Demand for Government Guarantees Increasing Budget Being Deficient

Recently the Federal Assembly approved the law on the increase of government guarantees volume in the law on the budget for 2010 and for the planning period of 2011-2012 for credits and bonds attracted by legal entities chosen according to the procedure established by the RF Government to fulfill investment projects – from RUR 100 billion to RUR 175 billion at the expense of the volume which was not used in 2009.

It should be noted that government guarantees provision from now on applies not only to the return of the credit sum (repayment of the bonds nominal value) but also to interests for credit use payment (profit for bonds in the form of interests).

Moreover, priorities for RF guarantees provision were somewhat reconsidered. For instance, possibilities for government guarantees use for loans of the state corporation Rosnano both for investment and current activity were broadened, and new types of government guarantees of the Russian Federation were envisaged: for state corporation “Russian motorways” at the sum of up to RUR 3 billion, for open joint-stock company “United Aircraft Corporation” – up to RUR 46280 million, for open joint-stock company “United Industrial Corporation Oboronprom” – up to RUR 21526 million.

At the same time the amendment envisages the reduction in the volume of the rendered gusrantee support for the credits attracted by the organizations of defense industry complex and organizations chosen according to the procedure established by the RF Government for industrial activity and for investment from RUR 75 billion and RUR 225 billion up to RUR 47 billion and RUR 108 billion, correspondingly.

In the environment of limited budget resources for stimulation of the activity, and primary investment activity, in some sectors of the economy provision of the government guarantees is the only effective alternative for the direct budget expenses. The demand for this instrument of state support from the budget point of view is accounted for by a number of significant advantages:

• absence of compulsory direct budget expenses (budget bears expenses only in case of bankruptcy of the main debtor);
• possibility to establish payment for government guarantee provision;
• possibility to recourse against the debtor in case the liability protected by the guarantee was settled at the expense of budget funds;
• check of debtor’s solvency by an independent creditor that is interested in timely and full debt repayment.

I.A. Sokolov, PhD, Head of the Department of Budget Policy