By Renfrey Clarke
MOSCOW — On November 17, teachers in the Altai District in southern Siberia expanded a one-day protest stoppage into an indefinite strike. Almost 5000 teachers from 176 schools were taking part, the Moscow daily Trud reported, and more were on the point of joining in. The cause of the action was the failure of the authorities to pay wages for five or even seven months.
The plight of the Altai teachers is a bad example — but not necessarily the worst — of a phenomenon that President Boris Yeltsin swore last summer would soon be wiped out: the failure of the state to come up with the wages of its employees. A presidential decree on July 8 ordered the payment of all arrears on pensions and "budget sector" wages by the beginning of 1998.
The pension arrears have reportedly been made up, and a large part of the pay debt to military officers has been wiped out as well. But progress in handing over wages in other areas of the state work force remains slight.
According to Deputy Prime Minister Oleg Sysuyev in late November, only 3.3 trillion roubles (US$557 million) of budget sector wage arrears had been paid off since July 1, leaving 9.6 trillion to be handed over by January 1.
Now, the chances of unpaid budget sector workers seeing their arrears for many months — if ever — have taken a big dip, as the frenzy on world stock markets has caused Russian state finances to slide further into disarray. And in the coming year, the odds on prompt payment are, if anything, worse.
On November 25, Yeltsin was still making a show of putting the heat on ministers over the issue. "You must do this without fail, unless the government wants negative consequences", he reportedly thundered to first deputy prime minister Boris Nemtsov.
Speaking to television reporters the same day, Sysuyev admitted, "Current information does not allow us to view the completion of our task with great optimism".
Even the government's successes in paying up pensions and armed forces salaries have been less impressive than might appear. The money was found largely by reneging on state debts to industry.
"The cabinet of ministers has allowed a huge volume of debts on state orders, now put at 50 trillion roubles, to arise", the Moscow daily Nezavisimaya Gazeta observed on November 10.
Wage non-payments have in effect been shifted from the state to the private sector. Across the economy as a whole, wage arrears have continued rising by as much as 5% a month.
Major inputs to the government's wage-payment drive have come from the sell-off of state assets and from borrowing, mainly in the form of sales of government securities.
Tax revenues have not made their expected contribution. For federal taxes, the sums collected in the first nine months of the year were only about two-thirds of budgeted levels.
Until mid-autumn, teachers, doctors and other state employees might have held out some hope that Yeltsin's promise would be met. But in October stock markets collapsed in south-east Asia. Western money began a stampede out of Russia, notoriously among the riskiest of "emerging markets". By the last days of November, the Moscow stock market had lost almost 40% of its value.
Most of these losses were in speculative investments that had little relation to the real economy. But the bad news for Russia's budget-sector workers was that foreign money also began to flee from the market for Russian state debt — the market that has been providing a large part of the country's government revenues.
Foreigners began selling short-term treasury bills, where non-Russians had been estimated to hold a third of all debt. As Russian banks bought hard currency to pay out the foreign sellers, the rouble came under pressure.
To prop up the treasury bill market and protect the rouble, state financial strategists decided on a massive rise in interest rates. On November 10, the Central Bank's refinancing rate — an important benchmark — was raised from 21 to 28%.
Foreign lenders, however, remained cool on Russian debt. Treasury bills yielding 28% — up from 17% in October — would be an enticing investment if the general situation in Russia were stable. But what if economic setbacks led to the rouble being devalued? Then, much or all of the profit would be lost when buying back dollars.
An auction of 12-month government bonds on November 26 sold barely half the volume of similar auctions in October.
So long as the turmoil on world financial markets continues, the government faces a choice of unpleasant options.
Interest rates can be raised still further, to restore the flow of loan funds. Or the Central Bank's reserves of gold and hard currency can be run down, in a gamble that the situation will stabilise before a shortage of foreign exchange emerges as an acute problem in itself.
Reports suggest that this second alternative is the one that the Finance Ministry favours.
At about US$21 billion, Russia's foreign currency reserves are often cited as relatively abundant. However, the costs of underpinning the rouble could still reduce this sum to alarmingly low levels in a matter of months.
Unless foreign money returns in a big way in the early months of 1998 — a dim prospect — the problems next spring will be daunting. Possibilities for next year include a concerted, Malaysia-style attack by international speculators on an overvalued Russian currency.
Even if the situation in the next few months does not turn critical, things will not be pleasant. Already, interest rates have risen by considerably more than the Finance Ministry seems to have anticipated. Borrowers from Russian commercial banks are now having to pay more than 30%.
After inflation, that figure represents real annual interest of around 20%. As Russians joke grimly, such rates are prohibitive for enterprises in most lines of business apart from drug trafficking, protection rackets and contract murders.
By maintaining high interest rates, the government is sharply suppressing investment in production. The rise in GDP predicted for next year, after many years of decline, looks like being put off again. Meanwhile, the blow to the productive economy will rebound on the authorities by cutting into tax payments.
One of the problems with borrowing to maintain government spending is, of course, that the loans have to be paid back — with interest. The dramatic rise in bond rates means that debt servicing will consume a much greater share of state spending next year than anticipated.
"It will be good if debt service can be held to 7-8% of GDP (versus 4.4% foreseen in the 1998 budget)", the newspaper Finansovye Izvestia observed on November 27.
Where is the Finance Ministry to get an extra 3% of GDP — equal to a quarter of current tax revenues? There are no answers in the present draft of the 1998 budget, whose underlying assumptions are now impossibly optimistic.
The payment of bond-holders will clearly continue; the state will not turn off its heart-lung machine. But suppliers to the government of commodities from electricity to army greatcoats will go without their money next year just as they do at present. Also told to wait will be many teachers and doctors.
For state employees who receive their wage arrears during December, the payment could be the last for a long time. And many budget-sector workers who have been paid regularly in the past can look forward now to pawning their jewellery, borrowing from relatives and living on potatoes from their garden plots.
On November 25, Mikhail Shmakov, the head of Russia's main trade union federation, declared that nationwide labour actions would resume unless public-sector wage arrears were paid off. Will the leaders of the union movement live up to this pledge, and begin organising a serious protest campaign?
The strike by the Altai teachers suggests that large numbers of state employees will not wait to find out.