OREANDA-NEWS. On August 19, 2009 Deputy PM Zhukov stated that public sector salaries will not be increased along with inflation, as had been initially planned, reported the press-centre of OTKRITIE FC.

View: In our view, this decision confirms the government's intention to keep 2010 budget expenditures under control, regardless of the politically tough decisions that this entails. From our standpoint, this is positive for the stability of the ruble.

We also think that this is good from the labor market perspective as it will reduce pressure on private sector salaries. Likewise, we believe at this point it is essential that this decision is applied across different groups within the state sector. However, this measure is still controversial as it will lead to a decline in real incomes for many public sector employees. It also harbors the potential for increasing social tensions and it will put pressure on consumer demand. Meanwhile, the government still intends to raise pensions by 45% by the end of next year in an attempt to maintain social stability.