01.06.09

Russian President Dmitry Medvedev on Monday addressed the Cabinet to make public personally - for the first time ever - the highlights of his budget message for 2010, to be submitted to parliament next autumn.

Analysts say he strongly adjusted and in some cases even dismissed the key optimistic benchmarks and promises government ministers and deputy prime ministers had been making until just recently.

In particular, he said the Russian economy had no chances of early emergence from the crisis, and the GDP's fall this year would be deeper than it had been expected. Medvedev declared the need for an austerity program in relation to budget spending. Experts say the Russian authorities' forecasts are now getting more adequate to the real situation.

Some analysts even see certain positive effects the crisis has had. It forced the authorities to make the budget more effective and competitive.

It was for the first time the president previewed the budget message personally in public. On all previous occasions the document was delivered to the State Duma by the messenger service, and the presidential aide for economic affairs then offered his comments.

In fact, the budget message urges strict saving of government funds, determines the economically reasonable tax pressures and establishes strict responsibility for spending. At the same time, as follows from what the head of state said, the social liabilities will continue to be honored in full and better adjusted to the needs of the recipients.

For the first time over many years the authorities will have to resume state borrowings. In the budget there is to be enough money for the social liabilities and for the modernization of the economy. The economic authorities will be saddled with the task of gradually easing the budget deficit. Whereas in 2009 the deficit stood at least at 7.4 percent of the GDP, this year it should be no bigger than five percent.

At the Cabinet meeting the first fears over the reform of the budget process were confirmed, says the daily Kommersant.

The 2010 budget will go before the State Duma no earlier than October, and the spending of 2011 and 2012 budgets will be tentative somewhat. The state is prepared to considerably increase the state debt and at the same time keep intact the reserve fund, and also to adjust the originally expected growth of social spending.

As a matter of fact, the budget message dismissed the idea shared by some members of the Vladimir Putin Cabinet (including First Deputy Prime Minister Igor Shuvalov) the crisis has reached the bottom and an economic recovery is due soon.

Also, the budget benchmarks underwent another revision, says the daily Nezavisimaya Gazeta.

"In 2009 we are expecting a far deeper fall of the GDP than the originally forecast one. The slump in government incomes the global crisis has caused has forced us to adjust the budget for next year," the president said. "All of us are aware of the dramatic situation the country and the economy are in now. The global economic crisis is still far away from its ending."

The original forecasts the president mentioned were very far away from the reality, indeed. As is known, the economy in the first quarter, according to the state statistics service Rosstat, fell by 9.5 percent against the same period last year. In the meantime, the leading government and Kremlin officials just recently kept telling the people the economy showed what they described as "zero growth."

Presidential aide, Arkady Dvorkovich and Finance Minister Alexei Kudrin on Monday had to reconsider their forecasts in a cardinal way.

"We hope the emergence from the crisis will begin during this three-year period," Dvorkovich said, adding that in the presidential budget message the current situation in the economy was described as a very complicated one and the global financial and economic crisis was continuing.

For his part, Kudrin said the government was finalizing a new GDP decline forecast, and it would be far worse than the originally expected one.

"At present we have a 9.5-percent-fall of the GDP in the first quarter of the year," he said.

Initially the Economics Ministry predicted a 2.2 decline in the whole of 2009.

The negative forecast forced the authorities to make a transition to stricter budget planning.

"The prices of oil may prove higher, and that would be better for us, of course, but we have no right to put compliance with our liabilities at risk," the president said.

"The government's new forecasts can be regarded as a more realistic interpretation of the statistical facts that speak for themselves," the daily Nezavisimaya Gazeta quotes the general director of the company 2K Audit - Business Consulting, Tamara Kasyanova, as saying. The analyst believes the hope for an early economic recovery has been shattered by the continuing fall of consumer demand.

Experts blame the decision to worsen the official forecasts on the depth of the recession and the continuation of the conservative budget policy that has been followed since the beginning of Vladimir Putin's presidency.

The budget message says the crisis will make everybody derive lessons to prevent more such shocks for the Russian economy. The main lesson is there must be a responsible budget policy that will serve as a key instrument in achieving long-term goals.

"No great loss is without some small gain," says the daily Gazeta. "As the unbridled growth of oil prices continued for the past eight years, it was practically impossible to ensure the effective spending of budget funds. In accordance with the presidential budget message the 2010 budget will be reworked fundamentally. Firstly, it will be reduced considerably as compared with the current one. Secondly, and this is still more important, it will become really project-oriented and competitive. The latter implies competition between the main recipients of budget funds, who will have to prove they are really worth getting government money.

Another crisis-related lesson from the presidential budget message - a sound policy of restricting government spending.

For the first time over the past ten years next year's budget will be considerably smaller than the previous one. No exact figures are available at this point. They will emerge after tough clashes between contenders.

Lastly, the message says that "in implementing the anti-crisis measures current problems must not be resolved at the expense of long-term priorities."

Otherwise, says the daily, the bankers and industrialists should not hope for the amount of state support they received this year.

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Source: Itar-Tass