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Russia: Election Year To Start With Slowing Economy, Stalled Reforms

Russia's economic growth is slowing, with major reforms stalling and predictions gloomy as the country enters a parliamentary election year in 2003. But while polls show discontent with the government, the ratings of President Vladimir Putin -- who has virtually wiped out political opposition in the last three years -- continue to rise. RFE/RL Moscow correspondent Gregory Feifer reports that political parties are expected to minimize controversy in the year ahead, lining up behind Putin and concentrating on pocketbook issues.

Moscow, 23 December 2002 (RFE/RL) -- After several growth years, Russian economic indicators are looking weaker, with economists predicting worse is to come if the government fails to carry out badly needed structural reforms.

But President Vladimir Putin is putting off precisely such changes, fearing controversy ahead of parliamentary elections next year and presidential ones in early 2004. The big issue, politicians agree, will concern the stagnating standard of living -- especially demands for higher state wages and pensions.

Roland Nash, head of research at Moscow investment bank Renaissance Capital, says the development is inevitable: "Anything that's going to impact a voter's pocket over the next 12 months is going to be a tough reform to push through. I think it's naive to think that you're going to have the speed of reform that we've seen over the last three years continue into next year."

A bigger problem, Nash says, is Russia's poor institutional environment, which has allowed a slowdown despite Putin's reforms. After three years of growth, the government will likely hope to avoid a major downturn that would affect wage levels -- something that would indeed turn the economy into a major issue.

The news is not all bad. The gross domestic product is expected to grow 4.1 to 4.2 percent this year, just above earlier predictions. But those figures are lower than those for the previous two years -- 9.1 percent in 2000 and 5 percent in 2001 -- when the country rebounded from its ruinous 1998 economic collapse.

But the news is not all that good, either. The European Bank for Reconstruction and Development warned last month that even the positive figures do not represent real industrial growth as much as the approaching of production capacity following the paralysis brought about by the economic crisis.

The growth has also largely been driven by high global prices for oil, Russia's leading export and hard-currency earner. Industrial production has actually slumped, the bank says, as crucial reforms are put off and enterprises decay.

Submitting to public and political opposition, the Kremlin is meanwhile allowing the Duma to postpone controversial reform. That includes change in the electricity sector that advocates say is necessary to put an end to Soviet-era subsidies and initiate ownership reform desperately needed to attract investment and modernize infrastructure.

Banking sector and housing reform, which are likewise crucial to tackling some of the Soviet economy's crippling legacies, have also been put off -- most likely until after parliamentary elections in December 2003. Some say real reform will only begin after presidential elections in March 2004.

Paradoxically, part of the problem is higher wages. As the ruble firms and incomes slowly rise, more Russians are buying imports. That is the reverse of a trend that gave a big boost to Russian producers during the crisis and provided one of the major factors -- in addition to a huge jump in oil prices -- allowing the economy to recover.

Meanwhile, as capital flight continues, foreign investors are put off by a weak judicial system and corrupt law enforcement that do little to protect investments.

The government has also done virtually nothing to help the tiny small and mid-sized business sector, which faces an uphill battle with corruption, choking bureaucratic regulation, and anticompetitive pressure from large, well-connected monopolies.

A recent public opinion poll by the All-Russia Public Opinion Research Center (VTsIOM) recorded 62 percent of respondents as saying there are no signs of economic growth or improvement in standard of living. Another VTsIOM poll recorded increasing numbers saying the gap between rich and poor is becoming exceedingly large.

And yet, with President Putin's approval rating at a record 83 percent, he remains the "Teflon president," with analysts saying he is seen as a state symbol and repository of hope for change standing above day-to-day politics.

It is perhaps unsurprising that Putin last week instructed his government to address social issues above all next year, including pension reform.

Putin has regularly raised state pensions and wages, a popular measure. But the hikes have rarely kept up with the speed of inflation; and critics say instead of tackling real reform, they only reinforce the public's view of the state as a paternalistic income provider.

Meanwhile, the government is bearing the brunt of public dissatisfaction, with VTsIOM putting at 49 percent those who disapprove of the body. That notwithstanding the fact that the cabinet is appointed by Putin and carries out Kremlin policy.

Even pro-Kremlin centrists who dominate the Duma and usually back government policy are speaking out. United Russia deputy head Franz Klintsevich told reporters last week that social issues may become an issue next year: "I have no doubt that the moment will come when, going to elections, people will demand results. And I agree that the party's ratings and the sum of our party's long-term work will depend on results."

United Russia currently holds the lead in pre-election polls with 29 percent. The Communist Party -- the traditional leader -- comes in a close second with 27 percent. The liberal Union of Right Forces (SPS) and Yabloko parties trail with 10 percent and 9 percent, respectively.

Vladimir Pribylovsky, president of the Panorama think tank, says parties on both sides of the political spectrum will likely follow the centrists in basing their campaign on criticism of the government: "I think even the Communists and Yabloko won't really criticize the president during the parliamentary elections. They'll only criticize the government."

SPS co-leader Irina Khakamada agrees, saying the president enjoys "symbolic-mythological" status: "All the Russian people's love of the state, authority, and the habits of patriotism is concentrated on one figure. So there's no reverse connection to real politics. But the government, yes. Its rating is starting to fall and criticism of the government will be one of the basic means of moving parties forward in the elections and it will be used by all parties, even United Russia."

Khakamada says the stagnant standard of living and the need to raise wages for schoolteachers and others will be among the issues raised next year.

That is a call also raised loudly by the United Russia-aligned, populist People's Deputy Party, whose leader, Gennadii Raikov said on 17 December that the "main tasks" were raising wages and keeping utility bills low. "People vote for those who promise to do that," he says.