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On debts, greed, distribution of subsidies, relations with Chechnya’s Kadyrov and privatization
— Do you lend to others?
The Ministry of Finance is in charge of the government’s debt policies. So it does lend and then demands the money back. This is our ministry’s immediate duty.
— I see, I see. What about you personally? Do you lend to friends to help them make ends meet before payday?
I do if I am asked to. Surely. With no interest charged. It goes without saying…
Honestly, I’ve had different experiences of the sort, though. Negative experiences, too. Some borrowed from me without ever paying back. The last time such a thing happened was a long time ago, say twenty years or so. Some friends asked me to help start up a new business. They even invited me to join them as a partner. But then… I’ve never got my money back.
— A hefty sum was it?
In those days, yes. The loss was a substantial one.
But you know, you should take a philosopher’s attitude towards such troubles. I see no reason why I should regret a loss when there is no chance to recover it. It’s far better to earn more and to be more prudent in the future.
And still, I do lend as before. To people I trust.
People lent me money without any interest. And my mindset will not let me rest at night until the day I pay back the debt down to the last dime
— Have you ever had to borrow yourself?
Yes, of course. In my younger days. I turned to my friends for help when I was about to buy my first place of residence. I wanted to start living separately from my parents, so I had to devise a long chain of property exchange deals. The problem of housing is a very acute one for many young people. Those who wish to start living a life of their own… People lent me money without any interest. And my mindset will not let me rest at night until the day I pay back the debt down to the last dime. I repaid all my debts as soon as the chance became available.
— Do you remember the first ruble you earned?
Back in my school years I tried to earn pocket money at the local post office. I had to deliver newspapers and magazines to subscribers’ mailboxes in my neighborhood. It turned out to be too hard. I had to get up too early. And in my student years some guys, including myself, went to shovel snow from the rooftops of the three railway stations in Moscow’s Komsomolskaya Square.
After my first year at the Institute of Finance, I worked for two months at a construction site together with other fellow students. I earned 47 rubles, 48 at the most. I’d long dreamed of buying a good tape-recorder with loudspeakers, but the money was far from enough. So I bought another valuable and useful thing. A wrist watch. A very good buy it was. I don’t remember the maker, but the quartz watch was a big one.
— Does being minister of finance mean you have to be a stingy individual?
A rational spender, I should say. This description is more accurate.
It is always essential to determine if the spending requested by fellow government ministers is really necessary, or if it is possible to use extra-budgetary sources and to overhaul their own ministries’ budgets
I do know that some regard this as a manifestation of stinginess or even greed, but it is the Finance Ministry’s job to take care of government moneys. It is always essential to determine if the spending requested by fellow government ministers is really necessary, or if it is possible to use extra-budgetary sources and to overhaul their own ministries’ budgets. The Finance Ministry’s staff is obliged to have in-depth knowledge of the economic branches concerned. Sometimes even better knowledge than the respective ministries.
Each petitioner who files an application suspects that the Ministry of Finance tends to underfund its needs to a greater extent than everybody else’s. In the meantime, we have to take care of the overall budget money and to bear in mind the real capabilities of the treasury.
— OK, but what happens if those whose requests you’ve failed to meet try to obtain direct support from the country’s No. 1 official?
True, government ministers and heads of Russia’s constituent territories often go to the President in attempts to obtain financing for this or that program or project.
There is nothing wrong with that, but it is important to understand how realistic their requests are. The Finance Ministry has long devised a certain tactic of how to go about this business. When too many requests of this sort pile up and it becomes clear the budget cannot meet them all, then real professionalism has to be displayed. Some things can be postponed, and others, cannot. We notify the superiors, brief them on the details, present our own proposals, hear recommendations and advice and eventually achieve the best solution.
In reality, the treasury does have the money. Priorities are to be identified properly. The Ministry of Finance is interested more than any other body of power in tapping latent resources, to devise structural measures that would help not only to cut costs, but also encourage economic growth and labor productivity in the public sector.
Sadly, far from all agree with that.
— Some display their discontent and criticism in public. For instance, the head of the Chechen Republic last autumn criticized your agency for an attempt to slash the republic’s budget.
I like Ramzan Kadyrov as a person. We have a friendly, even comradely relationship. I know that he touched upon that subject not because he is a nuisance or because he wished to start a quarrel. He knows well enough that we calculate Chechnya’s budget in a very straightforward manner.
— What manner is that?
Unlike other regions Chechnya has its financial assistance calculated on the basis of actual spending. First we take a look at how unbiased and authentic the figures are. Then we check the region’s income base and provide extra financing to fill the gap. We’d agreed that we would be reducing that part of assistance every year. In 2017 we pushed ahead with the optimization of spending. Chechnya had its subsidies reduced proportionately to the cuts applied to all other territories of Russia. This is what Chechnya’s leader criticized us for. He interpreted that as injustice in relation to his republic. Later I had a meeting with Kadyrov and we managed to achieve a mutually acceptable solution.
— To whose benefit?
To our common benefit. We share a common goal. Chechnya was given extra assistance, but not as much as Grozny had originally hoped for. That was done bearing in mind the real capabilities of Russia’s budget.
The rule is simple. The less money there is in the treasury, the better the creative potential is tapped. You begin to give thought to where the money can be found. And some very reasonable options come to mind and fit in with the funds available. Anybody will easily succeed there where money pours like the rain falls. The real trick is to cope with the tasks when the resources are scarce!
— At the end of May 2017 President Vladimir Putin met with animated cartoon makers and promised extra funding of half a billion rubles ($8.4 million). And along with his promise he offered some good advice: if the Ministry of Finance rises up in revolt, make a funny cartoon about it. What character’s role would you like to be featured in it?
Let’s wait till the cartoon hits the big screen! I’m joking, of course. Certainly, we will do what we can, once the head of state made such a decision. We’ll find the resources.
As far as global plans are concerned, we, Finance Ministry people hope that budget spending should not increase until 2020 (2019 included). Even in nominal terms. You have to keep in mind, though, that there are certain budget items that cannot be cut by any means. Such as inflation-adjusted public sector wages, retirement pensions, grants and fringe benefits and so on and so forth. A third of our budget is spent on law enforcement and defense – the current costs and purchases of military equipment and armaments. The defense industry’s expectations have been climbing. Investment in the military-industrial complex yields no added value, because a tank is not a farm tractor. It will not be ploughing or sowing, and consequently contributing to the GDP. On the other hand, the nation’s defenses have to be strengthened. Decisions to be made in this field must be properly weighed.
— According to the Finance Ministry’s estimates, the newly-extended rearmament program until 2020 has to fit into the 14-trillion ruble ($234 billion) allotment. The Defense Ministry had asked for 20 trillion ($335 billion). Whose arithmetic is better?
We will be able to see that after some time, when we make it clear the amount of resources actually available. In any case, we should proceed from the realities and remember that economic security is no less important than military security.
The coming three years will not be easy ones. At this point we foresee the first increases in the budget’s incomes will be in 2020. Then we will be able to afford more.
— At whose expense?
The economy’s overall growth remains first and foremost. We are to ease the imbalance that developed due to the slump in budget incomes amid an unfavorable environment in foreign markets and the sanctions taken against our country. The spending obligations accrued in the previous years, when the country was selling its oil for $100 per barrel are really large ones. Now the budget deficit has to be reduced, because it is financed with our reserves. The thrift box is not bottomless. We cannot afford to spend it all and have nothing left for a rainy day. The risks are too high. The assumed commitments inside the country are not the only thing I’m talking about. Foreign investors keep a close eye on the situation. They evaluate likely scenarios, too. Will the government raise taxes and at whose expense will it be honoring its obligations?
Our prime task is to balance the budget. We comprehend a balanced budget as one where incomes are equal to spending minus the interest on loans. In other words, the budget deficit is to constitute about 0.8% of the GDP. This poses no risks – economic, social or political. We can refinance such a deficit without tapping government reserves, to service it with further borrowings, without resorting to massive privatization transactions like those we saw in 2016.
— Do you think that privatization of any major government-owned assets will not be on the agenda for years to come?
Privatization is always on the agenda. But there are strategic companies, including those producing raw materials. As a rule, we have reached the limit on all of them. Stepping beyond that limit would mean the government losing the asset. That is a matter of national security. This explains why no major deals, like last year’s sale of stakes in (the oil) companies, Rosneft and Bashneft, are set for the foreseeable future. As a matter of fact, we have been working hard to implement a policy that would make such deals unnecessary. It goes without saying that privatization has strong arguments in its favor: not just the cash revenues the federal budget will get, but also the reduction of the government’s stake in the economy and the attraction of private investors into the development of government-run companies. This is always a major incentive for mobilization and more effective performance.