Zee Beam News

06-17-2005 RBC News - Russia is just one step away from a financial crisis, deputy prime minister Alexander Zhukov told a government meeting on Thursday. This time, the problem is an inflow of oil dollars, the Gazeta newspaper reports. Raising spending, the finance minister fears to lose control over inflation, failing to fulfill its promises on improving living standards in the country. But most government officials disagree, seeing lack of investment as a more dangerous symptom. There are two main categories of budget spending - social spending and inflation spending – and the government raised both, promising to increase public sector wages 1.5 times and raise average pensions 1.87 times over the next three years. Salaries of civil servants and military wages will be increased 15 percent next year. RUR 380 will be allocated for federal investment programs next year, and another RUR 70 billion will go to a new investment fund, designed to finance priority infrastructure projects. Government investment will more than double in 2006 compared with this year. To raise the necessary funds, the government increased threshold oil price used in forming the stabilization fund from $20 to $27 per barrel. This generated $326 billion in budget revenues, but at the same time weakened the role of the stabilization fund as a tool for sterilizing excess liquidity and curbing inflation. And curbing inflation was named the government's priority for the next three years by finance minister Alexei Kudrin. However, inflation remains high. The government has recently reviewed its inflation target for this year from 8.5 percent to 10 percent. According to the Central Bank, inflation stood at 7.1 percent in January-May.