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Give growth and macroeconomic stability in Russia a chance - harden budgets by eliminating nonpayments

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Author Info

  • Pinto, Brian
  • Drebentsov, Vladimir
  • Morozov, Alexander

Abstract

The authors analyze the links between Russia's disappointing growth performance in the second half of the 1990s, its costly and unsuccessful stabilization, the macroeconomic meltdown of 1998, and the spectacular rise of non-payments. Non-payments flourished in an environment of fundamental inconsistency between a macroeconomic policy geared at sharp disinflation, and a microeconomic policy of bailing enterprises out through soft budget constraints. Heavy untargeted implicit subsidies flowing through the non-payments system (amounting to 10 percent of GDP annually) have stifled growth, contributed to the August 1998 meltdown, through their impact on public debt, and have made at best a questionable contribution to equity. Dismantling this system must be a top priority, along with promoting enterprise restructuring and growth (by hardening budget constraints) and medium-term macroeconomic stability (by reducing the size of subsidies). Getting the government out of the non-payments system means settling all appropriately controlled budgetary expenditures on time, and in cash, and eschewing spending arrears, thereby setting an example for enterprises, and laying the groundwork for eliminating tax offsets at all levels of government, and insisting on cash tax payments. To stop energy-related subsidies, would require not only that the government pay its own energy bills on time, and in cash, but also that the energy monopolies be empowered to disconnect non-paying clients. This will enable the government to insist that the energy monopolies in turn pay their own taxes in full, and on time.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2324.

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Date of creation: 30 Apr 2000
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Handle: RePEc:wbk:wbrwps:2324

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Keywords: Banks&Banking Reform; Public Sector Economics&Finance; Economic Theory&Research; Payment Systems&Infrastructure; Environmental Economics&Policies; Banks&Banking Reform; Environmental Economics&Policies; Municipal Financial Management; Public Sector Economics&Finance; Economic Theory&Research;

References

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  1. Energy Sector Unit., 1999. "Non-Payment in the Electricity Sector in Eastern Europe and the Former Soviet Union," Papers 423, World Bank - Technical Papers.
  2. Kornai Janos, 1994. "Transformational Recession: The Main Causes," Journal of Comparative Economics, Elsevier, vol. 19(1), pages 39-63, August.
  3. S. Fisher & R. Sahay & C. A. Vegh, 1997. "Stabilization and Growth in Transition Economies: The Early Experience," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 5.
  4. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
  5. Kornai, Janos, 1986. "The Soft Budget Constraint," Kyklos, Wiley Blackwell, vol. 39(1), pages 3-30.
  6. Sachs, J-D & Warner, A-M, 1995. "Natural Resource Abundance and Economic Growth," Papers 517a, Harvard - Institute for International Development.
  7. Sergei Aukutsionek, 1998. "Industrial barter in Russia," Post-Communist Economies, Taylor & Francis Journals, vol. 10(2), pages 179-188.
  8. Brian Pinto & Marek Belka & Stefan Krajewski, 1993. "Transforming State Enterprises in Poland: Evidence on Adjustment by Manufacturing Firms," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1), pages 213-270.
  9. M Belka & S Estrin & M Schaffer & I.J. Singh, 1995. "Enterprise Adjustment in Poland: Evidence from a Survey of 200 Private," CEP Discussion Papers dp0233, Centre for Economic Performance, LSE.
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Citations

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Cited by:
  1. Ericson, R. E. & Ickes, B. W., 2000. "A Model of Russia’s "Virtual Economy"," BOFIT Discussion Papers 10/2000, Bank of Finland, Institute for Economies in Transition.
  2. Daianu, Daniel & Vranceanu, Radu, 2003. "Subduing High Inflation In Romania. How To Better Monetary And Exchange Rate Mechanisms?," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 5-36, September.
  3. repec:wii:bpaper:bowp:005 is not listed on IDEAS
  4. Commander, Simon & Dolinskaya, Irina & Mumssen, Christian, 2002. "Determinants of barter in Russia: an empirical analysis," Journal of Development Economics, Elsevier, vol. 67(2), pages 275-307, April.
  5. Lev Freinkman & Gohar Gyulumyan & Artak Kyurumyan, 2003. "Quasi-Fiscal Activities, Hidden Government Subsidies, and Fiscal Adjustment in Armenia," World Bank Publications, The World Bank, number 15074, October.

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