Economic Transition in Russia and the New States of Eurasia

By Bartlomiej Kaminski | Go to book overview

functioning social safety net--responsibility for which has now been transferred "downstairs" to the oblasts--cannot be effectively carried out by underfunded oblasts. Because Russia is in the midst of nation building, with significant centrifugal forces emanating from the subnational level, a well-functioning intergovernmental system is key to the future cohesion---and even existence--of the Federation. Some oblasts have not bought into the present revenue-sharing system and have unilaterally determined the fraction of "their" revenues they will surrender to the center. Similar actions on the part of the Union republics contributed to the downfall of the USSR.

Even the already-initiated privatization of Russia's enterprises may not successfully follow through to its conclusion in the current environment. Since decentralization has led to the transfer of virtually all enterprises to oblast and rayon ownership, responsibility for privatization now also rests with the oblasts. Their interests here are unclear at best: they still rely on "their" enterprises for critical services, and if privatized, oblasts will have to assume substantial ancillary "nonproduction" expenditures--for nurseries, housing, and school--that will be spun off or divested by the enterprises. A system of intergovernmental finances that does not accommodate these shifts in expenditures by providing corresponding revenues will be problematic.

In sum, a system of intergovernmental fiscal relations that ensures revenue expenditure correspondence--and is thought to be fair across oblasts, provides fairly for the budget requirements of both oblast and federal governments, and has the support of all oblast governments--is key to almost of all of Russia's reform goals: it is, perhaps, the linchpin. The intergovernmental system can play an important role in defusing the centrifugal forces arising in well-endowed or natural resource-producing regions by containing them within an agreed-upon framework.

A more transparent system of intergovernmental relations based on the consensus of all parties with something at stake can significantly reduce the concerns of Russian authorities at the federal level. Without rules, subnational governments will bargain--as they do now--for the best package they can get. A flexible formula (in which any special treatment is accorded by virtue of the formula, not on the basis of ad hoc schemes) that responds to shorter-term fiscal goals while also promoting nation building is necessary for Russia's longer-term fiscal health.

To say that the future cohesion of the Russian Federation depends on developing an appropriate intergovernmental financing framework is not an overstatement. The time has not yet come for Russia to be complacent. Russia's brief four-year history has been fraught with difficulties. Opportunities have been lost. The challenge now is to combine a well-functioning intergovernmental financial system with other policy instruments that will turn the tide and bind the nation.


Notes
1.
On 13 July 1993, Boris Yeltsin warned the provinces and territories, three of which had recently claimed autonomy from Moscow, that "the attempts to change the

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