Vladimir Potapov

R

ussia’s State Duma (the parliament’s lower house) passed the law to establish a stabilization fund. For the first time the government’s financial reserves accumulated because of higher-than-expected prices for oil are formalized in the 2004 budget as a special fund. As Andrei Illarionov, the economic adviser to the Russian president, figuratively put it, "it might be called a money vault or reserve stock, a pocket". It is expected that this fund will be completely formed in three years.
n contrast to the previous reserve that was formed by the "leftover principle", the stabilization fund is based on the two components: the operating budget and the accrual item. The latter is regarded as a way to reduce Russia’s dependence on conditions in the world oil market. The new fund is aimed at lessening impact of possible downfall of oil prices, smoothing peaks of foreign debt payments. It should become a kind of guarantor of the country’s social and economic status. In the opinion of economist Alexander Zhukov, this "will remove the threat of default or financial crisis for good".
The fund is to accumulate proceeds that compile the so-called "world rent", including a portion of duties on export of oil and gas as well as taxes on production of minerals. If market conditions are not favorable, resources accumulated in the stabilization fund can be used as a source of getting out of the red and fulfilling commitments approved for a given fiscal year. By mid-2004 resources of the stabilization fund are estimated to reach 200 billion rubles ($6.75 billion by the current exchange rate).
The fund’s base volume should be sufficient for guaranteeing fulfillment of the federal budget commitments. Before that, using accumulated resources is not permitted, if foreign economic conditions are favorable. And in future their use will be allowed only on strictly specified terms.
According to Alexei Kudrin, Russia’s vice prime minister, so far the government does not intend to spend resources of the stabilization fund. "I think that in the nearest two years we will not have a need to lay hands on it", said Kudrin.
The country’s budget is planned to stay in the black. In the mid-term, proceeds should annually exceed expenditures by 0.5 to 0.6 % of the GDP.
According to the preliminary data, in 2003 the growth of Russia’s GDP amounted to 6.6%. As Alexei Kudrin notes, the government hopes "to keep these rates" in the next three years. In his words, the GDP will increase 5.2 % in 2004, 5.9% in 2005 and 6.1% in 2006. And maintaining the rates is to be achieved not in the least through high prices for oil.
In its calculations the Russian government proceeds from the expectation that in 2004 oil will cost $22.5 a barrel. This is approximately $2 less than the average price forecasted by international and domestic experts. The federal budget expenditures are based on the assumption that the price for Russian oil will equal $20 a barrel. If the price is higher, all additional earnings will go to the stabilization fund. "So, we assume that prices for oil will be moderate and that will reduce the dependence on it as far as both expenditures and prices are concerned", explains Kudrin. At the same time the vice prime minister does not rule out that " an annual average price for oil will be higher" than experts predict.
Kudrin categorically rejects criticism that the very mechanism of using the stabilization fund’s resources is not sufficiently transparent. On the contrary, he says, there is an absolute transparency: the fund’s resources are kept on special accounts and they are out of reach for the government to use them. They will be placed in high-liquidity foreign currency instruments in outside markets.
So, how does this fund contribute to accomplishing the task of macroeconomic stabilization? In the opinion of Russian experts, first, the government is being deprived of an opportunity to plan non-interest expenses "because of unforeseen needs" by exaggerating them as it gets "accidental" earnings. Second, there is a chance to reduce fluctuations of budgetary income and that should help make budget debt payments during peak periods. Third, it becomes possible to "lock up" a portion of export currency receipts. Their pressure on the ruble, when oil prices are high, may be weakened. Thus, there will be an opportunity if not to completely protect the country’s financial processes from negative impact of world economic conditions, then to, at least, significantly reduce this dependence.
However, debates about the stabilization fund law are still going on even after it has been passed. For example, economic advisor to the president Andrei Illarionov is proposing to make some corrections later and he thinks that the fund’s resources "should be used to, above all, settle foreign debts".
The law does not rule it out but it says that this can be done only after volume of the stabilization fund resources will exceed 500 billion rubles. Illarionov also had to admit it. But, in his words, he does not see any sense in "accumulating an enormous amount of money on the fund’s accounts, when we are paying from 7% to 12% a year on our foreign obligations". The president’s advisor believes that the stabilization fund’s resources should be used "to meet our most expensive obligations".
As a whole, Andrei Illarionov highly appreciated the very fact of establishing Russia’s stabilization fund and called it "the decision of the year" in the economic sphere.
"Strategic Flight" of Russian Capital Is Over?

Russia’s gold and foreign currency reserves have reached such a level that it has become possible to cover payments for all incoming import shipments for as long as 12 months. By this index Russia is now placed second in the world. Only Japan is ahead of it having the gold and foreign currency reserves that will be enough to pay for external purchases of goods and services for 19 months. At the beginning of 2003 Russia could provide financing of imports by its gold and foreign currency reserves just for 7 months. But by the year’s end these Russian reserves have reached the national record amount of $71.8 billion. As the PRIME TASS news agency reports, taking into account the fastest ever rise of this indicator, Western experts now believe that the process of the capital strategic flight from Russia, which had been taking place in the past decade, is over.