#7
The Economist (UK)
December 1-7, 2001
Russia's reforms
Lurching ahead
While President Vladimir Putin wows the West, Russia is changing, slowly
FOREIGN policy: splendid but fragile. Economic reform: cautiously encouraging. Democracy: still wobbly. The stirrings of public spirit: small but detectable. That would crudely sum up the remarkable but contradictory changes in Russia, some of them apparent since September 11th.
The best news is that, for whatever reason, President Vladimir Putin is plotting a course that broadly suits the West and would have seemed barely imaginable only three months ago. There is little talk these days of a “strategic partnership” with China or of North Korea's dictator, Kim Jong Il, as a “thoroughly modern man”, or even of that old Soviet tactic of trying to wean Europe away from its alliance with America. Instead, Russia is itself fast cosying up to the United States.
Mr Putin has learned to woo foreign politicians and journalists alike. Harangues and bluster have given way to a relaxed, articulate, convincing manner, backed by a formidable command of detail, and even salted with the occasional dry joke. He is winning some new friends at home, too. At a state-sponsored “civil forum” last week for voluntary outfits, even some diehard human-rights campaigners were impressed by the authorities' willingness at least to listen to them.
Recruiting foreign opinion is not just a matter of patter. After September 11th Mr Putin acted speedily and decisively to portray Russia as a trustworthy partner. He gave unstinting support, both diplomatic and practical, to America's war in Afghanistan; during past American interventions, in Yugoslavia and the Gulf, Russia's stance was querulous or outright hostile. Mr Putin has also moved quickly to tidy up other loose ends, from closing military bases abroad to opening negotiations to end the war in Chechnya.
One big reason for the change is that Mr Putin genuinely loathes what he calls “Islamic terrorism”. Whatever Russia's differences with the West—over missiles or Yugoslavia—they are mere nuances compared with what he sees as a shared threat from Russia's south. In the previous era of grumpy indecision, Russia sat impotently on the global sidelines, flirting with countries poorer and nastier than itself, while its western neighbours once under Russia's sway, such as Poland and Estonia, raced away to rejoin the modern world.
Now Mr Putin has placed his chips. He wants a strong, modern Russia, and that means money and know-how from the West, whatever the short-term cost in political concessions. Generals and other hawks are uneasy or outright angry but their protests get nowhere. The press and opposition parties are docile.
Mr Putin's other main achievement is that Russia no longer feels like a disintegrating country. The Kremlin is plainly in charge, both at the centre and in the provinces. The president has humbled most of the tycoon-politicians who infested public life in the Yeltsin era. There is a steady government, a growing economy, a balanced budget and low inflation. Some big reforms, to simplify taxes and free the market in urban land, should soon reap at least some benefits. Mr Putin is popular.
And yet the really difficult reforms—of the bureaucracy, of the military and security empires, of state-run heating and housing—still lie ahead. Even where good laws have been passed, most of them have yet to bite. And economic growth, fuelled by the high oil price and the effects of the 1998 devaluation, is tailing off again. Last year it was more than 8%; this year it may be less than 5%.
The good news is that the past two years have created a cushion, of both cash and credibility. That should make borrowing money from abroad cheaper and easier (see article). The country can survive a year or so of lower oil prices with only modest belt-tightening. Only if oil falls below $12 for some time will the economy stop growing.
Many steppes still to go
In the medium run, though, things still look pretty bleak. Around 40% of Russian businesses make a loss, even after the two best years in the country's economic history. Imports are shooting up, exports (raw materials aside) are still pitifully few. Most factories are direly managed. Their machinery on average is 16 years old, roughly three times the figure in the West. Government interferes very widely. The crony-ridden, state-dominated banking system keeps old businesses going but chokes off capital from new ones. Small firms, the backbone of most strong economies, in Russia are becoming fewer.
The bureaucracy and the corrupt overlap between politics and business are still the country's biggest problems. The most encouraging signs here lie in the work of the Audit Chamber, a government watchdog run by a former prime minister, Sergei Stepashin. Despite government resistance, he has been poking around some of the country's most lucrative state bodies: those dealing with fisheries, customs, railways, natural resources, the press and civil emergencies. All in all, billions of dollars have gone adrift, he says. A clutch of bigwigs are under investigation.
Another bit of the government is slowly trying to get rid of the red tape that fosters corruption and incompetence. The number of licences and other bits of paper that businesses need has shrunk. After next summer it should become easier to register a new company.
Reform of the justice system is the single biggest condition for real change. Despite a bunch of new laws passed last week, it will be very slow. Judges will be better paid and easier to sack, but finding and training good ones will take years. The prosecutor's office remains notably unreformed, as are other powerful agencies, including the FSB (the domestic security service), the tax police, the interior ministry and the armed forces. For all the talk of legality, state authorities still do pretty much as they want, including using the law against political opponents and the independent media. This week TV6, the last big opposition television station left, looked set to succumb to a state-backed squeeze.
More helpful nudges are coming from elsewhere. A new code on corporate governance may make big business a little more open and law-abiding. Some liberal politicians are planning to introduce a law on freedom of information next year.
But two big things are still missing. One is a commitment to clean government at the top. The suspicion remains that, as the old team gets whacked, a new lot takes over. Many of Mr Putin's old St Petersburg chums seem to be doing very well for themselves; so do a bunch of other well-connected tycoons.
The other big shortage is of public spirit. Most Russians would still rather pay up or shut up than kick up a fuss. Few think that the latest kerfuffle over corruption or working for pressure-groups will improve their own lives. Still, Elena Panfilova, who runs Russia's branch of Transparency International, an anti-corruption lobby, thinks that time is on the side of good government. “It is the logic of history,” she says. “But it will take a generation.”
Next Article