Chechnya: a Pricey Piece of Property
Russia's military cross could hike inflation
AS the Kremlin continues its battle for control over Chechnya, the Russian economy could be one of the victims of President Boris Yeltsin's military campaign in the rebel republic.Skip to next paragraph
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Russian politicians both for and against President Yeltsin's dispatch of troops into Chechnya are warning that increased Army expenditures could blow the 1995 budget, cause a surge in inflation, and eventually bring the country to economic collapse.
Former Finance Minister Boris Fyodorov, a reformer who heads the Twelfth of December parliamentary faction and supports Yeltsin's handling of the Chechen crisis, cautions that a prolonged conflict there would halt foreign investment to Russia and dash all hopes for future economic stability.
The Russian government has spent an estimated 1 trillion rubles ($290 million) since it sent tanks, planes, helicopter gunships, and roughly 40,000 troops to Chechnya on Dec. 11 to quash its three-year drive for independence.
If the current spending level continues, ``there will be no budget, there will be high inflation, and everything will collapse. Unless it is stopped in one or two days, I don't see how the budget can survive,'' Mr. Fyodorov says.
The State Duma, or lower house of parliament, passed the first reading of the 1995 draft budget on Dec. 23. It puts 1995 revenues at 134 trillion rubles ($38.8 billion), and spending at 206 trillion rubles ($59.6 billion).
Despite these tough targets, there is plenty of leeway for the government to overspend. A second law passed by the Duma will allow the government to exceed spending targets by 25 percent in the first three months of the year.
``It's clear that a lot of corruption and diverting of funds will occur, as always happens in Russia,'' Fyodorov warns. ``Something will be sacrificed. In December, no capital expenditures from the federal budget were paid out, because everything was going to Chechnya.''
The former prime minister, Yegor Gaidar, a radical reformer who has criticized Yeltsin's policy in Chechnya, says increased military spending would make a mockery of Russian efforts to lower inflation drastically - a prerequisite for winning new loans from the International Monetary Fund.
``The policy President Yeltsin is promoting is no longer the policy which can be combined with the policy of economic reforms,'' Mr. Gaidar told reporters.
But the West, which has consistently called the Chechen conflict an ``internal affair,'' is only now starting to condemn the invasion as the fighting worsens.
In Washington, incoming Senate Majority leader Bob Dole said on a US TV news program on Sunday that Russia's actions in Chechnya could jeopardize both United States aid to Russia and the future of Russian democracy.
``This is a no-win situation for Yeltsin. It's an indication that democracy may be on the brink,'' the Kansas Republican said.
Otto Latsis, an economic analyst for the Izvestia daily, wrote recently that the ``desire of Western investors to put capital into Russia has dramatically diminished'' because of the crisis.
He added that ``any future negotiations about credits or postponement of debt payments will become even more complicated.''
The cost of rebuilding the already devastated region will also be high. Russian Economics Minister Yevgeny Yasin says up to 3 trillion rubles ($870 million) will be needed to restore the Chechen economy, not including its vital oil industry, which has consistently been the target of Russian bombing.
``It will put quite a burden on the budget if Grozny is reduced to rubble and has to be rebuilt,'' Pavel Felgenhauer, military analyst for the daily Sevodnya newspaper, said in an interview.
The budget still faces three further readings in the Duma before it is sent for approval to the Federation Council, parliament's upper house, and Yeltsin.
But Russian budget targets are rarely met with ease. In the first 10 months of 1995, the deficit was 10.5 percent of gross domestic product, equal to 47.3 percent of spending.