food Shortages Loom (Update2)
Moscow, Oct. 22 (Bloomberg) -- The Russian government approved
an emergency spending plan that will require the central bank to
print at least 20 billion more rubles ($1.2 billion) to help rescue
banks, bring food to desperate regions and pay back wages.
The spending plan for the remainder of the year comes as the
Red Cross warned malnutrition in some regions has worsened and
starvation this winter is possible. Social spending cutbacks are
inevitable, finance ministry officials say, because Russia lost
access to financing after defaulting on its debts in August.
The plan ''shows a serious attitude to economizing spending,
even in this difficult time,'' said Finance Minister Mikhail
Zadornov. ''The winter won't be easy.''
The government has promised all things to all people in recent
weeks. The prime minister, finance minister and other cabinet
members are seeking to reassure the public that all back wages,
some outstanding for a year or more, will be paid and companies
that taxes will be reduced. The spending plan shows how severe the
situation has become. Earlier this year, the country of 160 million
was borrowing from investors at the rate of $1 billion per week to
finance its budget.
The government also has told foreign investors that Russia
will make about $2 billion in foreign debt payments this year, and
international lenders that the government will cut spending to
balance the budget. Zadornov said Russia has paid $500 million to
sovereign creditors and will pay another $2 billion before the end
of the year. Beyond that, he said, ''We're working with all our
creditors.''
Rescuing Banks
In addition, the government has pledged to bail out the
nation's banking system, which has been virtually paralyzed since
the government's mid-august default on ruble debt that was largely
held by domestic banks.
Russian banks urgently need 61 billion rubles ($3.6 billion)
to restore normal operations and avoid widespread collapse, Bank of
Russian First Deputy Chairman Andrei Kozlov told legislators today.
The central bank is trying to save the best banks by persuading
foreign banks to take equity stakes in the banks in exchange for
debts.
The new spending plan assumes revenue of between 65 billion
rubles and 75 billion rubles, and expenses of about 130 billion
rubles. The government said it will present the spending plan to
the Duma, or lower house of parliament, tomorrow.
Printing Money
To finance the deficit, the central bank will print about 20
billion rubles and buy new state bonds with maturities of 15 years
or longer, officials said.
''Of course we will print money, but we will keep it to a
minimum,'' Zadornov said. ''If we receive foreign financing the
amount of money we will have to print will be reduced.''
The government plans to increase revenue by linking the excise
tax to Russia's inflation rate, and considering an export duty on
oil of 5 European currency units per ton. It's also counting on the
International Monetary Fund to resume a $22.6 billion loan program,
approved by international lenders earlier this year and suspended
after the August debt default.
The IMF likely won't consider additional loans to Russia until
it sees the government's 1999 spending plan. The Finance Ministry
expects to present next year's budget plan to the government by mid-
November.
''It's a pipe dream to think the IMF will give money before
the Russian government declares openly what its plans are,'' said
Alan Rousso, director of the Carnegie Moscow Center.
Food Aid
Meanwhile, the government has few plans for increasing
revenue. The original budget became irrelevant in August because it
depended on government borrowing of more than $1 billion per week,
which is now impossible.
IMF Managing Director Michel Camdessus said last week that
Western nations should provide food aid to Russia to avoid
starvation. Red Cross officials warned that the situation in many
areas already is becoming severe.
''A country which is in this sort of crisis does not want to
give into the reality that it can't feed its own people,'' Rousso
said.
The government may have no choice.
Russians' average wage has tumbled to about $60 per month
since the central bank abandoned its defense of the ruble in mid-
August and the currency plunged more than 60 percent in a month. A
quarter of the population now lives below the poverty level.
Malnourishment
About half of Russia's children are underdeveloped mentally
and physically due to malnourishment, according to the
International Federation Red Cross and Red Crescent Society. The
Red Cross has expanded its aid in Russia to 12 regions, up from
nine last year and aims to triple donations.
''The situation has certainly worsened,'' said Caroline
Hurford, information delegate at the Red Cross in Moscow. ''We
can't afford to underestimate the possibility of starvation in some
areas. It's quite shocking how appalling the conditions are in some
regions.''
Even so, many Russians remain philosophical. In the
countryside, they've survived for the past few years on food grown
in their own garden, as wages and pensions went unpaid.
''I make my own infusions'' for medicine, said Matilda
Granovskaya, 58, a pensioner. ''I make my own food as well -- I
salt and pickle mushrooms, cabbage, cucumbers, tomatoes, peppers.
It's not only cheaper, but much better tasting than the foreign
food in the shops.''
Russia's agriculture ministry said the country likely will
face shortages in milk and meat products, which are largely
imported.
Russia already has requested food aid from the U.S. and
European Union, though no aid has yet been pledged.
Crop Failures
Demand for bread and potatoes, traditionally high in Russia,
may rise this year as Russians, hit by the financial crisis, will
have to buy cheaper food to substitute expensive imported products.
Russia's grain crop is expected to fall about 45 percent from
last year because of drought followed by heavy rains, which may
force the country to import grain. At the same time, rains have
damaged the quality of potatoes harvested this year as they become
more susceptible to fungus, which makes the tubers rot quickly.
Potato crop estimations are vague because about four-fifths of
potatoes are grown in small private gardens.
Zadornov said Russia will accept $350 million in Ukraine's gas
debt to Russia's OAO Gazprom in food products to be distributed
among budget-funded organizations.
The government also plans to lower taxes on food and medicine
to make sure supplies remain steady.
Russia's federal government currently owes between 7 billion
rubles and 8 billion rubles ($416 million and $475.3 million) to
workers, down from 12 billion rubles in September, Finance Minister
Zadornov said. The government will pay the wages by Jan. 1, with
payments to soldiers and policemen completed during the month.
The federal government, regional governments and companies on
Oct. 1 owed workers 88 billion rubles ($5.23 billion) in back
wages, up 4.8 percent from Sept. 1, according to the State
Statistics Committee.
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