In 2004, a net inflow of capital to Russia is forecasted

The Russian Government will submit to the State Duma (Russian parliament's lower house) a package of bills that will bring the country's legislation in line with the laws on delimitation of authorities between the levels of power, Russian Finance Minister Aleksei Kudrin said Tuesday at the Competition and Modernization of the Economy conference.

According to him, delimitation of authorities between power levels will be the main distinctive feature of the budget and fiscal policy for the future.

He recalled that delimitation of authorities on incomes and expenditures between the federal and regional levels of power would be introduced in 2005 and between the regional and municipal levels in 2006. In 2006, the country will have two levels of municipal power - regional and village. Thus, the number of municipalities will double, the minister said.

The minister said the reform envisages a major increase in the role of local self-government. The delimitation of authorities and responsibility between the levels of power must significantly enhance the quality of discharging state functions, including the implementation of social guarantees, Mr. Kudrin said.

He said that for the first time, the Finance Ministry forecasted a net inflow of capital into the country in 2004. Earlier, at a RIA Novosti press conference, Mr. Kudrin said the "balance of net inflow is expected to be $3-4 billion."

The minister said last year the volume of capital outflow from Russia was estimated at $2.9 billion, but according to the latest data, it was $2.1 billion.

In the first quarter of this year, he said, the total outflow of capital from the country was $200 million. But, with the increase of indices of capital outflow by banks, the inflow of capital by non-financial organizations increased as well, Mr. Kudrin stressed.

According to him, the outflow of capital ended up being significantly lower than in the first quarter of last year. "We follow the path of realizing the forecast of net inflow of capital on the year results," Mr. Kudrin said.

"This is a qualitatively new mark in the development of the Russian economy," he emphasized.

The surplus of the federal budget next year will be more than 1% of the GDP, Mr. Kudrin forecasted.

According to him, this is connected with the fact that oil prices are expected to remain high.

Speaking about the pension reform in Russia, the minister said the country's Pension Fund would get additional subsidies from the federal budget until 2012.

He noted that as a result of the decrease of the unified social tax in the coming years, the Pension Fund will lack funds. This year, as a result of preparation measures to the reduction of this tax, the deficit of the Pension Fund is expected at 167 billion rubles ($1 equals about 29 rubles).

According to him, the federal budget will compensate for this deficit.

Mr. Kudrin said the average efficient rate of the unified social tax in 2004, according to the forecast, is 30.4%. In 2005, as a result of reforms of the tax and the reduction of its maximum rate from 35.6% to 26%, the average efficient rate must be reduced by over 5%, Mr. Kudrin said.

He stressed that as a result of tax reduction, the Finance Ministry depends on legalization of "shadow" labor remuneration funds.

The minister said the replacement of part of benefits to pensioners with monetary payments would make it possible to significantly increase pensions. Additional payments to World War II veterans will be 550 rubles and people disabled in war it will be up to 950 rubles, Mr. Kudrin said.

The cancellation of benefits on the federal level does not rule out the possibility of granting benefits to pensioners on the level of federation members, he noted. "Federation constituent members will decide for themselves whether to preserve their part of benefits or grant them in the form of money. That is their right," Mr. Kudrin emphasized.

He said he was confident that as a result of reforms of the tax and pension systems, "the flexibility of the system of social assistance will increase" and it will become more targeted.

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