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Russia: Analysis--Bandit Capitalism Versus Capitalism With A Human Face

Moscow, 25 March 1997 (RFE/RL) - Russia's new First Deputy Prime Minister Boris Nemtsov says Russia must now choose between "bandit-capitalism and capitalism with a human face." He declared himself in support of the latter, but it is still not clear what this may consist of.

President Boris Yeltsin last week appointed Nemtsov and Anatoly Chubais as First Deputy Prime Ministers to lead a team perceived in the West as strongly supportive of pro-market reforms.

By doing it, Yeltsin raised expectations that a new stage of reform will revive the spirit of 1992, when an aggressive team of economists led by then acting-Prime Minister Yegor Gaidar pioneered pro-market measures in Russia. But in December of that year, Yeltsin dismissed Gaidar and appointed Viktor Chernomyrdin, perceived as relatively conservative. Chernomyrdin is heading the new Government as well.

Russia's anti-reform forces still control the State Duma, but observers say that they lack a unifying ideology and are not strong enough to arrest any determined reformist course.

Meanwhile, a new industrial-and-financial elite has grown and gained importance. Heads of leading Soviet-era monopolies, as well as representatives of an aggressive banking-and-financial community, have accumulated enormous power and wealth, taking advantage of political connections, weak rules and lack of legislation.

Many Russians say the concentration of wealth and influence in the hands of a few, well-connected industrialists and bankers has discredited the very concept of reform.

Nemtsov and Chubais, placed by Yeltsin on the same footing, are portrayed as in charge of reviving reforms and making sure that wealth starts circulating among common Russian citizens.

Nemtsov's job will include the restructuring of state monopolies, such as the electricity, railroad and gas sectors. Another of his main goals will also be the creation of a social-safety net that should allow companies to restructure, while avoiding workers' protest and chaos that could give ground to a possible leftist revanche.

Nemtsov yesterday said in a television interview that he expects to run into numerous opponents among the industrial-and-financial oligarchies. He said cooperation between the Government and such structures is necessary, but that clear rules for the state's benefit should be established.

More specifically, Nemtsov said that the existing monopolies, such as the energy and transporatation giant companies, should be re-organized. This would initially entail depriving them of the exclusive right of purchasing resources that, until now, gave them power of dictating prices, but leave them in control of existing coordinating and transport infrastructures.

But whether this could be achieved and become effective is far from certain. As regional governor in Nizhny Novgorod, Nemtsov was more powerful than he is likely to be in Moscow, despite Yeltsin's assurances of solid backing. Nemtsov is an outsider in the competitive Moscow environment and he risks being caught in the middle of the competing influences.

Reforming a relatively chaotic banking system is a different, although also sensitive and difficult matter. This may be a task for Chubais, who is slated to take charge of finances.

Aleksandr Morozov, an economist with the World Bank, has told RFE/RL that the first step could be the establishment of a working nationwide Federal Treasury system coordinating banking operations using state budget funds. This would lead to a gradual cut in the number of currently authorized commercial banks. They may be replaced with a network of regional Treasury branches working directly with Russia's Central Bank. Morozov said regional branches have already been set up in the majority of the Russia's 89 regions. But the Treasury is not represented in ten economically important regions, including Moscow and Tatarstan.

The system, Morozov said, would also accept a few commercial banks chosen through an open competition. Among the major banks authorized to operate large transactions with budget funds across Russia are Sberbank and other large Moscow-based banks like Agrobank and Incombank.

This change could well introduce a measure of order into the banking system. But its essential characteristic is centralization and state control, rather than free enterprise. It could hardly be regarded as capitalist, whether with a human face or not.

In any case, the reformist promises of the current government and its leaders could only be judged once they are implemented. It is only then that one will be able to assess the effectiveness of the reforms and changes.