Vladimir Putin sat motionless as the minister, seizing on the Russian leader\u2019s first major meeting with his economic team in months, itemized the challenges.<\/p>\n
A recession is imminent, inflation is getting out of hand and the ruble and oil are in freefall, Economy Minister Alexei Ulyukayev told Putin, according to people who attended the meeting at the presidential mansion near Moscow in mid-October. Clearly, Ulyukayev concluded, sanctions need to be lifted.<\/p>\n
At that, Putin recoiled. Do you, Alexei Valentinovich, he asked, using a patronymic, know how to do that? No,Vladimir Vladimirovich, Ulyukayev was said to reply, we were hoping you did. Putin said he didn\u2019t know either and demanded options for surviving a decade of even more onerous sanctions, leaving the group deflated, the people said.<\/p>\n
Days later, they presented Putin with two variants. To their surprise, he chose an initiative dubbed \u201ceconomic liberalization,\u201d aimed at easing the financial burden of corruption on all enterprises in the country, the people said. It was something they had championed for several years without gaining traction.<\/p>\n
The policy, which Putin plans to announce during his annual address to parliament next month, calls for a crackdown on inspections and other forms of bureaucratic bullying that cost businesses tens of billions of dollars a year in bribes and kickbacks, the people said. It entails an order from the president to end predatory behavior, with prosecution being the incentive for compliance, they said.<\/p>\n
Thieves Beware<\/p>\n
\u201cWastefulness, an inability to manage state funds and even outright bribery, theft, won\u2019t go unnoticed,\u201d Putin said at a meeting with supporters in Moscow yesterday.<\/p>\n
Russia\u2019s growing isolation over its support for the separatist rebellion in Ukraine has created a divide among competing factions within Putin\u2019s inner circle. One group, the \u201csiloviki,\u201d is dominated by men who share Putin\u2019s background in the security services and reject U.S. hegemony. They\u2019ve held the upper hand over another bloc, centered around Prime Minister Dmitry Medvedev, that favors less state control over the economy, according to five officials close to the president.<\/p>\n
Putin\u2019s spokesman, Dmitry Peskov, said he wasn\u2019t aware of any specific \u201cliberalization plan\u201d and declined to comment on what the president plans to say in his address to parliament.<\/p>\n
\u201cWe are constantly and purposefully cutting the bureaucratic burden on businesses,\u201d Peskov said by phone. Ulyukayev declined to comment through his press service.<\/p>\n
Putin\u2019s Choice<\/p>\n
Putin\u2019s backing of the program marks a revival of sorts for the Medvedev faction, which advocates closer integration with the U.S. and Europe, a process now derailed by sanctions, as the path most beneficial to the country. This group, which includes Ulyukayev, had been sidelined since February, when the overthrow of Ukrainian President Viktor Yanukovych, Russia\u2019s ally, spurred the siloviki to organize the annexation of Crimea.<\/p>\n
Putin chose the corruption crackdown policy over the other option presented by his economic team: the \u201cmega-projects\u201d program. That path would further enrich two of his closest allies, billionaires Gennady Timchenko and Arkady Rotenberg, by transfering huge sums of money to contractors.<\/p>\n
With sanctions hurting more than anticipated, declaring a war on corruption is an \u201cobvious\u201d course of action, but it\u2019s bound to fail, said Boris Makarenko, deputy director of the Center for Political Technologies in Moscow.<\/p>\n
\u2018New Reality\u2019<\/p>\n
\u201cSuch measures are alien to the mentality of the government bureaucracy, whose natural instinct is to go for more of the same, more regulation, more squeezing revenues from businesses,\u201d Makarenko said.<\/p>\n
It was only in September and October that officials and executives fully realized that sanctions will be in place for a long time and that urgent measures are needed to limit the damage, according toSergey Dubinin, the former central bank governor who is now chairman of state-run VTB Group, Russia\u2019s second-largest bank.<\/p>\n
\u201cThey were hoping the sanctions were temporary,\u201d Dubinin said in an interview in the Russian capital. \u201cNow they\u2019ve woken up to the new reality.\u201d<\/p>\n
The call to action was triggered by the \u201cshocking devaluation\u201d of the ruble, which unfolded as the closure of foreign financial markets coincided with falling prices for oil, the country\u2019s largest export, Dubinin said. That has sparked a cash crunch for companies that have $44 billion of debt due by year\u2019s end, according to central bank estimates.<\/p>\n
Oil Burden<\/p>\n
Putin said last week Russia is prepared to withstand a \u201ccatastrophic\u201d slump in oil prices. Brent, a benchmark for more than half of the world\u2019s crude, has plunged 30 percent since the end of June. The ruble has declined the same amount against the dollar this year, the most of 24 emerging-market currencies tracked by Bloomberg.<\/p>\n
Before the first round of sanctions were imposed in March, the government did a good job of creating a \u201cfavorable external environment\u201d for Russian companies, even though corruption and other internal pressures remained burdensome, said Sergei Vasilyev, deputy head of state development bank VEB.<\/p>\n
\u201cNow the external environment has become very difficult, so we need to liberalize the internal environment to create better conditions for economic agents,\u201d Vasilyev said. \u201cLiberalization can help offset adverse external conditions without increasing the tax burden.\u201d<\/p>\n
Official Swindlers<\/p>\n
Former Finance Minister Alexei Kudrin, who sits on the president\u2019s Economic Council, said a successful campaign against extortion would be akin to cutting taxes without further weakening public finances. Corruption is one of the greatest obstacles to growth and if Putin pushes the policy with the same vigor he pursues security issues, the impact on the economy may be profound, Kudrin said in an interview.<\/p>\n
\u201cThe key driver for the development of the country is citizens\u2019 confidence in the economy,\u201d Kudrin said. \u201cThe first thing to do is to limit the number of control and supervisory functions of the state. Authorities simply have to stop going to enterprises to swindle money. We have to limit fire, sanitary and technical inspections.\u201d<\/p>\n
In 2008, when Putin swapped jobs with Medvedev for four years, businesses were paying more than $200 billion a year in bribes, Moscow-based research group Indem said in a report that year, using data from prosecutors. Most Russians say corruption has only gotten worse since, according to a survey published by Transparency International.<\/p>\n
\u2018Economic Freedom\u2019<\/p>\n
Business Solidarity, a Moscow-based organization that campaigns against corruption, estimates that bribes, kickbacks and related illegal activities end up increasing the retail price of most goods by 30 percent.<\/p>\n
A crackdown on inspections, if done right, could have an \u201cimmediate impact\u201d on the economy, saidMDM Bank Chairman Oleg Vyugin, who served as first deputy head of the central bank from 2002 to 2004. As it is now, law-enforcement agencies have a simple business model: the more they inspect, the more they earn, Vyugin said in an interview.<\/p>\n
\u201cThe economic powers of the Investigative Committee, the Prosecutor General\u2019s Office and the police must be curbed,\u201d Vyugin said. \u201cThis is the only way to convince people that it\u2019s possible to develop a business here.\u201d<\/p>\n
There\u2019s an irony about the U.S. and European sanctions that isn\u2019t lost on the members of Putin\u2019s economic team. While the penalties have pushed foreign investors away, they\u2019ve also become the catalyst for meeting one of their key demands — rooting out corruption.<\/p>\n
One of the major debates about the new program now is what to call it because Putin thinks \u201cEconomic Liberalization\u201d sounds too western, according to one of the people who attended last month\u2019s policy meeting. The frontrunner is \u201cEconomic Freedom\u201d and everyone is praying he doesn\u2019t change his mind, the person said.<\/p>\n
Source: Bloomberg<\/p>\n","protected":false},"excerpt":{"rendered":"
Vladimir Putin sat motionless as the minister, seizing on the Russian leader\u2019s first major meeting with his economic team in months, itemized the challenges. A recession is imminent, inflation is getting out of hand and the ruble and oil are in freefall, Economy Minister Alexei Ulyukayev told Putin, according to people who attended the meeting … Continue reading “Russia to root out corruption”<\/span><\/a><\/p>\n","protected":false},"author":2961,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[49,3],"tags":[219,1061,67],"class_list":["post-16953","post","type-post","status-publish","format-standard","hentry","category-europe","category-news","tag-corruption","tag-sanctions","tag-vladimir-putin"],"cc_featured_image_caption":{"caption_text":false,"source_text":false,"source_url":false},"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/praag.org\/index.php?rest_route=\/wp\/v2\/posts\/16953","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/praag.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/praag.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/praag.org\/index.php?rest_route=\/wp\/v2\/users\/2961"}],"replies":[{"embeddable":true,"href":"https:\/\/praag.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=16953"}],"version-history":[{"count":1,"href":"https:\/\/praag.org\/index.php?rest_route=\/wp\/v2\/posts\/16953\/revisions"}],"predecessor-version":[{"id":16954,"href":"https:\/\/praag.org\/index.php?rest_route=\/wp\/v2\/posts\/16953\/revisions\/16954"}],"wp:attachment":[{"href":"https:\/\/praag.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=16953"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/praag.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=16953"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/praag.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=16953"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}