Debate - Opinion in English, Russia and Baltic States
Debate - Opinion in English
Tillbaka till Tonis hemsida
2018 GMT, 000421
width=145>Despite bragging about Russia’s “huge growth”
in the first quarter and Russia’s current budget surplus, Russian
President-elect Vladimir Putin warned the Russian government on April 19 to
adopt “a more rigorous budget policy” in light of lower world oil prices. A
number of one-shot measures and the windfall of high oil prices in the first
quarter will allow Putin to fully fund Russia’s 2000 budget, but this alone will
not help Russia develop economically. In 2001 Russia will face the same litany
of unaddressed problems.
Following World War II, Japan and
Russia never signed a formal peace deal. They" TARGET="_new">http://www.stratfor.com/SERVICES/GIU/daily.asp">They are now on the verge
of doing so. If signed, such a deal will likely return the disputed Kuril
Islands to Japan, but at the cost of a hefty loan from Japan. Such a loan,
despite Finance Minister Mikhail Kasyanov’s insistence that foreign loans are
not necessary, would help fill a glaring $4.5 billion hole in the 2000" TARGET="_new">http://www.stratfor.com/CIS/commentary/0003070012.htm">2000 budget
created by IMF and World Bank loans that never materialized. While a Japanese
loan would likely not reach $4.5 billion, it will almost certainly be at least $1.5 billion – the amount
that Japan agreed to in 1998 merely to continue talks on a return of the
Despite tightening credit terms for
Russia internationally, debt forgiveness is in the air. In February the London
Club, an organization of 600 banks that lent money to the Soviet Union, agreed
to reduce Russia’s debt from $32 to $21.3 billion and extend payments over a
longer period. The" TARGET="_new">http://www.stratfor.com/CIS/commentary/0004060134.htm">The Paris Club is
expected to adopt similar plan later this year. Such debt reduction would
take a healthy bite out of Russia’s 2000 debt payments of $10.2 billion. The
debt will still be huge, but slightly more manageable.
Restructuring of Russia’s energy and
aluminum will provide revenues from an expanded tax base. Gazprom," TARGET="_new">http://www.stratfor.com/CIS/specialreports/special28.htm">Gazprom,
Russia’s single largest source of
tax revenue, has been severely hobbled by government intervention, particularly
with regard to Moscow’s insistence that Gazprom provide Russia’s electricity
provider, Unified Energy Systems (UES) with free gas. But last week Gazprom" TARGET="_new">http://www.stratfor.com/CIS/commentary/0004200232.htm">Gazprom hammered
out a deal with UES that will raise prices for Russian consumers by 15-20
percent. This will have the effect of freeing up more gas for export – a far
more profitable prospect than supplying subsidized gas to Russians. No doubt
Gazprom’s foreign investors have noticed this switch of priorities. The deal
with UES, higher rates and more foreign investment will all help Gazprom expand
its export network. More exports means more cash and more cash means more taxes
for the Kremlin.
The official merger of Siberian
Aluminum and Sibneft on April 17 created a new holding company, Russian
Aluminum. The new $8.5 billion giant will control three-quarters of Russia's
aluminum production and substantial" TARGET="_new">http://www.stratfor.com/CIS/commentary/0004040055.htm">substantial
portions of the Ukrainian aluminum industry as well. While Russian
Aluminum will enjoy a near-monopoly in Russia, it will also discover the
downside of being a monopoly in Russia. It will be like Gazprom" TARGET="_new">http://www.stratfor.com/CIS/specialreports/special28.htm">Gazprom – a
target for nationalization and the tax man.
Speaking of the tax man, on April 19
Putin signed a law that increased the ability of the tax police from being able
to investigate two articles of the criminal code to 20. In theory this should increase the tax
police’s ability to investigate corruption. Greater expansions of power are
certainly needed, but these expansions alone do not address the underlying
corruption of the Russian bureaucracy. It is a step in the right direction.
The methods Putin will use to balance
this year’s budget will work, but they are largely one-time items. The loan from
Japan is just that – a loan. Despite the fact that the loan is from Japan, a
lender that tends to offer loans to borrowers that don’t repay them, to Russia,
a borrower that doesn’t like to repay loans, Russia does not need more debt. Even with substantial debt write offs,
Russia will still owe well over $100 billion at the end of the year. Russia will
not make it a policy to sell islands to other countries as a method of raising
revenue – it simply doesn’t have enough islands. Furthermore, Putin is currently
the very model of Russian nationalism; repeatedly parceling out chunks of Russia
for income is a sure to turn that nationalism against him.
Putin may be able to garner foreign
investment for Gazprom this year to help with sorely needed repairs. But after
nationalization plans begin Gazprom will only be able to get cash for joint
projects such as the Blue" TARGET="_new">http://www.stratfor.com/CIS/commentary/0003172341.htm">Blue Stream line to
Turkey being built with Italy’s ENI. There is simply no foreign interest in
– or foreign money for – developing a Russian distribution network for a market
that won’t pay world prices. Gazprom and Russian Aluminum may be made into
stronger institutions that can better serve Moscow’s political interests, but
once the oligarchs are purged – and nationalization begins – Putin will only be
able to dream dreams of foreign investment. It will all fade away.
Beyond the budget wrangling, Russia’s
economy is not performing as well as it seems. Russia, to use Putin’s recently
appointed economic advisor Andrei Illarionov’s words, “shall get nowhere in the
long-term if it sits on the oil needle.” Energy exports currently account for 58
percent of all Russian exports according to ITAR-TASS – over three times the
dependence of OPEC member Indonesia. Petroleum industries do little to develop
other sectors of the economy and price fluctuations make oil as much a curse as
a gift. As long as Russia’s economy – and budget – are hooked on oil, it will
never be able to achieve stable economic growth.
Putin has trumpeted that Russia’s GDP
grew by 6 percent in the first quarter – almost all of this can be chalked up to
a tripling of oil prices. Russia reported that this year its GDP will grow by
3.0 percent, or about $7.2 billion. But now that the price of oil has plummeted
from $34 to $22 a barrel, overall Russian revenues will drop by about $1.2
billion a month – or $10.8 for the last three quarters of this year. Once the
growth in oil sales is removed from the equation, Russia’s economy is at best
Part of this is a structural issue.
Since the August 1998 financial crisis, Russia has worked to substitute imports
with locally produced goods. This has improved Russia’s trade balance and
granted it a seemingly impressive 11.9 percent growth in industrial production
in the first quarter. But it did little to encourage long term growth or
efficiency in Russian industry. Since Russia did not concentrate on products it
produces well and focused instead a broad range of goods to substitute for
imports, it is now much more difficult for Russian industry to compete
internationally. Russia produces small amounts of a lot of things that no one
outside of Russia wants. As long as Russia does not want to globalize, it can
stagger along. But if it wants substantial foreign investment or export markets,
it will need to start from scratch – its existing industry simply cannot
compete. A functional budget will in and of itself do nothing to solve this
None of Putin’s new steps address the
underlying problems in the Russian system: corruption, lack of transparency,
warped legal structure, outdated technology, crumbling infrastructure, demographic" TARGET="_new">http://www.stratfor.com/CIS/commentary/0004130155.htm">demographic
decline and government meddling. When 2001 rolls around Putin will have the
same problems to address, but fewer tools with which to treat Russia’s sickly
economy. If Putin is serious in rooting out the oligarchs, their holdings must
come under national control. By definition this will mean delaying reforms.
But one of Putin’s actions will have
a long lasting effect: his strengthening of the tax police. Putin’s experience
in the intelligence services – and past inter-agency cooperation within Russia –
indicates that a more empowered tax authority and a strengthened intelligence
service will become de facto partners in Russian society.
Using a series of quick fixes, Putin has successfully established a baseline from which he can salvage the Russian budget. He has not solved Russia’s economic problems. He has merely bought himself another eight months. Considering the depth of Russia’s problems, gaining this reprieve this is no small feat, but the real work – and pain – is yet to come.
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