#17 - JRL 8007
TITLE:
INTERVIEW WITH MINISTER OF ECONOMIC DEVELOPMENT AND TRADE GERMAN GREF
[OGONYOK WEEKLY, P. 14-17, NO. 1, JANUARY 5, 2004]
SOURCE: FEDERAL NEWS SERVICE (http://www.fednews.ru/)
GERMAN GREF: "THERE IS NO LONGER A THREAT OF DEFAULT IN RUSSIA."

The past year and the new year, business and power, wastefulness and charity -- all this was discussed in a conversation between Viktor Loshak and Minister of Economic Development and Trade German Gref.

Q: What were the most positive and the most negative factors in the Russian economy in the past year?

A: High oil prices.

Q: ?

A: It was positive because it generated an additional 20- percent increase in market and industrial performance indicators, but it was negative because it created the impression that everything was good and that we could postpone radical economic reforms a little bit longer.

Q: We will go back to radical reform later, but before that I want to ask how does Economics Minister Gref assess the results of the elections to the State Duma?

A: As an economics minister, I assess them very positively.

Q: And as a person and a citizen?

A: As a citizen, I think the results are controversial.

Q: It is known that Gref's economic program is a program of cutting government expenditures, basically it's an anti-bureaucratic program. At the same time a party of bureaucrats has come to power in the country, and obviously one cannot speak about cutting government expenditures or fighting bureaucracy in Russia. Do you agree with this?

A: In our country with fledgling democratic institutions (including the separation of powers) the position of the Duma at the moment of its creation never played a critical role. If we look at the right-wing parties and the voting in the Duma, we will see unfortunately that right-wing parties voted against key economic reforms throughout the past four years. The left-wing and the right- wing parties voted almost identically.

Q: How could you explain this?

A: First, political views in society and therefore in its political system are not clearly structured. United Russia was the most right-wing party. Right-wing parties were basically social democratic parties in essence and defended social democratic principles. United Russia remains a right-wing party also because the bureaucratic position, as you called it, and the position of the government and the President (at least in the economic sphere) remain on the right side of the political spectrum. This is why the policy of this party, which reflects the position of authorities, is also a right-wing one. I think one of the reasons for the failure of the so-called right-wing parties is that they preferred to be in opposition, thus disorienting their own voters.

Q: We feel sorry for social democrats but at the same time we say that there will be no liberals in the Duma.

A: I think that is true. I won't say that it's not indisputable. I tried to figure out from the Yabloko and SPS election rhetoric what they stood for. But I failed because they upheld a score of ideas. The first of them rejects what Putin and other incumbents have been doing. One may say that Putin and the government have not always acted wrongly. So rejection was one of their main principles. Next, it was hard to see any clear-cut and logical pattern in their actions.

Q: I don't think that SPS and Yabloko considered criticism itself more important than what they were actually criticizing.

A: As a potential supporter of liberal and right-wing views, I was disoriented as far as the positions of these two parties were concerned.

Q: Do you think that bureaucrats -- we have to face the truth, they have a majority in United Russia -- may carry out reforms to the detriment of their own interests?

A: First of all, I am not sure that bureaucrats have a majority in United Russia.

Q: I think they do.

A: But I don't. I think there are enough bureaucrats everywhere. Look at the bureaucrats among the Communists. Or are there fewer of them among the right? I am not so sure. Maybe in percentage points. At any rate these parties may compete with each other in this respect. But I repeat, the Duma may not become the locomotive of reforms, it may only support or stop them. Given its present configuration I think it is likely to support reforms.

Q: What do you think of the political scientists' view that the government will become the most liberal flank after the departure of Yabloko and SPS from the parliament?

A: Listen, Yabloko voted against the reform of natural monopolies, it voted against the Land Code, it voted against many other things, including an increase in taxes on oil companies. By the way, the Communists voted the same way. Communist Glazyev voted against taking two billion away from the oil companies but later for some reason he began to propose to take away five billion... It's hard to speak about independent liberalism in the government because its outlook is set largely by the outlook of the President. In our system, in a presidential republic, no right-wing government is possible if there is a left-wing president. In my view, a certain number of people in the government is committed to the liberal ideology but only because they are allowed to do so by the President. It just so happened that these people are in the government leadership.

Q: You have always fought bureaucrats who make decisions and at the same time oversee their implementation. And you have always cited the agro-industrial complex as an example. But there are many such examples.

A: All of them, actually.

Q: Will the situation change?

A: I can't say what is going to happen because I am not the one who makes decisions, I am the one who initiates them. We propose to eliminate an obvious element of the conflict of interests. This is why the basic principles of administrative reforms, which have been approved by the President and stated in the premier's note, call for the division of functions into three components and for the creation of a three-tier system of executive bodies: a ministry that issues regulatory acts, a state committee that is an enforcement body, and an agency that performs all non-state functions and renders services. We are trying to move away from a situation where one and the same organization implements decisions and exercises implementation control. But experience shows that no country has succeeded in implementing the principle that more and more countries are beginning to assume even though all of them have been trying to create a protection against conflicts of interests. In our country there have been no attempts to divide functions. Moreover, every body combines them. Our Ministry, by the way, is among them.

Q: What is happening to the administrative reform? There have been a lot of talk and reports, but nothing may be happening. What do you think? You are one of the reform ideologists?

A: I can't say that nothing is happening. Maybe things are moving not as fast as some radically-minded people, including those in the government, would like them to move. But the commission on administrative reform is working. It has proposed to abolish 525 functions, of which about 500 have not been discussed with those concerned. And this is the first test of strength for the government. By the way, it will be necessary to amend 100 laws that abolish these functions. We know from the start that we will not be able to get all of them approved. So, we are proposing a mechanism that will allow us to adopt these amendments without approvals. Work is underway.

Q: What do you mean when you say that 2004 should become a key year?

A: The change of government is the most convenient moment.

Q: A painful question: a window of opportunity will open for unpopular decisions after presidential elections.

A: In principle, a package of reforms, which includes the most vital measures for the development of the economy and which is not going to make bureaucrats and other institutions happy, is being prepared very actively on instructions from the President. In this respect, the Center of Strategic Studies is working very hard. They are preparing, among other things, draft laws. The year 2004 must not be lost. But the election cycle is not a very convenient time, of course: inauguration and the change of government will take place in May, and the parliament will end its spring session in July. The session agenda will be dominated by the budget, but we are doing everything we can to ensure that these laws are considered before the session ends.

Q: What will happen to the investment climate in 2004 in connection with the forcible actions undertaken by the Prosecutor General's Office?

A: It's hard for me to say whether they will be taken or not. Forcible actions, if they are carried out in accordance with the law and in order to ensure compliance with the law, will only have a positive impact on the investment environment but may cause temporary fluctuations in the market as well. I personally hope only for positive events. I think presidential elections will boost the market and improve the investment climate in the country. I don't have any negative feelings about the year 2004.

Q: But the business community does have such feelings and they are connected with repressive measures, even though this is often discussed publicly.

A: There must be certain fear of law-enforcement agencies, and it's bad that it has been lost over the past period of time.

Q: But in Russia those fears will probably remain for generations to come.

A: I would put it this way: some of our major entrepreneurs faced no risk to find themselves in jail. In the country everything could be purchased and everything was for sale, any criminal case could be "bought out" completely, together with the decision ending the proceedings. Such things are very bad for the investment climate. The current appearance of the fear of punishment for the crimes committed is normal and it is good that the fear is emerging. But the fear of reprisals for crimes not committed is something which is, of course, unfavorable for the investment climate but the cure for it may only be in the passage of time and actions not admitting of things of such a kind. Any words in such a situation have no significance. No matter how much we would say that this will never happen again, words are not enough. A certain time should pass so that business would sort it out, so that there would be formed a system of values which should originally be "broadcast" by the authorities as the message: what is good, and what is bad? What line must not be crossed? We have to traverse this necessary stage.

Q: But it is precisely the election results that may stimulate a continuance of repressive measures. Indeed, the entire country has voted for expropriation, to put it mildly.

A: It does not seem to me to be so. The country did not vote for expropriation, the country voted for Putin. The president, it seems to me, is not infected with this disease. In this respect he has an absolutely adequate understanding of the perils of such a policy. I am absolutely convinced of this.

Q: Is a social project possible in Russia, that would unite the country?

A: The key problem which we have and which can become a common problem for business is the struggle with poverty. It is merely words but in reality the words have a concrete content. The task can be resolved. It is the absence of poor people in the country or at least having the minimum number of the poor. This is a major element of social and economic stability. At the same time, this is also a condition for economic growth. We have 25 percent of the population below the poverty line. Thirty five million people. The overwhelming majority of them are families that have active family members. Consequently, the poverty of these families can be liquidated by employment.

If one gets down to this seriously, then it is clearly possible to very seriously reduce poverty, if not defeat it altogether.

Q: You mean to say that the time has come for a new and sensible charity to be displayed by wealthy people?

A: This is also included. There has been a radical change in the system of values in our society; if in the past one felt ashamed to be rich, now it is an honor. But what goes with it, nobody explains. You have property -- money, and you are free to spend it. But the attitude of the society toward you is molded, depending on how you spend this money. You can, let us say, buy 10 yachts and then the society takes an appropriate attitude toward you but you can use the money to build orphanages. It is obvious that wealthy people in our country -- and there are quite many of them -- have much more capital than they can consume in their entire lifetime.

Q: What can stimulate the rich not to bathe girls in champagne in the French resort of Courchavel, but rather to build orphanages?

A: This includes the new system of values. This cannot be achieved by threats in a free society with private property. Morality must be molded. In traditional capitalist societies, and also in Russia before the revolution, this was fostered for years and decades and generations and in the final analysis a certain code of conduct had emerged.

Q: Is there the feeling that such morality is appearing, albeit in an inchoate form?

A: Yes. At the meeting with entrepreneurs the president said it straight that money can be spent differently, some pack private jets with girls and fly to vacations. After that, as far as I am aware, the entrepreneurs stopped flying like that. At any rate, they began to hide this. And when the newspapers start writing about it, then may be they will cease engaging in such practices altogether. But it is impossible to ban them. It is a question of values.

Q: It turns out that paparazzi can also exert a sanitary effect, can't they?

A: Yes, it is, although, doubtless, it is a violation of human rights.

Q: Will Russia join the WTO in 2004?

A: We have a chance to complete the negotiating process in 2004.

Q: How do I "decode" that?

A: We have to sign protocols with all countries, our partners, who have expressed their desire to participate in business negotiations with Russia. On the basis of those protocols, a report of the working group on Russia's accession to the WTO is being drafted, and the report has to be approved by WTO organs, accepted by Russia and ratified by it.

Q: Recently, I heard an American forecast: one and a half years from now, when the Iraqi oil will finally be able to be transported and the Americans will "demothball" all their oil fields, the price of oil and gas will drop abruptly and the economy as a whole will change. Is something similar being forecast in Russia and how are we getting insured against such an eventuality?

A: I am not familiar with such a forecast. Both the Americans and ourselves have the forecast that says that the smooth introduction of Iraqi oil into the market must, in principle, be absorbed by the increase in its annual consumption. No shortage will appear on the market. There is such a forecast. I know all the forecasts of the major world energy agencies, and we have direct contacts with the United States thanks to which we are exchanging information. An abrupt drop in prices is not expected. Although this is not ruled out. This can be expected at any moment. The market is very changeful, if practice is any guide, and you cannot insure yourself against it. The fall in prices may have a sharp impact on economic growth and the budget situation. But there is no scenario that says Russia will come to a default. No default is threatening us with our current accumulated reserves of gold and foreign exchange and we will withstand any drop in prices. Today we can state this with the full sense of responsibility. The coming years will see no replay of 1998. We have been able to accomplish something over the past four years. We have not "eaten up" these years for nothing.

Main Indicators of Economic Development (in % over the previous year)

	2002	2003   (Economic Development Ministry estimate)
GDP	104.3	106.6
Consumer price index	115.1	112
Industrial output	103.7	106.7
Agricultural output	101.7	100
Investment in capital assets	102.6	111.2
Real disposable monetary incomes of population	109.9	113.5
Retail trade	109.2	107.8
Paid services to population	103.7	104.9
Export of goods	105.6	121.3
Import of goods	113.4	118.9