Who to pay? Russian Workers or Foreign Creditors?

The Russian government is performing a balancing act between foreign creditors and the Russian population

The issue of social maintenance and the standard of living of the Russian people once again in the picture. President Putin has publicly criticized Vice Prime Minister Valentina Matviyenko and Finance Minister Aleksey Kudrin for salary and vacation debts owed to teachers. Minister for Labor and Social Development Alexander Pochinok acknowledged the seriousness of the problem in his interview to Rossiyskaya Gazeta newspaper.

The minister said that the problem with salary delays and the general level of wages are becoming worse. While the Russian state is properly paying its foreign debts, its debts to the Russian people are not being paid. Unfortunately, in Russia, the government is forced to choose between one or the other. That is why the optimism of the Russian government seems to be a little premature and unreasonable.

Alexander Pochinok stated that state's debt to government workers is like the visible part of an iceberg. The wages are basically not being paid by commercial enterprises. Their share of the debt makes up 31 billion rubles, whereas the state’s share is only four billion rubles. However, the speed is rather impressive: three billion rubles of salary debt was owed by the Ministry for Education and Ministry for Healthcare as of the middle of July. The Russian government has tried to ignore the fact that commercial companies have not been paying wages to their employees. It was suggested that trade unions and citizens settle such matters in the courts. However, the new Labor Code of Russia acknowledged the Russian people's right to refuse to work if their salaries have not been paid for two months.

Alexander Pochinok is sure that the issue of debts owed to government employees will be solved, as has repeatedly happened in the past. In reality, it is not such a large sum. However, the government cannot keep its commercial structures in check. The minister said that joint-stock companies have not paid 30 billion rubles; the biggest portion of this sum was delayed by the enterprises that were about to go bankrupt. In other words, the employees of such companies will never see their paychecks, regardless of whether or not their bosses go to jail. There were businessmen who did their best to avoid criminal charges for delaying paychecks. They realized that timely and full payment of wages under the conditions of the Russian economy would inevitably ruin thousands of enterprises.

Alexander Pochinok acknowledged that the gap between the salaries of Russia and Western Europe is gigantic: “Its reduction or liquidation is currently out of the question.” The Russian Ministry for Economic Development and Trade projected that the income of the Russian population is likely to grow by 56-61% by the year 2005. We have to say here that this forecast will probably remain just a forecast due to many economic and political reasons. The standard of living of the Russian people will be incomparable to those in Europe even if this prediction is correct. The Russian government does not have the money to satisfy everybody’s needs. Prime Minister Mikhail Kasyanov’s first priority is to pay the foreign debt.

Deputy Finance Minister Bella Zlatkis said that the government had a choice in 1998: either to pay its debts to the population or not to be elected. That was the time of the huge budgetary deficit, and the government had to raise loans on foreign markets in order to pay wages. Today, the situation is different. However, the government was forced to increase the amount of foreign loans. It was decided to borrow four times as much as was originally planned. This resulted in defaults.

The same question (who is to be paid?) will soon become topical. The government will surely prefer to pay foreign creditors. Nevertheless, the parliamentary elections are coming up in Russia, and then there will be presidential elections. By that time, the government might have another point of view on the matter.

Dmitry Slobodyanyuk PRAVDA.Ru

Translated by Dmitry Sudakov