Political Elites and the New Russia by Anton Steen

Author:Anton Steen [Steen, Anton]
Language: eng
Format: epub
Tags: History, Russia & the Former Soviet Union, Modern, 20th Century, Social Science, Ethnic Studies, General, Regional Studies
ISBN: 9781134392735
Google: GZV_AgAAQBAJ
Publisher: Routledge
Published: 2004-06-01T22:35:49+00:00

The transfer system: fixed criteria or ad hoc?12

The new system of economic relations between central and regional government has been founded since 1992 on the principle of independent budgets at all levels of government, adopted in the budget law of October 1991. The law abolished the traditional system of automatically refunding financial deficits incurred by programmes at lower levels of government from the central budget. The result was a swiftly emerging gap between prosperous and poor regions. Economic ‘shock therapy’ produced a deterioration in economic and social conditions in many regions and the system of federal transfers was resumed in three ways: transfers for specific purposes; sectoral funding; and a general fund for making regions more equal again.

From the beginning specific transfers constituted the largest and an increasing proportion of federal support to the regions. The grants were used mainly to cover expenses resulting from presidential and governmental ad hoc decisions to meet demands for wage increases, to compensate enterprises and to finance development programmes in certain regions. Specific transfers were made to finance essential services like hospitals, to subsidise certain closed cities with military and nuclear assignments, to compensate for extra transportation costs in remote areas, and to Moscow to take account of the additional expenditure incurred through its status as the capital. The criteria for such transfers were not clearly stated in the budget document and the decision-making process was non-transparent and negotiated on an individual basis, often with a particular ministry. Other types of funding were connected to specific sectors. In order to provide a fairly uniform infrastructure in all regions, sectoral funds were established in the fields of federal roads, employment, ecology and medical insurance. These constitute a second type of resource transfer, but the rules governing them are so ‘fuzzy’ that their redistributive effects are unclear. These special direct transfers generally resulted from decisions taken on an ad hoc basis and from non-transparent allocation criteria.

The fixed criteria fund seems to have been the most ‘rule-based’ transfer mechanism. The Federal Fund for Financial Support to regional governments was established in 1994 and introduced a new mechanism for transferring resources. It was founded on a ‘formula’, providing for more transparency in the allocation process. The idea was to compensate regions suffering particular financial hardship. In 1995 the fund accounted for about half of the federal budget transfers to the regions. The fund was financed by fixed incomes amounting to 27 per cent (1995) of VAT revenues. About three-quarters of the fund’s resources are allocated to regions with per-capita budget revenues below a certain percentage (95) of the federation average. The remaining quarter is allocated to regions with economic problems of a more temporary nature.

The equalising effects of these three types of transfers may be questioned. Le Houerou and Rutkowski argue, however, that during the period 1991–4 there were some positive effects for the seventy-five regions they investigated. After 1995 the effect was negligible, and the overall non-transparency of the decision-making process led to some already strong regions attaining beneficial agreements regardless of the fixed criteria.

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