Russia Profile
October 10, 2008
Worried Oligarchs Unite
Russia's Financial Tycoons Scorn the Way the State Responded to the Crisis
By Dmitry Babich
Russia's businesses, reportedly losing billions of dollars daily as the financial crisis shows no sign of subsiding, attempted to indirectly criticize the government this week. On Thursday, Alexander Shokhin, the president of the Russian Union of Industrialists and Entrepreneurs (RSPP), published an open letter with "An Appeal to the Country's Leadership" as the headline, in which he criticized the anti-crisis measures of Vladimir Putin's government.
In Shokhin's words, "The time for in effective state decisions [in the sphere of economy] is over." Bearing in mind the traditionally mild tone of the "the oligarchs' trade union's," as RSPP is commonly called in Russian media, statements, these words sound unusually sharp.
Shokhin is even ironic toward the politically untouchable "safety airbag," a term coined by Prime Minister Vladimir Putin describing injections into the financial system from the Stabilization Fund, Russia's $546.1 billion-worth hard currency and gold reserve, the third largest in the world.
"The safety airbag, thanks to which citizens have not yet felt the full depth of the crisis, has a limited resource – about two years," Shokhin wrote in his letter, which was published on RSPP's website and that was quoted in Russia's most influential daily newspapers.
Following this critical preamble, Shokhin cited a list of measures, which, in the opinion of Russia's financial tycoons (or so they want to be called instead of the derogatory "oligarchs"), can improve the situation.
Shokhin's bitterest words were reserved for the state's selective approach toward supporting various branches of the economy, with the state being accused of giving preference to companies partially owned by the state, or to the so-called "state corporations." "The principles of providing state support to companies should be made public and transparent," the letter said. "Decisions on the role of companies with state participation or the state corporations should be made clearer."
The list of the required "clarifications" runs counter to the practice of the last few years, when the state pumped money into state corporations officially charged with making "breakthroughs" in cutting-edge technologies or innovative economic projects, such as nanotechnology or the construction of the infrastructure needed for the Olympic Games in Sochi in 2014.
"The existence of every one of the state corporations should be limited to a clear cut period; the order of a state corporation's privatization and the future use of the money obtained from this privatization need to be clearly marked," the letter said. "This money should be used for institutional reforms, such as changes in the pension system."
Besides these points, the letter includes a total of seven concrete suggestions to the government, accompanied by a healthy dose of praise for the recent financial injections from the state, which saved the bank system from collapsing in the last few weeks. However, this praise should not be viewed as insincere flattery. Most of the experts also share the generally positive view of the government's current actions, reserving their criticism mostly to the state's previous economic policy.
"If it had not been for the actions of the government and the Central Bank, we would have the end of the world now," said Pavel Medvedev, a member of the State Duma's committee on financial markets and one of the main authors of Russia's legislation on insuring bank deposits. "The Central Bank has been bracing up for this crisis for at least a year. It perfected the technology of crediting the banks."
Medvedev's colleague Valery Zubov, a member of the committee on economic policy, agrees with many points of Shokhin's letter. "There are many interesting suggestions in this letter, and I think some of the worries of the RSPP's members are well-founded," Zubov said. "The problem is that if you make financial injections only into the state-related banks, you are conducting undercover nationalization. There is no guarantee that this money will reach the "real" sector of the economy, where the money is needed most right now."
In Zubov's opinion, the current crisis revealed the basic weakness of the Russian economy – the fact that banks are just unwilling to invest into the national industry or agriculture, or even to credit them. "The problem is not on the level of banks and individual small clients; people continue to bring their money to the banks. Withdrawals have not yet acquired a massive character and there is no ground for panic," Zubov said. "The problem is between big banks and the real economy, which the banks just don't want to credit on fair terms."
The result is that individual investors do not get any financial gains from their bank deposits, since inflation outpaces interest by several percent. Thus small investors do not bring enough money to the banks, and the banks borrow heavily from aboard, making Russia vulnerable to the consequences of the global financial crisis.
As for state corporations, why should they be immune from problems that now afflict the entire society? "The state corporations had a full year to prove their sustainability," Zubov said. "They need to be checked by the Auditing Chamber and other authorities, just like all other companies."