Staunton, June 11 – Novgorod oblast was technically in default earlier this year because of poor management and because Moscow paid the region what it owed a month after debt payments became due, Natalya Zubarevich says, but she suggests that there won’t be a series of defaults. What there will be is something worse – the destabilization of finances at that level.
This means, says the director of regional programs at the Moscow Independent Institute of Social Policy, that there will be something “worse than default,” a situation in which regional governments will have to impose draconian cutbacks in health, education and housing and the population will suffer.
Despite Standard & Poors’ report that many Russian regions are near default, she continues, most of them got through the first quarter relatively unscathed. The next two quarters, however, are likely to be very hard because Moscow insists its directives be carried out even though the center is not providing the money for that.
Such unfunded mandates are forcing the regions to choose among programs, cutting those they think they can most easily get away with, while maintaining those that Moscow appears to care most about. Doing otherwise, of course, could threaten the leaders of the regions with the loss of their jobs.
All the regions currently at risk of technical default are likely to remain on the list of 20 with additional regions joining them. But what is of greater concern is that “there are regions which currently spend four percent of their budgets on servicing debt,” a figure that is cutting social programs to the bone. “Therefore the problem is most serious.”
And it can be summed up this way, Zubarevich says: Earlier, budgets were balanced by money from the center. Now, however, the regions have had to cut social spending: “26 regions without taking inflation into account have cut spending on education, 21 on health care, and 16 on social policies. If the figures are adjusted for inflation, these numbers would be much higher.