Russia: Economy and Near Abroad

This past Friday, President Dmitry Medvedev held a meeting on budget preparation prior to his upcoming address to the nation. He said that by 2011, new anti-crisis measures adopted will incorporate the strengthening of social assistance. In particular, the President requested that the budget take into account the allocation of funds for pensions, benefits and pursuing an active policy of employment creation. Medvedev also stressed that recklessly spend money on assistance programs during a crisis is not allowed, as he called on the officials to be "very judicious" with the use of the treasury. The President also stressed that certain budget expenditures are being increased in order to deal with more pressing problems of regular citizens: "It is necessary to deal with the modernization of social networks, services, transport, communications, energy and financial infrastructure," said Medvedev.

In a parallel development, Russia may return to the practice of borrowing large loans from the World Bank, said Russian Minister of Finance Alexei Kudrin on his recent visit to Washington. The Russian budget deficit would be such that a number of large projects could come under the threat of failure. In order to continue such projects, the Russian government is willing to take multi-billion dollar loans from the World Bank. If the crisis continues across the Russian Federation, such borrowing abroad will increase. According to Kudrin, "World Bank's lending tools are long-term in scope and are relatively cheap. They focus on infrastructure projects, which coincides with the objectives of the Russian budget." Kudrin further said that the WB's share in financing a project to reform the housing sector could increase. A 15-year, $200 million loan for such a project was already approved in February 2007.

Several years ago, Kudrin was stressing that Russia does not need IMF credit, which provides funding to countries experiencing problems with the financing of the budget deficit or balance of payments. But experts agree that today, Russia has no choice but to again borrow money. According to financial analytical group "Sovlinka", "the likelihood that Russia once again get in debts is there. According to the forecasts of Kudrin himself, the Russian Reserve Fund (money set aside from once-high oil and gas revenues) will be enough only until the end of 2010. If the economic crisis continues and the budget will be executed with a deficit, it is clear that the government will use various methods of financing, including the placement of Eurobonds, the increase in domestic debt, reducing inefficient budget expenditure - and external loans."

Ukrainian Prime Minister Yulia Tymoshenko - a power rival to President Yuschenko and a possible candidate to her country's highest political post in the upcoming elections - visited her Russian counterpart Vladimir Putin in Moscow over the past week. This high profile visit was postponed several times before, and both sides pinned a lot of hopes on this face-to-face meeting between such key countries. Timoshenko announced that after meeting her counterpart, Russia will take part in the modernization of the Ukrainian gas pipeline grid, providing basic maintenance and spare parts, without taking any share or control of such system that is vital to Ukrainian energy policy: "Russian Prime Minister stressed that his country does not seek to manage Ukraine's gas transportation system."

Commenting on the Tymoshenko's visit to Moscow, Ukrainian experts say: "... this is the final casting call, a showcasing of Tymoshenko in the Kremlin before the start of the Ukrainian presidential election campaign." The experts did not rule out that Moscow may soon be visited by Viktor Yanukovych, the leader of the Party of Regions, who was once a strong Kremlin ally and whose refusal to cede power was the catalyst for 2004 Ukrainian Orange Revolution. "Yanukovych will follow Tymoshenko as another "candidate of the Kremlin," so that the major presidential candidates will compete not for the protection of Ukrainian national interests, but for greater or lesser commitment to the Kremlin's policies."

At the meeting, Russia and Ukraine have exchanged their draft intergovernmental agreement on cooperation in gas sphere. Russia hopes to sign an intergovernmental agreement with Ukraine as soon as possible in order to avoid another round of gas price wars. "I think that our meeting was effective, which gives every reason to assert that Ukraine and Russia are partners, good neighbors and states which base their relations on the basis of equality of national interests," summarized Tymoshenko at the end of the summit.

Moldovan President Vladimir Voronin stated that Moldova would seek the signing of an Association Agreement with the European Union: "We are interested in the fact that this would be an agreement that involves a free trade regime with the EU and free movement of citizens of the Republic of Moldova to the European Union," - said Voronin on Thursday at a meeting of the National Commission for European Integration. Moldova recently was hit by mass protests by opponents of recent elections, which brought to power Voronin's Communist allies, and which were considered fraudulent across Europe. The president's press service commented that "In the near term, the Moldovan authorities should focus on negotiations on the cooperation with the European Union."