#11 - JRL 7206
Moscow Times
June 2, 2003
Putin Warns as Budget Debate Begins
By Valeria Korchagina
Staff Writer

Debate on the 2004 federal budget officially kicked into high gear Friday, with President Vladimir Putin calling on lawmakers and officials not to get carried away ahead of parliamentary elections and the Finance Ministry submitting the basic outlines of the bill to the government.

"The main task of budgetary policy remains the improvement of the population's well-being and ensuring the country's steady economic growth," Putin said in his annual written request to the Cabinet to begin the budget process, which was posted on his official web site, www.president.kremlin.ru. "The 2004 federal budget must not become a hostage to electoral ambitions, lobbying by sectors and promises that are impossible to fulfill."

Putin stressed that a stabilization fund to guard against external and internal economic turmoil should be created, and called for more tax cuts and greater efficiency

Shortly after Putin's letter was delivered to the Cabinet, Finance Minister Alexei Kudrin submitted to the government basic parameters for the 2004 budget, which includes a $3 billion surplus, or 0.6 percent of gross domestic product.

"If one were to generally assess President Vladimir Putin's budget address, one can note that it is aimed at creating a more stable financial system in Russia," Kudrin was quoted by Interfax as saying. "This stability will be secured by the tax system, budgets at all levels, their balance and immunity to various risks and external influences."

Putin's chief economic adviser, Andrei Illarionov, said that what Putin was calling for amounted to nothing less than a "revolution" in budget policy.

"The volume of funds redistributed through the state budget must be reduced. [Putin] has set out this kind of task for the first time. This is why fulfillment of the goals set in the budget address will mean ... a budget revolution," Illarionov told reporters in St. Petersburg, Interfax reported.

The draft budget submitted Friday sets spending at 2.59 trillion rubles ($84.39 billion), up 11 percent from this year's budget, and is based on an estimated annual exchange rate for the year of 31.9 rubles to the dollar.

Spending will come to 17.1 percent of GDP, which is expected to grow 5 percent to 15.2 trillion rubles, or about $490 billion.

The Finance Ministry expects the average price of Russia's benchmark Urals blend of crude oil to be $22 for the year, and total revenues of 2.69 trillion rubles, according to Reuters.

The 2003 budget was drafted based on the estimation that Urals would hover around $21.5 per barrel.

The draft also takes into account the new tax code currently before parliament, which would reduce a number of taxes, including value-added tax, starting in January. The draft also allocates 232.6 billion rubles to service the country's foreign debt.

A clear winner in the overall effort to keep spending down is national security, spending on which will grow 10.6 percent to 716.2 billion rubles, more than half of which, 391.5 billion, or 2.6 percent of GDP, is earmarked for defense. Law enforcement bodies will get 263 billion rubles, up 18.3 billion rubles from 2003, while 17.3 billion will be set aside for military reform.

The Cabinet will debate the draft at its meeting Thursday.