Accessibility links

Breaking News

Russia: Economic Advisers Disagree On Tariffs For Natural Monopolies

President Vladimir Putin's economic aides have been debating policy for Russia's natural monopolies in public. The decision-making process may be an unusual instance in which the government is encouraging dissent.

Boston, 11 December 2001 (RFE/RL) -- A split has opened up among Russia's top economic advisers, presenting a political challenge for President Vladimir Putin.

Putin's best and brightest aides have openly differed about raising tariffs for the "natural monopolies" that control the commodities and services that all citizens need, like gas, electricity, and rail transportation.

On 6 December, Economic Development and Trade Minister German Gref emerged from a cabinet meeting, saying, "The government, taking into account [inflation, gross domestic product growth and the investment needs of monopolies,] has set a 35 percent maximum level of raising tariffs for all natural monopolies." Gref said, "The range of hikes might be from zero to 35 percent," according to the Prime-TASS news agency and "The Moscow Times."

One day later, Gref was contradicted by Putin's economic adviser, Andrei Illarionov, who said the government had made no such decision. Illarionov told the Interfax news agency, "These are distorted reports," adding that no such numbers were included in the formal minutes of the cabinet meeting.

Illarionov warned that an "artificial" rate hike for monopolies could bring on recession and argued that current tariffs are "significantly exaggerated, not understated." His meaning was not entirely clear.

It is widely acknowledged that domestic charges for utilities like gas and electricity are too low to attract the investment needed to keep the systems running. In the case of gas, which sells in Russia for one-eighth to one-tenth of export prices, domestic tariffs are too low to recover the costs.

The tariff system is a throwback to Soviet times and survives only thanks to subsidies from exports. But raising the rates has proved to be one of Putin's hardest political and economic tasks.

After canceling hikes for the second half of this year because of rising inflation, Putin is now besieged with a wide array of recommendations from monopolies like Gazprom for increases at the start of 2002. Some of Gazprom's plans call for increases of over 40 percent next year, despite Putin's statement in November that there should be no growth in tariffs before the end of the winter.

Arkadii Volsky, president of the Russian Union of Industrialists and Entrepreneurs, recently urged Prime Minister Mikhail Kasyanov to block any "ungrounded increase" in monopoly tariffs. Volsky argued that higher charges could slow down the country's industrial growth, the RBC news service said.

Beyond the question of how Russia can raise tariffs without raising inflation, the situation may also tell much about Putin and his tolerance for conflicts within his government.

Last August, a similar argument erupted after Gref announced a freeze on increases due to inflation concerns. Kasyanov contradicted him, saying, "There won't be any freezing of tariffs." In that dispute, it appears that Gref won.

In this case, the conflict could shine a spotlight Illarionov, who may have been Putin's most radical economic appointment when he was named as an adviser in April of 2000. As head of the independent Institute for Economic Analysis, Illarionov was an outspoken critic of Putin's predecessor and benefactor, former President Boris Yeltsin.

He urged the government to break away from dependence on loans and advice from the International Monetary Fund, a step which it has since taken with largely positive results.

But in bringing Illarionov into government, Putin opened the door to public arguments about economic policy, because Illarionov has continued to show the same independence that he practiced outside the government.

It is hard to understand why Putin seems to tolerate and even encourage open dissent on such issues, while he has shown far less acceptance of dissident voices in the press.

Crackdowns on media outlets controlled by the ousted oligarchs Boris Berezovsky and Vladimir Gusinsky have left Russia with less independent media than before Putin gained power. Some closures were accomplished through monopolies like Gazprom, which are at the heart of the current economic disputes.

One possible explanation of Putin's willingness to hear many voices on the economy is that he is no economist himself. His strength may lie in his ability to choose from among the strongest arguments. Such a process may not only benefit from debate but may actually require it.

Why, then, does Putin's policy seem to follow such a different path on press issues? Nearly two years since his sudden rise to power, Putin remains a mystery. But his tolerance of economic dissent may raise hopes that he will not see the press as another natural monopoly.