Federal Shutdown, Russian Style: All Work and No Pay

Yeltsin seeks US-backed bailout for budget

WHEN more than half-a-million Russian coal miners from the icy Siberian Pacific to the Arctic reaches of Europe went on strike last week, they succeeded in extracting the promise of $2.2 billion, a $600 million increase, from the federal budget this year.

But the plight of miners, some of whom had not been paid since October, is only a window on a problem that permeates the economy. For too many Russians, life has become all work and no pay.

Nonpayment of wages and pensions has become political dynamite for Russian President Boris Yeltsin, who is depending heavily on a pending $9 billion loan from the International Monetary Fund to help the government meet its budget.

President Clinton last week backed the IMF loan, offering Mr. Yeltsin critical support just before presidential elections this June. Some Kremlin officials consider the lack of wage and pension payments to be the main reason the Communists placed first in Dec. 17 parliamentary elections.

The IMF is linking the loan to free-market reforms and fiscal discipline in Russia. If Yeltsin's election-year promises of higher social benefits scuttle the loan, then his budget problems will instantly double.

Yet even with the loan, Yeltsin faces plenty of political and fiscal challenges. Nearly a quarter-million schoolteachers were also on strike last week, owed even more money in back pay than the relatively elite miners. Among the doctors, police, and others scattered throughout Russian society whose checks are not yet in the mail are a large proportion of pensioners.

"Wage delays are probably the most serious problem for the government," says Leonid Smirnyagin, in charge of regional political analysis on Yeltsin's staff. "It's shameful for us."

If the problem was lost on anyone in the Russian government, Yeltsin has brought it closer to home. On the long list of payments the Finance Ministry makes every month, the presidential administration has been moved to last on the list. As a result, the staff of the Kremlin, ministries, and parliament are not paid until all the other budget salaries are paid.

Last month, this meant that Moscow officials at all levels got their mid-month paycheck 11 days late.

But delays from Moscow are only part of the problem. In the case of the miners, other enterprises are not paying for their coal. But since those enterprises are often as cash-strapped as the Russian coal industry, the problem still lands at the Kremlin doorstep.

When Moscow sends money for wages or pensions to local administrations or local enterprises, the heads of these local organizations often have other uses for it. Last summer, some local officials were prosecuted for spending pension checks on heat instead. No convictions resulted, and sympathies were divided.

"Pensioners would not like to have their money without heat," says Mikhail Delyagin, an economist on the presidential staff.

Often, says Mr. Delyagin, the heads of local governments and large state enterprises simply keep some of the money for themselves or delay sending salaries on to workers for a few months while the funds earn interest in a personal bank account.

Corruption law in Russia is still fuzzy and undeveloped enough that prosecutions for this kind of self-dealing are unreliable. Yeltsin has fired some heads of administration and cut some of their budgets, says Delyagin, but not publicly.

Yeltsin decreed on Jan. 22 that pay delays should stop on all enterprises paid by the federal budget or those with state shares - which is most large enterprises in the country. A few days earlier, he ordered the Kremlin equivalents of federal marshals and state auditors to investigate how to stop delays, especially at the local level, and to give their reports by mid-February.

But wage payments and pensions do not just depend on enforcing greater discipline down the budget chain, they depend on the Russian government having the money. This is why economists in Russia and the West, having watched Yeltsin finally bring hyperinflation under control, gasped in January when he promised to pay all back wages and pensions while at the same time increasing pensions and student stipends. Like the extra $600 million he just promised to spend on the coal mining industry, none of this expenditure is in the 1996 budget.

The war in the rebel republic of Chechnya is also mostly an off-budget enterprise. Its cost last year was more than twice the budget for the entire coal industry. It is another indirect reason many Russians are going without paychecks.

Delyagin adds that there is also weak resistance to strong lobbies asking for special budget favors. For example, the National Committee on Sports, affiliated with Yeltsin's personal tennis coach, has a virtual monopoly on the import of cigarettes into Russia because it won a special exemption from steep import duties. The exemptions are worth an amount comparable to the federal budget deficit or the Chechen war, says Delyagin.

Yeltsin continues to take small steps toward fiscal discipline. He said last week he will cut his own staff by 20 percent and the prime minister will cut staff in the ministries by 15 percent. Duma Speaker Gennady Seleznyov says he will cut the staff of the lower house of parliament by 15 percent as well.

You've read  of  free articles. Subscribe to continue.
QR Code to Federal Shutdown, Russian Style: All Work and No Pay
Read this article in
QR Code to Subscription page
Start your subscription today