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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

Budget as Business or Another Financial Redistribution

24 November, 1998 - 00:00

Do you know how one feels when, trying to study a certain issue, there
is suddenly a deluge of information? Obviously, one feels totally at sea.
So probably did all who tried to get the gist of the budget problems debated
in Parliament last week.

Intuitively every citizen realizes that the national budget has a most
direct bearing on what that citizen has to his name, because when we say
budget we mean taxes, wages, subsidies, and for some it means primarily
a possibility to get back some money long overdue, or maybe find out that
they will have to wait again. But what is one to make of the state budget
bill, the fundamentals of the National Bank's monetary policy, prognosis
of the socioeconomic development of the nation's economy published last
week, or of the President's political economic intentions?

I think that even if some of the readers tried to solve this puzzle
they would soon give up, realizing it was a waste of time. This paradox
is explained very simply: these documents were not intended to give answers
to any of these questions. Their purpose was different: masking the actual
financial wants of all those "holding" structures nestling close to the
authorities, preserving as much as possible of the system which has taken
shape over the past three years (after the economy's hyperinflationary
restructuring). This system is geared to transfer budget funds to the accounts
of private companies (preferably abroad). It should be noted that there
is an annual rotation of financial donors near the top of the political
Olympus, hence the problem of an annual reprogramming of the budget, changing
its commodity and money turnover priorities, and the attendant struggle
for a redistribution of spheres of influence which is gaining in scope
and intensity.

So what is behind the country's main financial law? It being the state
budget, one might assume that the topics ought to be reduced to state financial
resources. Indeed, in full public view - i.e., in Parliament - only two
global "interests" were declared: budget monetary inflow (e.g., tax payments
or exemptions) and outflow (various expenditures). Of course, all the individuals
and entities concerned are quite legitimate. They all want money and preferential
terms and the Solons sincerely voice and debate their needs and aspirations.

It is also true, however, that Parliament's annual budget hustle and
bustle has never broached the system-forming financial principles of the
current regime. Hence, drafting a budget program has never been raised
to the level of a sophisticated problem. Experts say it is not hard to
draw up a balanced budget, since forecasts of budget revenues and expenditures
are easily made proceeding from their actual implementation. But only on
one condition. They need a priority on which to build this budget program.

So every budget has a certain inner goal. Great. What goal will next
year's budget serve? Everything in it is different from what has been publicly
declared (e.g., needs of the people or producers). As in the previous case,
this goal is the budget itself. As business. As capital. Meaning what?
Just that business in Ukraine is possible only "in coordination" with the
state and its cash department (budget). Thus, the state budget is dictated
by all the budget-linked businesses. Note: there is no other business in
Ukraine, just as there can be no successful big business without accessing
budget circuits. Budget money? It is not mentioned, because a desire to
get hold of budget money is counterbalanced by an equally strong desire
to get rid of this money. Why? Because having big money sets red lights
flashing at the nearest Tax Inspectorate. Also because money is simply
not needed in settlements among a multitude of related enterprises (here
bills, nonpayment, and barter deals do quite well). Moreover, money quickly
attracts the mob. And yet this desire to keep clear of money has its limit.
Reaching a certain balance of money supply allows a given enterprise to
remain a balanced producer. Once this supply is cut short all export-import
transactions come to a standstill and thousands, nay millions of barter
chains are severed. The situation looks funny, really. A nonmarket system
requiring market means. True, money plays a different role here.

In a normal market economy money serves to determine the incomes and
profitability of enterprises. In the Ukrainian economy money is placed
second compared to nonpayment and losses. To a large extent, big business
does not need money. Money is needed to reproduce the existing accounting
cycles where access to power and serving the state budget are an inalienable
component. Most likely, the two previous years were spent adjusting the
"scheme" of money transfer from its emission center at the National Bank
via the budget and commodity-commodity settlement to the financial and
then the money market. Media-covered profitability ratings of Ukrainian
enterprises leave no doubt as to precisely which of them will be the quickest
to adjust to the operating conditions of this pseudo-market economy. In
sector ratings oil and gas, power, ferrous metallurgical, coal, and petrochemical
giants confidently take the lead. The top ten most dynamic companies are
headed by Makyivvuhillia, the most profitable ones by Ukrhazprom, and the
most cost-effective ones by the Khmelnytsky nuclear power station. These
statistics date from 1997. If anything has changed this year, one thing
remains the same: companies with the heaviest budget liabilities (i.e.,
money owed to the budget and through the budget to themselves) are still
categorized as the most profitable and most likely recipient of further
budget subsidies.

Despite the similarity of general schemes, the next budget year will
have certain distinctions, mainly in two aspects. First, the budget will
not be able to borrow which will automatically cut short money supplies
to such industrial giants (and via the chains of transformation to foreign
bank accounts), simultaneously adding urgency to the emission issue. Secondly,
the number of recipients of budget handouts has increased. While in 1997-98,
it was mostly gas traders, agricultural producers, and coal suppliers,
in 1999 it will be the newly privatized energy companies whose appetite
is whetted by the idea of activating money-printing machines. In other
words, these two aspects are the main intrigue of the current budget process.
Of course, it will never be referred to directly in public debate. Indirectly,
yes: how many banknotes should the National Bank print, where should this
money be channeled after the first operation, and what inflation rate should
be planned for the next year. Yet the new budget law will eventually shed
light on new "figures," "financiers," and "businessmen" of subsequent years.

Finally, if the reader really wants to understand what he or she will
personally get from this budget, keep track of the budget deficit percentage
(it will determine how much your hryvnia savings will lose in value) and
note what budget bylaws will be enacted (they will point to where budget-paid
wages and pensions will go - electricity, gas, etc.). It is very important
to know what banks will be cleared to do budget business (some of them
may have your money, so if they are barred you may lose your deposit).
Pay attention to cadre shifts in economic agencies (people distributing
cash are never replaced by accident). Well, I guess that about covers it.

 

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