Friday, January 29, 2010

All For Sale

The anti-crisis programme of the Government of Russia

by Denis Mironov

THE RUSSIAN government has published its anti-crisis measures for 2010 on its official website but apart from a few news briefs the programme has largely been ignored by the mass media in Russia. In the cities the number of people who have access to online computers is only 22 per cent. Throughout the country as a whole no more than seven per cent are on the internet. At best this plan will be known only to one in five of the population.
It is even more difficult to understand the language of the governmental document. It is a vinaigrette of words; a porridge of general phrases and mysterious expressions that are possibly clear only for the initiated. Only the official statistics can be trusted.
For instance the programme states that “support of social stability and the guarantee of high-grade social protection of the population along with support of the revival of economy, the guarantee of stability of the positive tendencies become the basic priorities of actions of the government in the new year....” At this point the average Russian citizen will certainly yawn and read no further.
But the devil, as they say, is in the detail. If you study this document very attentively, you will suddenly realise that what may seem trifles really do concern us, the ordinary citizens.

General provisions

“The driving force for the steady growth of the Russian economy is named as investment and credit. Not industry nor manufacturing; not agriculture or even trade, but the banks and stock exchanges.
“The economy is still dominated by those factors that provoked its fast and rapid fall in the first place, notably a dependence on global commodities' export prices, low domestic demand [read – a poverty stricken population] and Russian industry's inability to satisfy it [in other words, nothing works], as well as a weak financial system and a lack of long-term loans. The initial stage of the government's anti-crisis policy, in late 2008 and 2009, did include a pro-modernisation component, but was largely aimed at cushioning the economy and the population from the consequences of the crisis, and at preventing irreparable damage to the country's industry and technology.
“This means that as things stand, further growth will be unstable because short-term internal economic risks have not been removed, slower than expected because it will depend on the revival of the global economy, and it will reproduce the economic model the government sought to abandon before the crisis.”

Three reasons why the overcoming the crisis “will be unstable and slower” are specified. Firstly, that the internal risks of the Russian economy in the short-term period have not been eliminated. Secondly, the position of Russia “depends” on the restoration of the world economy and finally that the “restoration” will only reproduce that model of the economy that we had before the crisis began. Therefore we “risk”; we "firmly depend”, and finally we go back to where we started from and where we didn’t want to be in the first place.
The document assures us that “in the Russian economy there is a potential for a fast return to a growth trajectory”. But then adds “The economic crisis has seriously affected Russia's starting position on this modernisation drive, with practically every sector of the economy experiencing some negative effects. Instead of laying down the foundations for innovative growth, the first stage of the Concept (2009-2012 – the long term economic plan for the Russian economy that runs until 2020) will to a considerable extent be spent on restoring the pre-crisis position.”
No, the statements do not match or add up!


According to the government inflation will run at between 6.5 and 7.5 per cent throughout 2010. This is difficult to believe. Even according to official data, inflation had topped 15 per cent in 2009. How it will be halved this year is not explained apart from some crystal-ball gazing like: “The comparatively favourable conditions on the global market combined with the Russian government's effective anti-crisis measures will ensure the consolidation of these positive trends, and a positive dynamic in most macro-economic indicators in 2010” while suggesting that: “At the same time, positive economic changes were accompanied by a rapidly falling inflation rate, indicating that the growth is sustainable and not based on the appearance of new bubbles in the markets.”
“Bubbles”, dear readers, is an expression used in the official governmental document. We will remind them that inflation is an average increase in the prices of the goods over a set period of time. The fixed salaries for state employees and the armed forces, pensions and children’s grants are all based on these very average indicators. It’s not “bubbles” for us.

Unemployment: policy of restraint

The document says that: “In 2010 the forecast number of unemployed people registered with employment agencies will be maintained at the 2009 level (2.2 million)”.
That is certainly the number of people who have registered at the employment offices. But according to official returns at the end of 2009 a further 5.8 million people (7.6 per cent) had no employment and were actively seeking work. According to methodology of the International Labour Organisation they are classified as unemployed. Altogether eight million – an army! How many more millions are part-time or temporary workers; people seeking full-time work in Russia? What will happen if the “social boat” in which all of us float starts to rock? Who will look after them? The internal troops?

How will the economy revive? Well the government paper says that “One of the key goals is stabilising the banking sector and ensuring that companies have access to commercial loans on reasonable terms. To this end, the following policies will be pursued: – consistent cooperation with large and leading companies in key economic sectors aimed at restructuring their debt as obligations under development programmes, developing new products and completing major projects of national importance….”

It’s not clear how this “restructuring is going to take place. No matter. This is more important…

“Government support will only be provided to companies which have detailed business development programmes agreed with partner banks. The programmes should contain measures to ensure financial strength in the short term as well as long-term strategies to boost and maintain competitiveness.”

You see, there can be no economic recovery without the banks!

The paper recognises the most difficult economic and social situation that exists in so-called "mono-towns" or “one-company towns” in Russia where the vast majority work for one employer. There are 400 such cities in Russia. But they won’t all get assistance.
“The government has approved a list of one-company towns to be included in these rehabilitation programmes” but it doesn’t say how many are on this list or who the lucky beggars will be. However the Ministry of Regional Development says approximately 200 will be allocated 10 billion roubles in the form of grants. It is not a lot for such a huge country!

It then adds “the programmes will not concentrate on supporting jobs in ineffective companies, but rather will focus on reorganising these major employers, creating alternative jobs, and diversifying the local economy. This will be done though SME support programmes in one-company towns: industrial estates will be built and business incubators set up”. But how can this be possible if, as it also says, “the social and economic situation has worsened practically in all directions”?

Well it’s all down to “modernisation”. The document talks about “creating the necessary economic conditions to shift economic policy away from anti-crisis concerns towards addressing the modernisation challenge. Such conditions include macro-economic stability and seeing an improvement in those economic institutions that guarantee the expansion of economic activity (the application of laws, minimising bureaucratic obstacles, and a tax system that stimulates growth)” – the Russian government's implementation of measures aimed at speeding up the process of economic modernisation. This means encouraging innovation and investment in the economy, developing infrastructure (transport, energy and telecommunications), the additional stimulation of domestic demand for Russian-made products, improving the situation in depressed areas and the creation of new regional "growth hubs".
This is clearly just verbal gymnastics…but let’s be serious. Let’s look at what really concerns the Russian citizen.
The anti-crisis programme has highlighted the major factors that have contributed to the recession in Russia as the “weak financial system” and absence in the economy of “long money”, that is to say long-term investments and credits.
It states “The long-term stability of the banking system and the Bank of Russia's policy of reducing inflation will allow long-term loans to be issued. However, they alone cannot supply sufficient funds to facilitate economic modernisation. Therefore, it will be necessary to turn to the financial markets.”
And this how…

“The most important sources of long-term loans, the pensions and insurance systems, will be utilised. The state policy for the long-term development of life insurance will be drawn up. The wider use of savings as a source of long-term loans through increased bank deposit periods will be considered.
“It is envisaged that foreign investors should have a role in creating long-term investment resources. This will be accomplished by attracting and supporting long-term foreign investment through setting up joint investment funds involving foreign investors in strategic sectors that require modernisation, including agriculture, the pharmaceutical industry, affordable housing and infrastructure.
“The government will reduce the share of state property in the economy in order to attract domestic and strategic foreign investment. This will be done through privatisation by means of open public proceedings on the basis of tenders and auctions, including the floating of privatised companies' shares in IPOs (Initial Public Offerings) and SPOs (Secondary Public Offerings).”
So now the government is defining where it sees the financial sources that need to be tapped to fund the recovery – pensions, insurance, personal savings and more privatisations… Now we see where the Russian Government plans to get the money!
And this is how:

“One distinct challenge for modernisation will be the restructuring of the state sector: stepping up privatisation and reforming budget-funded organisations.
“Efforts to restructure the state sector, develop and implement programmes for improving corporate governance of joint-stock companies of mainly state ownership and state corporations will be accelerated, as will the privatisation and restructuring of state-sector enterprises.
“Lowering costs and increasing efficiency in the budget will become key aspects of making budget spending more effective. A programme will be adopted and put into effect to cut out ineffective expenses and surplus functions, optimise the network of budget funded organisations, and to reorganise most budget-funded organisations along new lines involving tenders for social services.”
This new economic policy is simply a new stage of privatisation. On 16th September 2009 deputy-premier Igor Shuvalov presented the report to the Russian parliament on the practical realisation of anti-crisis measures.
“We are entering a stage when it is necessary to begin new structural privatisations,” he declared. “We need to transform a considerable quantity of the state unitary enterprises into joint-stock enterprises … it is necessary to structure this practice in a new fashion, and we will continue this work.”
In Russia state unitary enterprises are commercial organisations that use state land but have no legal right of ownership of the state property they use in their business.
There we have it. The directors of State enterprises do not want to be simple “operative managers” of public property. They wish to become its proprietors – for ever!

The author is a writer and journalist and a member of Communist Party of Russia.