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Russia: Putin Calls For Growth, Bolder Economic Vision

  • Jeremy Bransten

Russian President Vladimir Putin reprimanded his cabinet this week for what he termed their modest economic forecasts. Putin demanded that his ministers come up with "more ambitious" plans to help Russia catch up with the world's other major industrialized countries. With the Russian leader due to deliver his annual state-of-the-nation address soon, Monday's criticism is being seen by some analysts as a signal that Putin could be preparing to announce bolder reforms.

Prague, 10 April 2002 (RFE/RL) -- Ministers responsible for Russia's economy might have expected praise from their boss for their four-year forecast predicting cumulative growth rates of 15 to 17.5 percent.

But instead, at an 8 April cabinet meeting in the Kremlin, President Vladimir Putin berated them for insufficient effort and lack of innovation. Putin said neither of his ministers' plans -- the optimistic version predicting 17.5 percent growth or the more sober alternative predicting 15 percent growth by the year 2005 -- would narrow the large gap between Russia and the world's other leading industrialized countries. Russia's leader demanded more.

Presumably, following Putin's reprimand, a chastened cabinet could easily go back to the drawing board and put together a rosier forecast for Russia's economic growth. Unless higher numbers are supported by concrete ideas, however, they will be little more than wishful thinking on paper. Surely, that is not what Putin had in mind -- so what was behind his criticism and what is Russia's president seeking from his ministers?

Alexei Bayer tracks political and economic developments in Russia for the Moscow-based "Vedomosti" newspaper and "The Globalist," a daily Internet magazine. He tells RFE/RL that Putin's outburst was motivated largely by frustration.

"I think that he is a dynamic leader at the head of a fairly inert bureaucracy. He reminds me of [former Soviet leader Nikita] Khrushchev, making a lot of noise and trying to move the rather entrenched train forward. He's sort of jerking up and down but by the time his policy gets to the last car, you really don't feel any movement at all," says Bayer.

Stephan De Spiegeleire, an analyst at the RAND Europe think tank, concurs. High oil prices and the 1998 devaluation of the ruble have helped Russian growth in recent years, but many sectors of the economy continue to stagnate. Now that Putin and his Kremlin advisers have managed to concentrate political power in their hands, through moves in recent months designed to curb the power of regional leaders and opposition legislators, the Russian leader appears to feel confident enough to demand more economic reforms.

"The sort of growth rates that we've seen over the past couple of years seem to no longer be sustainable. Oil prices are very strong and yet the actual economic results of Russia are not all that bright. So I guess increasingly the reaction dawned on Putin and on his team that even more bold moves were necessary. I think that's one thing -- this frustration with the state of reform. But the second thing is also this idea that they now really feel that they have a grip on the system -- all across the board. The Duma's under control, the Federation Council's under control, the regions seem to be under control. At least they seem to think that they have enough grip on the system now to make the next push," says De Spiegeleire.

What would this new push entail? Putin, over the past few weeks, has given some hints. He has talked about easing red tape to help foster a new entrepreneurial class. The Russian leader has consistently aimed for such a policy since coming into office. Two years ago, Russia's parliament -- at Putin's instigation -- approved a major reform aimed at supporting entrepreneurs by abolishing different tax categories in favor of a 13 percent flat tax. This year, a new Labor Code that reduces the power of trade unions in favor of employers entered into force.

But Bayer says much more remains to be done. "A banking sector, obviously, would need to be created in Russia. It really doesn't exist as an engine of economic growth. Banks don't really lend money to companies that can put it to work. There is practically no consumer lending and this would have to be built from scratch, basically, to create a mechanism for growth. The stock market will also need to become more of a market -- again, taking savers' funds or foreign investment funds and putting them to productive use, which hasn't been happening. And bureaucracy is a huge problem in Russia."

Bureaucracy, in the Russian context, is often a euphemism for outright corruption -- possibly the biggest brake on economic growth. Bayer says, "Everybody who does business in Russia knows that every time you have to deal with bureaucracy, which happens all the time, you have to cut them into the deal. And that can't work like that."

Putin has argued that his moves to recentralize power in Russia are aimed at taking power away from corrupt regional officials who have been running their territories like fiefdoms since the breakup of the Soviet Union. But Bayer questions whether ultimately, a high degree of centralization will benefit the Russian economy.

"While probably it's a positive development for Russia that Putin has made things more centralized and more responsive to central authority, I think that this cannot be a long-term solution, because no centrally organized economy is really successful in today's world and something like Russia I don't think could actually function from Moscow downward," says Bayer.

Analysts agree that Putin's public reprimand of his cabinet's work foreshadows his upcoming state-of-the-nation address. A date for the speech has not yet been announced, but it is expected to take place later this month. Following the reorganization of Russia's political institutions and the adoption of tax and labor legislation, the stage is now set for the passage of key banking reforms and the possible breakup of Russia's public-utilities monopoly -- a so-called "third wave" of change.

"I think the third wave is just ahead of us," says De Spiegeleire. "I think the state-of-the-nation address will probably spell it out in some more detail and I think Putin's record on implementing what he says in these state-of-the-nation addresses is actually quite good. He really put forward his priorities last time and we also have seen those being implemented. So I think we should really take a very close look at what he says and I think all the signs point in the direction of a new wave of economic reforms, given the fact that politically speaking, they seem to think that they've toned down the potential for opposition. That's certainly their calculation. Whether this calculation will turn out to be realized is still a different matter."

De Spiegeleire remains skeptical on this point and notes that despite Putin's apparent control of Russia's political institutions, the Kremlin could still be in for a rough ride, especially if economic reforms mean more immediate pain for the electorate.

"It's anybody's call as to whether this will be possible or not. I still think that we tend to underestimate the political allergies that have been awakened and will be awakened by this new push for economic reform. Governors have been lying low but there's no reason for them to remain that way if things really do change. The Communists -- at least most of the Communists -- have now entered into overt opposition to the president and we know that this third wave of reform will be quite unpopular on a couple of issues. People will have to pay more for their energy; they may have to pay more for their rent. So you know, every Russian will be affected by these changes, which I think most economists and political scientists will agree are necessary but which will still be quite painful. So the high public-opinion ratings of Putin might get affected by this. And I still think there's a lot of potential for political struggles, despite the fact that they do seem to have a remarkable grip on the political system," says De Spiegeleire.

For now, Putin's approval ratings remain well over 70 percent, giving the Russian leader a lot of political capital for further reforms. All eyes will be focused on his state-of-the-nation address for details of how he chooses to spend it.