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03.05.07
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Big Promises, Little Cash
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By Dmitry Babich
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This year’s May Day demonstrations in Russia were relatively quiet, a far cry from the heady days of 1993, when a policeman was killed in clashes with supporters of the then-radical Communist street leader Viktor Anpilov. This time, most of the demonstrators went to meetings of trade unions and the left-leaning pro-Kremlin party Just Russia.
Both marches were held under strict police supervision and participants did not carry any “extremist” slogans. Even a call on one of the placards for the unpopular Minister for Health and Social Development Mikhail Zurabov to get some special kind of medical treatment prompted uneasiness among the organizers of Just Russia’s march, who asked the person holding it to behave more modestly. Obviously, the organizers had forgotten the freedoms obtained during the “anarchist” 1990s.
There was, however, one slogan that both Just Russia and the trade unions deemed necessary to publicize: “An average pension in Russia should be no less than 40 percent of the average salary.” This not-very-catchy phrase looked a little out of place on the streets of central Moscow, which were as usual full of glitzy advertisements for the young and wealthy. However, in the opinion of sociologists, it is precisely the feeling of the growing gap between the rich and the rest of society, stemming among other things from these ads, that makes the socialist sentiment in Russia so strong today.
“Looking at the fancy cars and hearing about staggering real estate prices, an average person in Russia gets the feeling that there is a lot of money flowing into the country, but this money is going into someone else’s hands, not his or hers,” said Leonty Byzov, a sociologist working at VTsIOM center for public opinion research. “The shift towards the left, which started in public opinion several years ago, is prompted mainly by this feeling.”
No wonder that President Vladimir Putin is trying to sooth this kind of anxiety by initiating from time to time heavily publicized campaigns for helping young families, pensioners and, naturally, the poor. His recent Address to the Federal Assembly was no exception. The president suggested raising pensions by 65 percent between 2007-2009, to build at least 100-130 million square meters of apartment space per year and to spend 150 billion rubles ($5.77 billion) on repairs of aging buildings.
Experts immediately calculated that fulfilling all of those “suggestions,” which sound more like orders under today’s Russian political conditions, will require 12 percent more budget spending during the next year than originally planned. The head of the expert department of the presidential administration, Arkady Dvorkovich said that the president’s suggestions would cost the budget at least 650 billion rubles ($25 billion) this year alone, and finance minister Alexei Kudrin added that he could not guarantee cutting inflation down to 7-8 percent during 2007 as had been promised before the president’s speech was made. Kudrin, however, was the only government official who talked about the risk that the president’s initiatives would increase inflation. Dvorkovich and the director of Russia’s Central Bank, Sergei Ignatyev, both said inflation would stay below 8 percent this year.
The money for “improving citizens’ quality of life,” as Putin put it, is expected to come, among other sources, from the Stabilization Fund, which the president in fact suggested dividing into three parts. One part, the Reserve Fund, will continue to be used for fighting inflation and keeping macroeconomic stability. The second part will form the Fund of the Future Generations, which will be used for “raising the living standards of future generations” (whatever that means). The third part will go to the state budget and be used for large scale social programs. It is the third part, obviously, which will be used to fulfill the president’s new social initiatives.
On the surface, Alexei Kudrin, known as a staunch supporter of low inflation by any means, has many reasons to be concerned. However, the experience of Putin’s previous most cherished idea, the “mother’s capital,” shows that a cunning bureaucrat, which Kudrin certainly is, can find a way of “sterilizing” even the most generous presidential handout.
This capital is a one time 250,000 ruble ($9,600) payment from the state budget, which will be put into a personal account for mothers of a second child, which they will be able to spend for education and healthcare for the child after the age of three. The first happy owners of a mother’s capital were supposed to appear in the beginning of the year 2010.
But the anti-inflationary Kudrin deflated the high-flying hopes of mothers on Tuesday, choosing May Day for the sobering statement that he expects only one-third of the money allocated for mother’s capital to be actually paid out.
“According to our estimates, about 55 billion rubles ($2.12 billion) will be paid out,” Nezavisimaya Gazeta quoted Kudrin as saying.
The problem is that $9,600 is not enough even for a modest room in Moscow and most of Russia’s large cities. Adding this money to the family’s mortgage payments is also problematic as not many Russian couples opt for mortgages, whose rates soar in line with real estate prices. As for children’s education, no one explained whether the mother’s capital can be spent on commercial kindergartens or learning tours abroad, where payments are often made in cash and not via bank transfers. The option of investing the capital in a pension remains, but after the series of financial crises in 1990s, few Russians opt for personal savings pension accounts in a country where people’s savings were destroyed at least two times in the course of 10 years between the years 1990 and 2000.
So, most of the mother’s capital may be left untouched. The government promises to index it “in accordance with official inflation rates.” Unfortunately, prices for basic staples often outpace official inflation.
The result is that people get the impression that highly publicized presidential social initiatives yield remarkably modest amounts of cash to individual families. This could have a good effect on inflation and the ruble’s purchasing power, but it certainly does not add to the poor people’s trust in their future and, consequently, does not improve the country’s demographic situation.
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