Sorokina: Good evening. As was expected, today the State Duma rejected the draft budget for 2000 proposed by the government at its first reading. It will come as no surprise that the Yabloko faction voted unanimously against the new draft budget. However, the news is that the Yabloko faction announced today its own draft budget. Today my guest is Grigory Yavlinsky. Hello, Grigory Alexeevich.

Yavlinsky: Hello.

Sorokina: This is a significant development. On this occasion you have approached the matter as professionals and have proposed your own draft budget. I have studied meticulously your draft on the Internet for several hours, comparing it with the Government's version. Can you please tell our viewers how long you have been working on your draft?

Yavlinsky: We started working seriously on this text in February, although the main principles had already been worked out ever since we began submitting our proposals for government draft budgets in 1994. The foundations for this budget were established at that time. However, we began focusing our work on the document in February.

Sorokina: It is well known that you met Prime Minister Putin quite recently, several days ago. I believe that you discussed different issues for several hours?

Yavlinsky: Yes.

Sorokina: What was his reaction to your proposals?

Yavlinsky: He studied in detail the issues that we discussed. He paid special attention to some issues, for example, to the issue of prioritising, other economic forecasts and issued some instructions. Today, however, when he made his speech before the State Duma (Russian parliament), he naturally supported the document that had been submitted to parliament. We hope that this time we will manage to stick to our positions more energetically, that we shall manage to show the Prime Minister that the budget submitted by the government is a copy of all the previous budgets and consequently cannot be implemented. And all of this means that the state of bankruptcy and breakdown of state finances that we have seen in the past, will continue.

Sorokina: Grigory Alexeevich, surely you are breaking the rules of the game? For only the government can propose a draft budget. What are you trying to achieve?

Yavlinsky: Yes, there is such a formal provision, such a restriction, that a draft budget should only be submitted by the government. This is done, because the government receives money from the people and only the government can introduce an expenditure plan. We did not submit our alternative draft as a draft law, but rather as a proposal to the government draft. Therefore, we formally complied with the rules for proceedings. In actual fact, however, our proposals represent an alternative law. I mean here a law in its entirety, with all the appendices and everything else that is required. A small amount of work is required from the government to turn it into a ready budget.

Sorokina: To enable our viewers to understand you and your ideas, can you explain what is the main difference between your version and the government draft? Could you explain it in simple words?

Yavlinsky: I will try. Let us begin with the main goals of the government draft. What are its priorities? What is the top priority? What expenditures will be increased? How will they spend the population's money?

Sorokina: Today Vladimir Putin said it would be spent on "defence, militia, security".

Yavlinsky: If you take the budget, you will notice that the largest expenditure increases occur in the following areas. For example, "state management" - a 44% increase in expenditure.

Sorokina: What is meant by the term "state management"?

Yavlinsky: For example, the running costs of the presidential office - a 55% increase in expenditure. This is the first difference. Yabloko does not propose an increase in expenditure on state management - we envisage here only 3% growth. We will not increase expenditure on the presidential office - we envisage here only 5%, instead of 51%. Here is a difference. You will ask: "How will we spend this money?" We suggest spending this money by doubling salaries for the military, establishing a special budgetary item for the Northern Caucasus, exhumation of the dead in the war in Chechnya, compensation and, as a separate item, money for the special intelligence service troops now in the Northern Caucasus.

Sorokina: Where else could you obtain money?

Yavlinsky: Here is another one. The second priority for the government is "international activity". This totals 49 billion roubles.

Sorokina: What is meant here?

Yavlinsky: Different things, including loans to the CIS countries and fraternal republics, such as Belarus.

Sorokina: Forgive me for interrupting you, but what is this - a habit, a tradition? Or a real need? We ourselves are finding it hard to survive. How can we afford to issue loans to someone?

Yavlinsky: That is what we are speaking about. There is such a policy. It is incorrect, it is erroneous. We think that we should not do such things today. They envisage 49 billion roubles in expenditure on "international activity". Incidentally, here they include specific items that should be listed as "national security" issues, and not here. We, on the other hand, propose obtaining 5 billion roubles from this item, involving the return of past loans to other countries, for example repayments from India. We would not spend 49 billion. We think that we should live within our means. Let Lukashenko learn how to support himself. Today we are in a situation where we need to obtain money for oil and gas. Everyone should pay us, irrespective of the circumstances. Today Russia is in such a state that we can no longer envisage such expenditures.

Let me now turn to another area. Incidentally, this will be very easy for you to understand. The government proposes doubling expenditure on the state mass media.

Sorokina: Is this mentioned in the state draft budget? There is an obvious reason why: the election year.

Yavlinsky: Yes, the election year. This means doubling expenditure on the mass media that serves the government. Therefore it should speak positively about the government and describe it in the best light. So now you can look at the direction of this budget: state bureaucracy, the presidential office and the state mass media that speaks about them positively, as well as their friends abroad. How can these be budget priorities for an election year?

Sorokina: Surely you are simplifying things a bit here. The term mass media may refer to the regional mass media that cannot survive without state support.

Yavlinsky: Irrespective of whether I am simplifying things, the priorities are quite clear. You saw them yourself in the draft budget published on the Internet. I want to make things as simple as possible. I propose spending this money on education. We will not survive as a country, if we fail to spend sufficient resources today.

Sorokina: Grigory Alexeevich, I have also noticed that you have a revolutionary proposal on tax rates. You propose the introduction of an average 10% tax rate and levying this tax on everybody.

Yavlinsky: I do not propose an average rate.

Sorokina: No, this is a single rate.

Yavlinsky: A single rate: a 10% profit tax.

Sorokina: I would call it a tithe.

Yavlinsky: Just imagine. We have managed to balance the budget, indicating that even if we don't obtain sufficient income in the year after the tax cut, this system will function within two or three years. People will be ready to pay and live like people, if they only pay 10%. Today, by the way, it is 45%! These are our proposals. Now you should ask me the main question: where will we get this money from?

Sorokina: However, we have been discussing this issue.

Yavlinsky: But I think that we should add one very important thing here. Our own boundaries represent huge sources of potential earnings - the customs. We have a huge hole here. We have sustained significant losses from the customs' union with Belarus. Of course, this is the country which is closest to us - we went through the terrible war years (the Second World War - Ed.) and Chernobyl together with these people. This is the closest nation to us. But today we cannot throw our money into this hole. Otherwise we will ourselves become, if I may put it in this way, "stateless". We have been losing our state. Therefore, we have to review the customs' rules. We can not give our boundary to some people who begin making money on it. Strengthening our boundaries and customs, reducing expenditure on state management expenditure on "international activity" - these are the first sources for the closest attention.

Sorokina: I also noticed that significant inflationary expectations stipulated in your budget draft are one of the sources of rouble revenues. Does this mean that you accept a higher inflation rate and expect the dollar to appreciate more against the rouble than the government? Why?

Yavlinsky: We simply believe that the economic situation today is such that we cannot really expect low inflation for the next year, as well as growth in the gross domestic product. We have tried to devise a realistic budget. Our budget has one more advantage - it is transparent. Why will the Ministry of Finance and the Government announce tomorrow that Yabloko's budget should not be adopted? Mainly because it has been written differently. We indicated clearly how much money the President will receive, how much the Prime Minister and his deputies will earn. We indicate how much money is being spent on postal expenses and the President's plane, cars and writing materials. This is not the case in "state management" in general. This transparency will establish an executive authority from our government. It will make the government spend specific amounts on pencils and letters. How much is spent on soap for the Kremlin? This amount, and not a kopeck more. And we can calculate how much soap was bought by the Presidential Administration over the past year. But we cannot check a single item in the budget in its current form.

Sorokina: Have I understood you correctly that the higher inflation figures, if they occur, will provide the government with an opportunity to obtain so-called additional revenues that are not recorded anywhere and can be distributed as they want?

Yavlinsky: No. Unreported revenues emerge when you plan low inflation, and it is actually high.

Sorokina: But do they have this in the government's draft budget?

Yavlinsky: Yes. But we predict high inflation and want to distribute in advance everything that we can obtain from such figures. This is certainly a bad illness - inflation, - but if we have it...... I also wanted to point out that there were few deputies in the Duma today. In general, the budget has been treated as if it is unimportant. Today politicians have been vying to make the strongest statement on bandits in Chechnya. But actually the country can't conduct a war, if it does not have a realistic budget.

Sorokina: To what extent do you incorporate in your budget our involvement in a serious, protracted military action in the Caucasus and the presence of tens of thousands of refugees? Do you consider that our negotiations failed and that we will not receive the next tranche of IMF aid?

Yavlinsky: First of all our budget is based on the assumption that we won't receive any loans next year. If international organisations reviewed our budget version - given that the deficit is 10 times lower here than in the government's draft and our budget in this sense is more realistic and reliable - then maybe negotiations would take another path. But at least we base our budget on the assumption that we freeze the debt. We don't receive any more loans. That is over. We have already taken so much that we cannot repay it for the time being. This is a special problem in the Northern Caucasus. How can we build a line of defence there, if we don't have the resources and our budget is unrealistic?

Sorokina: Did you bear this in mind?

Yavlinsky: We have already borne this in mind, by stipulating military expenditure in detail and absolutely transparently, so that each soldier would receive money and this could be controlled. In addition, we consider national security to be a top priority. We allotted the largest percentage increase in funds to this area - for salaries, the purchase of weapons. We wrote out the whole military budget in detail. We think that this is very important.

Sorokina: The refugees...

Yavlinsky: First of all we would like to act here politically. We should treat refugees in a way which reveals that we are thinking today about what they will do in winter. They are all citizens of the Russian Federation and we must treat them with full understanding of developments there. Now why have we stipulated such a huge inflow of refugees? This is related to our concern that the situation in 1994-1995 will be repeated in Chechnya; that the military efforts may be directed in a way that may cause civilian casualties, and peaceful civilian targets may be hit. This is absolutely inadmissible. I would like to state categorically that civilian sufferings will definitely lead to another defeat. We must not allow this to happen.

Sorokina: It looks as if we are about to engage in action on the ground again.

Yavlinsky: Anything related to ground operations and civilian casualties is absolutely inadmissible. We should ruthlessly eliminate bandits and their groups and be extremely careful with civilians, as we are with compatriots who are in danger. Only in this case can we finally achieve positive results in the Northern Caucasus.

Sorokina: If we can return to the budget, I notice that you stipulate a moratorium on the debt payments of the former USSR. How can we expect this to happen? Creditors are unlikely to agree to such terms.

Yavlinsky: This is closely linked to the type of policy that we conduct. If we refuse (as it has just transpired) to co-operate in anti-corruption measures and refuse to explain where the borrowed money has gone, it is impossible to count on such a resource. And we will always resemble a bankrupt who cannot pay his debts. We must immediately review this policy. We need to be honest, open and brave, instead of ingratiating ourselves, and have professionally solid relations with our creditors.

Sorokina: Then we can count on this support?

Yavlinsky: In this case we can count on such support.

Sorokina: Grigory Alexeevich, let us now turn to your colleagues in the Duma who are not displaying much interest in the budget, but still discuss it: how do they view your draft?

Yavlinsky: We submitted our budget several weeks ago: it was mailed to all the deputy groups. Everyone understands that it is impossible to create a perfect budget today. Items in our draft also provoke heated debate and tension. But at least we propose several things that change the situation in principle. We don't take loans. Our priority is national security. Education. A reduction in taxes to10%, and profits tax to 20%. They can vote for some things in this budget. Most importantly, we propose tax initiatives that will considerably reduce the shadow economy. And this is principally new in our tax proposals.

Sorokina: Grigory Alexeevich, isn�t your draft utopian?

Yavlinsky: We must start along this course. Then we can see how far we can go in this direction.

Sorokina: However, do you know how deputies from other factions regard your budget?

Yavlinsky: Yes. We have received the backing of some factions. But there are also lobby interests and other interests. We should work at this. But our budget will become a reality, if the government decides to consider this seriously.

Sorokina: What if the government fails to consider your proposals or considers them only partially? Would you vote for such a draft budget? Or must it include all your proposals?

Yavlinsky: We would like to help the government as much as possible.

Sorokina: Do you mean that there may be room for compromise?

Yavlinsky: There may be room for compromise. We will move in that direction. We will welcome any improvements to the budget. However, we won't allow ourselves to be deceived and will not approve any strange figures, as we need a budget that will enable our country to survive in these hard times.

Sorokina: In your opinion, will they adopt the budget or not?

Yavlinsky: We have a new Prime Minister. Let him show us what he can do. In my opinion he has a chance to do constructive work. As the budget has been developed by three prime ministers, he has an opportunity to review the key issues and then really improve the budget.