A mood of optimism about the economy prevails in Moscow. Russia's economy is starting to stabilize. In the first four months of the year, GDP reached 275 trillion rubles ($55 billion) compared with planned levels of 200-260 trillion rubles ($40-$52 billion), and output fell by 5 percent instead of the anticipated 6-8 percent. Industrial output in May was unchanged compared with May 1994, and only 0.8 percent less then a month before. The steel, chemical, and petrochemical industries raised output by 10 percent in the first five months of the year over the same period in 1994. Interenterprise debts were shrinking and wage arrears declining.

The budget deficit in the first four months of 1995 dropped to 3.3 percent of GDP instead of the expected 8 percent. According to a government budget report, first-quarter revenue rose to 32 trillion rubles ($6 billion), exceeding the planned levels—for the first time in five years—by 3.3 percent. Expenditures totaled 39.7 trillion rubles ($8 billion), 82 percent of the target figure.

First Deputy Prime Minister Anatoly Chubais, hailed the data saying that "the country's economic situation has radically changed, and recovery is under way." Chubais considers the ruble's month-long rise against the dollar a sign of stabilization, the result of the government's tough budget. (The ruble rose to a two-month high of 4,900 to the dollar in mid-June.) The ruble has begun to squeeze foreign currencies from the national market, and de-dollarization of the economy has begun, according to Chubais.

The mid-May projections of Credit Suisse First Boston also foresee a recovery in 1996. The Swiss-American bank sees GDP down 4 percent in 1995 (against 15 percent last year), and then up a further 1 percent in 1996, and envisages 60 percent consumer-price inflation in 1996. Last year inflation reached a high of 200 percent, then dropped to 170 percent for the period end-1994 to end-1995. Inflation is continuing to slow this year: the cumulative monthly consumer price index has decreased every month, beginning at 17.8 percent in January, and falling to below 8 percent in May.

Economics Minister Yevgeny Yasin warned, however, that expectations of an imminent upswing in the Russian economy might be unrealistic. He said that arresting the contraction in the economy has been a great achievement in view of cuts in government credits, stagnant state investment, and restrictive monetary policy. The economy's performance show that output can be produced without state backing.

The government submitted the draft 1996 budget to the Duma on June 18, and preparation of the final version will continue until July 25. The draft envisages an annual inflation rate of 20-25 percent and an exchange rate of 6,000 rubles to $1. It sets revenues at 273 trillion rubles and spending at 349 trillion rubles. As in 1995, the deficit—4 percent of GDP—is to be covered by noninflationary sources; state securities (40 trillion rubles) and loans from international financial organizations (23 trillion rubles). The balance of financing is to be shifted from external to internal sources, with foreign loans in 1996 amounting to 40 percent of the total, compared with 58 percent this year. The rest of the deficit is to be financed through domestic bond issues and privatization revenues.

The government has set a ceiling of $8.5 billion for debt payments and new credits next year. The budget outline calls for borrowing $1.1 billion under an IMF standby loan agreed earlier this year, and another $1.8 billion in new IMF loans. Planned Eurobond issues will raise $1.5 billion, and bilateral credits $2.4 billion. Lending from the World Bank and the EBRD will total $1.7 billion. Subsidies and budget loans to industry and agriculture will be reduced, with direct subsidies to the farm sector remaining at the 1995 level.