Vladimir Potapov

T

he sudden propagandistic effect of Rosstat’s transition to the new method played, of course, into the hands of the Kremlin precisely at the moment, when the criticism of its actions in the economic and other fields grew stronger everywhere. But in itself such a step by the state statistical service was predictable as well as explicable. The matter is that until recently all statistical data in Russia was still classified by the Soviet standards of “industries of the people’s economy”. Sometimes the classification of an enterprise was determined not by the kind of its activity but by its subordination to this or that Ministry.
The new classification is close to the one adopted in the European Union: industrial enterprises are strictly grouped by kinds of their activities. As a result, there are three major groups of enterprises now in the sector of industrial production: those engaged in producing minerals (their products account for approximately 25% of the Russian industrial output); the second group includes industrial manufacturing enterprises (60%); the third one consists of enterprises dealing with production and distribution of electric power, water and gas (15 %).
There are changes in the usual classification of many types of activity. For example, now excluded from the industrial production sphere are lumbering, fishery (which are included in the agricultural sector), repairs of transport and household equipment. And, on the contrary, such an activity as publishing and sound recording are now included in the industrial sector. Well drilling and prospecting are no longer in the construction sphere; instead, they are in the sphere of minerals’ production. According to the new classification, there is no such a branch as the housing and communal services: it is divided into separate types of activity.
Now it will be much easier for foreign investors to analyze things that are happening in the Russian economy. On the other hand, however, domestic analysts will have to get used to these novelties. The main problem is that the present statistics still has too short a background history that starts from 2004. But state statistics specialists promise to extend it as far back as 1999.
Anyway, the improved statistical picture in no way influenced the public opinion and views of independent pundits on the state of affairs in the Russian economy. Even bureaucrats at the Ministry of Economic Development had to state the slowdown of growth rates (5.2% in the first quarter of 2005 as against 7.3% in the same period of 2004), which, in their opinion, resulted from a rather low investment activity on the domestic market and producers’ high costs.
There is one more "statistical paradox": the fight against poverty that was especially emphasized by the President himself. According to the data by Rosstat, the number of Russia’s poor went down two times as much during Putin’s Presidency: if in the third quarter of 2000 46.3 million people lived below the poverty level, in the fourth quarter of 2004 there were only 20.9 million people with incomes lower than the cost of living.
Last year there were 25 million "formally poor" people, insisted Vladimir Sokolin, the chief of the Federal Service of State Statistics. He chose the term "formally poor" because, in his words, the borderline of low subsistence was quite conditional. A considerable portion of the country’s population has wages that barely exceed the subsistence level. For example, 2.1 million Russians have an income that is higher than this level by 100 rubles (approximately
$3.7) only. The differentiation of Russia’s population is getting stronger. In 1999 incomes of 10% of the richest Russians exceeded incomes of 10% of the poorest ones by as much as 14.1 times. In 2004 this gap increased to 14.8 times. And the chief of Rosstat notes the validity of this trend. However surprising it may be, people start feeling ashamed not of the poverty but of the defiant richness. According to the poll by the All-Russian Center of Public Opinion Studies, 39% of respondents feel embarrassed that Russia has placed second in the world by the number of billionaires (as the Forbes magazine reported).
The perception of life through the ‘pink glasses’ of the official statistics did disservice to the Kremlin many times already. Relying on the excellent indexes of the macroeconomic stabilization the country’s leadership decided to reform the system of benefits. In Russia’s conditions, when the subsistence level hardly provides for the physiological survival, while minimum wages as well as pensions barely approach this very subsistence level, these so-called privileges have served as the sort of the State’s "survival bonus" for many citizens. So, it is not surprising that the reform has provoked a powerful wave of protest actions. According to the Romir-Monitoring Research Center that has presented the brochure called Public Opinion of Russia-2005, due to monetizing benefits the confidence in the President of the Russian Federation is down by 15%, while the ruling United Russia party has lost a third of its supporters.
President Putin took urgent steps to strengthen his shaken popularity. On the eve of the 60th anniversary of the Victory in WWII he announced monthly "Presidential payments" to war veterans stressing that this decision was his personal one.
For the first time since the noisy "YUKOS affair" a reconciliation step was also made towards the business community. The President met with 26 Russian leading entrepreneurs and tried to maintain a constructive dialogue. On the eve of the meeting Arkady Volsky, who heads the Russian Union of Industrialists and Entrepreneurs, expressed business grudges against the State. But businessmen themselves went to the Kremlin not to complain to the President but to find out new "rules of the game". And they succeeded in that. Vladimir Putin proposed to reduce "the period of validity" for privatization deals from 10 to 3 years and promised to make tax administering terms softer.
The reaction to this news was rather controversial. Some people (for example, chairman of the State Duma’s property committee Viktor Pleskachevsky) believe that this decision should not be regarded as "an economic amnesty" and that the authorities are not going to reduce pressure on businesses that have criminal roots. Others think that in order to retain their own stability the authorities are wishing to consign doubtful deals to oblivion.
The negative trends in the economy are starting to worry the Kremlin as well. As a minimum, the state of affairs "should put us on guard", said Dmitry Medvedev, the head of the President’s Administration, in a recent interview with the Expert magazine. "It is true that some reduction of growth rates has taken place, that there are also risks of the rising inflation level. But so far there is no full data for analyzing the reduction of growth rates", he noted. In Medvedev’s opinion, maintaining relatively high rates of the GDP growth (no less than 7%) should be based, above all, on a financial stability: sticking with the macroeconomic proportions of the economic course and inflation.
"No less important is the business climate that, among other things, means a reasonable tax administering, competent anti-monopoly policy, stability of property relations", believes Medvedev. In his words, in the mid-term "of extreme importance" are measures directed at developing the country’s small and average-sized businesses, attracting large-scale investments and implementing major national projects.
In the situation like this the big business is carefully trying to take back the initiative and that is proved by the conference "Russian investors: the future of the national economy" held recently in Moscow. On the whole, the conference was optimistic. Vladimir Potanin, the president of the Interros Holding Company, referred to the improved corporate governance and said that Russia’s investment climate slowly but surely was getting warmer. Alexei Mordashov, the head of the Severstal-Group, drew attention to the fact that essentially Russia already became a part of the world economy since its industries related to the foreign economic activity account for 40% to 45% of the country’s GDP. Mordashov noted that in 2004 foreigners invested $7 billion in the country’s economy, while Russian investors put in $74 billion. He stressed that in 2005 the Severstal-Group alone was planning to invest $6 billion in Russia. In Mordashov’s opinion, it is quite comparable to the volume of all foreign investments.
If the business elite just politely discussed at the Kremlin’s meeting some problems with President Putin, this time businessmen clearly formulated their positions. They insisted that the State should limit its role in the national economy to tax collection and should let private persons manage property. In their opinion, the fact that the State uses a lot of resources to function as an owner is inexpedient and just distracts the authorities from fulfilling its direct obligations.
This call on the Kremlin to make up its mind as regards the State’s functions is, in fact, a demand to finally yield leading roles in the economy to the business community and to pass under its management all financial and production resources, which so far have been controlled by bureaucrats. The business people reminded that precisely they accounted for the major share of investments and that they were actively expanding on the world market. In their view, they themselves can set and successfully accomplish tasks of developing the Russian economy. That is why some pundits foresee the forthcoming changes in the relations between the State’s structures and the business community.