INSIDE FINANCE: Lawmakers Face Tougher Year Financing Election Campaigns

Finances and politics are inseparable. In a democratic state the connection between the two becomes visible in one simple question: who pays for elections.


In Russia, the December elections to the State Duma are looming on the horizon, and the next presidential elections are set for summer of next year. This makes it necessary to re-examine the upheavals in state finances, and even to look at the major events in the private sector through the prism of the formation of war chests for electoral campaigns.


It is no coincidence that the head of the government's finance department, Alexander Pochinok, attached so much importance to the question of election financing at a recent news conference. With his characteristic tendency to idealize and over-simplify matters, Pochinok spoke of the need to establish uniform rules for all participants - which sounds a little strange coming from someone in his position.


By law, budget funds make up only a small fraction of a candidate's campaign funds. The lion's share is supposed to come from private sources. So where does the budget fit in?


In fact, Russia's brief democratic history has a distinct precedent where considerable budget and quasi-budget funds were used in the financing of campaigning.


Prior to the 1996 presidential elections, the government issued two tranches against its hard currency loans, which became known as "taiga bonds." Intended to cover the debts of bankrupt Soviet foreign trading structures to their suppliers, these securities were distributed in only a few Russian banks, which proceeded to use the money from their sale to pay for the famous singers and dancers who appealed to the population to vote with their hearts.


The situation today is fundamentally different, since no one is loaning any money for either elections or domestic purposes. Can anything more be wrung out of the budget?


The answer is probably yes, since so far this year deputies have been very active defending the interests of Russian producers, usually by trying to ensure that extra funds are allocated to specific areas of the budget, such as agriculture or oil production.


Those deputies that manage to do this successfully can confidently expect modest injections of additional campaign funds from grateful recipients of state funds.


Yet this still probably won't be enough to cover campaign costs, leaving future legislators and presidents to consider what other resources they can mobilize.


Until recently, the greatest investors in politics were the financial-industrial groups. This is easily explained: Their financial well-being depends on the gratitude of the authorities - on access to one or another official who allocates budget flows, say, or licenses.


This sort of collaboration can sometimes have unexpected and extremely unpleasant consequences for politicians, however, especially since the conditions of such agreements are not set on paper and certified by a notary.


This is something that the governor of Krasnoyarsk region, Alexander Lebed, is finding out now that it is clear that he and the groups that supported his election do not see eye-to-eye after all. Lebed believed that the aluminum producers of Krasnoyarsk supported both him and his economic theories, but they appear to have anticipated a speedier transition from economic theory to the actual practice of supporting individual producers.


And even Russia's oligarchs are having a tough time of it now. The head of Inkombank, Vladimir Vinogradov, famous for his political investments, is scarcely able to lend this kind of support now.


Nor can anyone count on Uneximbank's Vladimir Potanin or Menatep's Mikhail Khodorkovsky. The most that the co-owner of SBS-Agro, Alexander Smolensky, can hope for is to squeeze some stabilizing credits out of the Central Bank.


Nevertheless, serious politicians are busy making serious plans, acutely aware of the need to take control of the main flows of finance that survived the crisis.


How else can one explain the renewed battle for the chairmanship of Vneshekonombank? To start reshuffling personnel at the very height of talks with international creditors would appear to be plain crazy, but for some senior officials, matters concerning control over Vneshekonombank's debts are more important than the nation's overall negotiating position.


Sberbank chairman Andrei Kazmin also has cause for concern, with the approach of a shareholders' meeting where a change of management could be implemented.


And no doubt the chairman of Vneshtorgbank, Dmitry Tulin, is shifting uncomfortably in his seat as auditors from the Central Bank continue looking into the bank's affairs.