Russia's painful budget revision is the Kremlin's toughest juggling act in a decade, as it has to balance social spending and the interests of various lobbying groups without falling too sharply into budget deficit. The growing queue for state bailouts among businessmen and the resultant political infighting are the key reason why Russia has no new budget for 2009 almost two months into the year. When the country's main financial document is finally ready in two or three weeks, as the Finance Ministry pledges, Kremlin watchers will have a rare chance to identify favorites by looking for cash winners in often opaque budget books. Should there be too many lucky cash recipients, the government will be left hoping the oil price does not come down further, pushing the deficit out of control and resulting in a further devaluation of the rouble and a spike in inflation. “The budget will give us an idea of who managed to win the race,” said Audit Chamber member and former parliamentarian Vladimir Semago, who saw Russia cut budget spending many times in the 1990s. “And besides the wide road and front staircase (for money) to Prime Minister Vladimir Putin, we will see a narrow path, a small door and a short flight of stairs with no handrail yet to President Dmitry Medvedev,” said Semago. As the economic crisis deepens, officials have been revising outlooks on a weekly basis and now see the economy shrinking by 2.2 percent this year after a decade of boom. With dwindling budget revenues due to low oil prices, Russia plans sharp cuts in its spending plans to make room for anti-crisis measures to revitalise the economy and avoid social unrest as unemployment rates rise fast. One of the Finance Ministry's drafts sees a quarter of the revised budget, or $53 billion, spent on economic support. That would prompt a 21 percent cut in initial spending to ensure a deficit of no more than 8 percent. Still, based on an oil price of $41 per barrel, the new budget will be 558.6 billion roubles larger than its predecessor. Access to Putin State wages, pensions and defense have been declared sacred. Infrastructure is the main area ripe for cuts, although the government has not said whether across-the-board spending cuts will be applied to other areas. Having direct access to Putin, still Russia's most influential politician, or his protégé Medvedev is vital to securing a smaller cut in initially planned budget allocations or to enjoy a bigger share of the anti-crisis budget package. Russia has devalued the ruble by 35 percent in the past six months and inflation is running at above 13 percent. Putin has said the deficit will be financed from domestic borrowing and the reserve fund, accumulated during previous years of high oil prices and which amounts to 10 percent of GDP. The fund is part of Russia's foreign exchange reserves, still the world's third-largest at $386 billion despite the country having spent $200 billion on supporting the ruble. Heavy borrowing Russian firms, which borrowed heavily to fuel growth and must redeem over $100 billion in foreign debt in 2009, were shocked when the government this month halted its $50 billion direct refinancing programme after disbursing only $11 billion. They must go now to commercial banks. As some of the biggest lenders will enjoy support from the anti-crisis budget, the struggling empires of the likes of aluminium tycoon Oleg Deripaska still bear hopes they won't be allowed to go under. Alexander Kliment from the Eurasia group think-tank said elite infighting in Russia was also growing. Putin's ally and the head of the state railway monopoly Vladimir Yakunin, seen as a powerful member of the Kremlin's hardliner camp, this week accused the more liberal fiscal faction of the government of mismanaging the crisis. “For 2009, the government likely has enough political capital and the population is sufficiently quiescent to maintain stability. But the chances of a longer crisis are growing, and that means increasing risk for Russia,” Kliment said.
