THE FORTNIGHT IN REVIEW

Russia entered the new year with the financial wolf at the door. Because of its failure last December to make a US$362 million interest payment on its Soviet-era debt, the Fitch IBCA credit rating agency this week downgraded PRINs–Russian bonds covering US$22.4 billion in Soviet-era debts–to a default level. Fitch predicted, however, that Russia would probably manage to secure forgiveness on those debts rather than be allowed to default. First Deputy Prime Minister Yuri Maslyukov, meanwhile, flew to Washington on January 15 to meet with the heads of the International Monetary Fund (IMF) and the World Bank. Maslyukov’s mission was to win renewed payments from the IMF’s US$22.6 billion bailout package which were suspended last fall for Russia’s failure to comply with IMF conditions. Russia will need renewed IMF support and funding to make payments on the debt it accrued in the post-Soviet period–a bill also worth tens of billions of dollars.

One factor which will help determine whether Russia receives further IMF funding is the draft 1999 budget, which the government of Prime Minister Yevgeny Primakov is trying to get the parliament to pass. The draft is widely viewed as being tough and austere compared with budgets of recent years. The State Duma approved a basic version of the draft last month, but Duma committees, along with leaders of the opposition, are pushing for increased spending on national defense, social programs and subsidies for Russia’s regions. Finance Minister Mikhail Zadornov this week said he was unhappy with a suggestion made by the Duma’s budget committee for sharp cuts in funds earmarked for the government apparatus and for foreign policy-related programs. Nonetheless, the likelihood that the draft budget will pass the parliament was increased when it won support–albeit tepid–from both Yegor Stroev, speaker of the Federation Council, the upper house of the parliament representing Russia’s regions, and Communist leader Gennady Zyuganov.

Yet even if the budget is passed, the prospects for the economy this year remain bleak. Despite a temporary strengthening this week, the ruble is likely to continue its downward slide as the government continues to print money to pay off wage and pension arrears, and as the Central Bank continues to draw down its gold and hard-currency reserves to support the currency. The Economist Intelligence Unit predicted this week that renewed inflation and declining industrial output would be unavoidable this year.

In Russian politics, meanwhile, the likely major contenders in this year’s parliamentary elections and next year’s presidential vote continued to jockey for position. The contradictions within the “national-patriotic” opposition came out into the open, with Communist Party leaders like Gennady Zyuganov announcing that the People’s Patriotic Union of Russia–the opposition’s umbrella organization–would probably divide into two or three electoral blocs to contest the parliamentary elections. Zyuganov has apparently decided to side with the more pragmatic elements within the party: He once again called for cooperation with Otechestvo, the movement recently founded by Yuri Luzhkov, the mayor of Moscow. Luzhkov, who late last year ruled out an alliance with the communists after the controversy surrounding anti-Semitic statements by key Communist officials, has not yet responded to Zyuganov’s latest overtures.

NORTH CAUCASUS REMAINS A TINDERBOX