State Funding: The Tastiest Kind of Money

Aseemingly ordinary document has recently surfaced from deep inside the apparatus of the Russian government. Prepared by the Economics Ministry, this document is called, "The Federal Investment Program for 1994." Some time ago an investment project was presented at a session of government, but it was sent back for reworking.


The project has indeed since been reworked and has once again been presented for consideration. However, a large number of interested figures in various governmental structures are trying to hold it back. The reason for this collision of interests is simply that this document with its boring title deals with the distribution of enormous sums of money. And not just ordinary money, but the tastiest and most attractive kind of money in the whole economy -- government investment.


Of course, the main attraction of such money is that it does not have to be earned. All you have to do to receive it is convince some state bureaucrats that your ministry must have the funds to complete an essential project. In the past, it was not even necessary to present a serious technical/economic plan to justify the investment.


Another important attraction of this kind of money is that no one has ever seriously demanded even partial repayment of such funding.


Traditionally, centralized capital investment was simply distributed to various projects. In recent years, however, those who are part of the system of distributing government funds have learned how to make some pretty nice profits out of the process.


For example, Promstroibank is an official state investment agent. Before the bank achieved this status two years ago, it was completely unremarkable. Now, though, business is booming. Each year, 3 or 4 trillion rubles in government investment funds pass through this bank. Just the 1 percent commission that the bank takes for purely technical operations nets 30 billion rubles in profit, without any expense or risk for the bank.


One can only guess how much is spent on "black commissions," money given to the bureaucrats on whom depend decisions about the actual distribution of investment funds. Reports of such commissions are so far only supposition and rumor.


If you keep in mind that federal capital investment in 1994 is projected to reach 23 trillion rubles, it is easy to imagine how many organizations and private individuals can "warm their hands by such a fire." If, of course, the principles for fund distribution remain unchanged.


The new principles proposed by the Economics Ministry include the competitive distribution of funds and a series of other revolutionary changes. First, non-repayable state funding will be limited primarily to the social complex and to projects that have no commercial value, such as basic science research. Second, other projects will be funded strictly by loans rather than grants and only after state experts study detailed proposals.


The proposal to stop financing ministries and whole sectors of the economy and to focus on specific projects and enterprises has provoked especially heated opposition in the ministries. If they lose the power to distribute funds, they will lose the last reins of control over their enterprises.


The new investment proposal can best be characterized as an attempt to limit the material basis for corruption and to deprive bureaucrats of the power to manipulate individual enterprises through their control of government funding.