Vladimir Potapov

S

ure, the presidential message has never been conceived as a direct application document. However, everybody understands the importance the very word of the head of the state has for the current political system in Russia especially as this word contains specific requirements addressed to the government and lawmakers.

In his speech Vladimir Putin touched upon an issue which immediately came into everybody` s notice i.e. an issue of a taxation amnesty for Russian capitals stipulating the only one key condition for that, namely to pay 13% personal income tax and to transfer funds into accounts with Russian banks. "A set of laws specifically designed for this purpose is to be finalized and introduced in the very near future," – promised Alexei Kudrin, the Russian Minister of Finance.

However, Yuri Rilov, an analyst from Econatsbank, elucidates that "the proposed taxation amnesty may ensure a positive economic effect only if applied one time otherwise it may provoke an unconscientious behavior of some representatives of the Russian business." Deterioration of the investment attractiveness of the Russian economy and lack of reliable legal guarantees for private property protection give no grounds to expect these funds to come back to work in the country instead of "dangling around in off-shore zones" in quoting words of the Russian President.

However, in the opinion of German Gref, the Russian Minister of Economic Affairs and Trade, recent years have seen positive changes enough to give grounds for some optimism. By saying so Garman Gref refers to the section of the message where Vladimir Putin says about inviolability of the basics and rules prescribed for the western capital to take part in the Russian economy. German Gref believes this speech should definitely allay remaining fears. "Investors should trust themselves, watch what is happening and check with realities,"- Mr. Gref was quoted as saying.

One of the factors, which still scare foreign investors, has been the notorious Russian bureaucracy. In the speech the Russian president made a specific emphasis on this aspect stating: "Our officialdom has been to a significant extent a closed and, sometimes, arrogant caste, who consider their public service as a sort of business. Therefore, one of our top priority tasks is still to improve efficiency of the state administration and to ensure that officials observe laws and render high quality public services to the benefit of the population".

Some commentators notice that this tendency appeared a result of a higher stability achieved by the Russian society, with an unfaithful part of the Russian bureaucracy having generated a taste for benefiting from such stability with a mercenary motive. A specific attention was paid to the President` s warning about the threat of a bureaucratic reaction entailing stagnation if the civil society` s political potential were left uninvolved. As a matter of fact Vladimir Putin actually called that phenomena a "downside" of the current stage in democratization of the Russian society now that major means of mass media had been released from the oligarch censorship, with the law enforcement bodies having focused their efforts on a fair struggle against crimes including those associated with infringements of taxation law. The President condemned "flagrant violations of the rights of businessmen" and the existing cases "of an outspoken racket on the part of the state institutions". Vladimir Putin stated that "it was not our intention to leave the country at the disposal of an ineffective and corrupted bureaucracy".

It is interesting to notice that today most criticism of the governmental policy and the economic situation is coming domestically from Russia, not from international organizations. Thus, Rodrigo de Rato, the managing director of the International Monetary Fund, offered his general support to the Russian power. In particular the head of IMF highlighted that the Russian Federation government "had been success in solving macro-economical problems" and handed it to the RF Ministry of Finance and to the Central Bank of the Russian Federation for their achievements in restructuring and strengthening the domestic banking industry. It is very symptomatic that Russia, which has always been on the IMF` s list of debtors, now gets into graces of this leading international financial organization. And for good reason: today Russia has improved its rating with IMF winning the status of "a country with internationally acceptable domestic currency" i.e. Russian Rubles, which in due time were invested into the charter capital if IMF, now may be used for providing credit facilities for other countries.

UN experts also predict in the current year "a further development of positive trends in the Russian economy", which expectations were also referred to in the 2005 Report recently published by the Economic and Social Commission for Asia (ESCAP). Civil construction, communication, grain farming and retail sales were attributed by the report authors as "the most dynamically developing sectors of the Russian economy." The report authors also mentioned that "in 2004 Russia increased its foreign trade volumes by more 30% while significantly expanding its export of metal products and mechanical equipment."

Encouraged with such results the cabinet council held a session of the budget committee which gave a general approval to the 2006-2008 scenario of economic development of Russia. Approved by the budget committee this scenario called "conservative" was then approved by the Russian government as a three year economic development program.

However, a more thorough review of the program immediately reveals the main reason for a discrepancy between "internal" and "external" assessments of the situation. The policy persuaded by the Russian government is still focused on maintaining the macroeconomic stability and does not take into account interests of the most Russian population. Thus, in 2006 investments into infrastructure development projects, financial support to some specific braches of the Russian industry and innovations in the field of taxation were ensured by means of reduction in social expenditures. German Gref has already warned the public that there are no good reforms left any more, only painful ones, which will involve all the layers of the Russian population. However, out of all the reforms ever introduced in the country Russian people could hardly remember at least one which would be "unpainful" for them. It is not a surprise that Vice-president Alexander Zhukov had to accept that the Russian people got tiered of reforms and recommended not to use the word "reform" in the future. Unfortunately, a shift in terminology does not change the situation in principle.

All this is a little bit different from what the Russian president said in his message about social justice and the state` s responsibility to help low income citizens to ensure a "decent life for such people and make the essentials more affordable for them".

In the meantime, figures represented in the approved financial plan for a period until 2008 have been again paper over the cracks. Key parameters of the 2006 federal budget were approved providing for a surplus of 1.8 % of GDP. The budget income is forecast to be around 17.8 % of GDP. In the future in accordance with the financial plan the Russian Ministry of Finance expects to maintain the budget surplus at a level of 1.2 % of GDP. The Russian government has also approved the key directions in its borrowing policy for the given period. According to the plan the volume of both external and domestic indebtedness to be redeemed by the state in 2006-2008 will total US$ 47.6 bln., of which US$ 31.5 bln. go to repay external debts and the remaining US$ 16.1 bln. to redeem domestic ones. According to Minister Alexander Kudrin by 2008 expenses for servicing the state debt of the Russian Federation will have been reduced by 0.8% of GDP.

Unfortunately, the economic performance currently demonstrated has been a real spoon of tar in a barrel of honey. Thus, inflation is on the rise again: planned for the entire year 2005 at a level of 8.5%, inflation has already reached 6.6 % since January.

In this connection the Federation Council has recommended the Russian Government to improve reliability of the forecast for the main macroeconomic performances. This recommendation was included into a set of the Upper Chamber` s proposals for formulating the general concept of the budget. In the opinion of Eugene Bushmin, the chairman of the Budget Committee: "The government has failed both to overcome the inertia in forecasts for the Russian Federation social and economic development, to achieve a significant improvement in living standards and to reduce the differentiation in the Russian population income level."

In his latest message President Vladimir Putin warned that "reforms should not be made for the sake of reforms only. They should not become goals in and of themselves." However, judging by the real results of the reforms being made for the benefit of the population, none of the Russian bureaucrats has either heard or estimated this warning of the Russian President.