#10 - JRL 7068
February 19, 2003
THE SAD STORY OF RUSSIAN GOVERNMENT CONTINUES
Economic Development Minister Herman Gref proposes a new economic program
Author: Nastya Skogoreva
[from WPS Monitoring Agency, www.wps.ru/e_index.html]
HAVING REALIZED THAT IT IS DIFFICULT TO PREVENT THE RUSSIAN ECONOMY FROM STAGNATION, HERMAN GREF HAS STARTED CLUTCHING AT STRAWS. HIS NEW INDUSTRIAL POLICY ACTUALLY CONTAINS VERY LITTLE THAT IS NEW. IT RECYCLES IDEAS WHICH INDEPENDENT ANALYSTS HAVE BEEN SUGGESTING FOR YEARS.
The government is to start implementing its policy of "targetted" support of Russian enterprises; this is clear from the socio-economic development program for 2003-05. According to one of its authors, Economic Development Minister Herman Gref, the individual approach to supporting enterprises will help Russia find its place among the world's most developed nations.
However, it is not clear who will support companies of the "new economy" in this way. This method of support was proposed by experts long ago, but the Cabinet noticed these recommendations only recently. Can the present government do it? After all, it is to be dissolved after the next presidential election. There may be two or even three more Cabinets by 2010, when Russia is meant to achieve economic growth of 7-8% a year. And it is uncertain whether Herman Gref and his ideas will have a place in these Cabinets.
It seems strange, under the circumstances, that the Economic Development Ministry is drawing up programs for the next decade. Independent analysts do not even venture to predict the state of the Russian economy for the next ten months of this year, since there are too many contradictory factors. It is not clear how the Iraqi war will affect the global economy; whether oil prices will collapse; whether the exchange rate of the ruble will be stabilized; or how these factors will influence the Russian economy.
Western analysts have been refraining from any long-range forecasts since the start of the year. Only the Russian government's experts are not giving up their habit of peering into the future. This position is understandable, since in 2010 Gref is unlikely to be the economic development minister. Therefore, there will be no one to hold them accountable for an incorrect forecast. Besides, Gref's ideas are not new. Over the past three years, almost all analysts have stressed the need to start consistent state support for enterprises and diversify the Russian economy, gradually shifting the center of gravity from enterprises engaged in extracting raw materials to secondary industry. Although other analysts have not mentioned such mysterious terms as "targetted support" or "new economy", the essence of their proposals has been the same: they have been talking about the new industrial policy against which Gref has been protesting all these years. Now it suddenly turns out there is some room for this policy in the new economic program.
Undoubtedly, it was not that easy for Gref to give up his image as an opponent of industrial policy. However, he had no choice: the economic growth rate in Russia is declining, and economic stagnation may start within a year or two. As a result, the economic discrepancy between Russia and industrially developed nations may increase even more, although the president has set the government the objective of raising economic growth to 7-8% per year by the end of this decade. However, if the situation continues to develop like this, that fairy- tale will never come true - or at least not within the lifespan of the current Cabinet.
In this situation, the government is like a drowning man catching at straws; that is why Gref's ministry has resorted to the old tried and true devices: the ideas of a new industrial policy and redistributing the tax burden in favor of the raw materials sector. These measures are well known and tested throughout the world. However, Russia may pay the price of economic stagnation for the government's attempts to reinvent the wheel.
It is rumored that when Prime Minister Mikhail Kasianov introduced Gref to the Cabinet, he said sarcastically, "Meet the young and talented lawyer." This seems to be a sequel to the sad story of the Russian government. As one economist noted in 1998, Viktor Chernomyrdin's degree in economics was too expensive for the nation.
(Translated by Kirill Frolov)