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Filling the pillars with concrete: Medvedev demands progress in economic plan

Dmitri MedvedevIs he actively on the campaign trail, or shoring up his defences? Either way, President Dmitry Medevedev went on the warpath over economic issues yesterday, and called for concrete measures to push his modernization drive forwards, including nailing down the privatization programme and pushing state officials out of the boardrooms of companies. The move sees the president pushing to fill the second of the twin pillars of his presidency with concrete.

Speaking at a modernization and technological development commission meeting on Wednesday, Medvedev again condemned the investment climate. "I have already given my opinion on the investment climate in this country -- it is very bad ... Corruption remains a factor," Medvedev complained.

He then went on to order concrete measures, including a fixed schedule for the country's privatization programme. "To avoid excessive influence of state-run companies on investment climate, we have to do three things. First of all, we have to fix and finally announce the privatization schedule for large stakes for the next three years," Medvedev said, according to RIA Novosti.

Although a three to five year privatization plan to reduce the state's involvement in the economy via ownership of its biggest companies was announced in late 2009, only one major company - VTB - has so far gone to the market. Whilst market conditions have clearly delayed more rapid progress, various factions have been trying to run their own agendas. Whilst a list of businesses to be privatized has been announced, there is no more specific timetable, and many conflicting statements continue to appear from within ministries and the companies.

In the face of this resistance, the president also ordered that ministers be replaced by independent representatives on the boards of state companies by mid-year. "Secondly, we have to eliminate the practice where government officials, I mean those responsible for regulating rules in individual sectors, are board members at companies which operate in a competition environment," Medvedev said. He also demanded that large state-controlled companies publish information on planned purchases, including their price, and information on closed contracts.

Senior government figures sitting on major company boards include Finance Minister Alexei Kudrin at VTB, Deputy Prime Minister Igor Sechin at Rosneft, and Economy Minister Elvira Nabiullina, Energy Minister Sergei Shmatko and First Deputy Prime Minister Victor Zubkov at Gazprom, Reuters reports.

The president also called for social taxes for businesses, which were raised from 26% to 34% at the start of the year, to revert to the lower figure. "The rate of 34% can be unbearable for many sectors," Medvedev said. "I am going to order the government to establish mechanisms that would reduce the rate starting Jan. 1, 2012." The Kremlin's top economic aide, Arkady Dvorkovich, said reversing the hike could cost the budget as much as RUB500bn ($17.5 billion).

The president's orders for the business and investment sphere came just two days after he launched an assault on the political world. On Monday he pushed for officials to carry out his orders more efficiently, and demanded new legislation to fight corruption - which has been his main political project during his presidency.

Meanwhile, the privatization drive is at the heart of the modernization drive. In other words, the presidential focus is clearly on the twin pillars that define the Medvedev presidency thus far. It suggests that the president is confident and in rude political health ahead of the election next year.

VTB Capital writes: This is a concrete list of actionable objectives with hard deadlines and we believe it squares with (or rather provides support for) our long-held view that the risks to the quality of policy for the coming years are on the upside, as over the past 9-12 months the country's top leadership has come to the understanding of the deficiencies and limitations of maintaining the status quo (and the downside risks to growth stemming from it). Equipped with this list of objectives, we now have a yardstick to measure both progress and execution capacity in the coming months. Success would mean a major boost to Russia's investment case; at the individual stock level, we see Gazprom and Transneft prefs being aided most significantly.


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