The main security in the Russian economy in 2009 may be a written agreement to fulfill government anticrisis directives without deviation.
Photo: AP
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The Govt Knows How to Spend Money
// Anticrisis spending shows the one true direction
The anticrisis action plan published by the government on Friday partially legalizes the economic crisis that began in August as a crisis in the banking system. The “recovery” announced by Russian Prime Minister Vladimir Putin of finance and a number of sectors of the economy does not include mass nationalization of companies nor great increases in state spending to save the economy. Instead, a third way has been found – prescriptive instructions on how to spend the trillions of rubles already given out.
The government has officially acknowledged the existence of the economic crisis. On Friday, it published an “action plan directed toward recovery in the financial sector and individual sectors of the economy.” As the title implies, the problems of the Russian economy, which Putin insisted last month should not be considered in crisis, are officially acknowledged to have engulfed finance entirely, and the rest of the economy partially.
They began drafting the document on October 30, after the meeting with Putin at Novo-Ogarevo and a number of meetings before that Deputy Prime Ministers Igor Shuvalov, Alexey Kudrin and Igor Sechin. There had been no intentions before that of creating an anticrisis plan beyond the sessions at which the Finance Ministry, Central Bank and Vneshekonombank made their unprecedented decisions to use 5.4 trillion rubles to support the economy. That money is not mentioned in the new plan.
The action plan published on the government website consists of 55 tasks broken down into ten blocks. Thirty-six points in the plan concern general economic measures, the financial system and support for domestic demand, the labor market and small business. The remaining 19 target individual sectors of the economy. To support raw materials, there is a single point. The government will draft a law before the end of the month to change the timetable for determining oil prices used to calculate export duties. That time is now two months. The new period is not yet known.
While drafting the general economic measures, the government decided mainly to implement quickly numerous proposals of the financial and banking lobbies between 2005 and 2007, from changing the balance of interests between a company’s shareholders and creditors in favor of the company during mergers and acquisitions to offsetting obligations in authorized capital. There are two innovations in the text of the document that place the plan in the number of those of the major countries of the world. First is preparation by the securities market for the Central Bank to refinance it in February 2009 with a transfer of rights to the Bank to regulate those companies. That is in essence the removal of barriers between the investment banking and banking sectors, as has been done in the United States (after the bankruptcy of Lehman Brothers).
The second measure is preparation of documents to expand the investment of “silent” funds in the pension system, which is managed by Vneshekonombank. Besides removing barriers to the circulation of pledging instruments and the securitization of credits, there are clear intentions on the part of the government to support the speedy recovery of financial markets after the critical phase of the financial crisis passes. That will include relaxing monetary policy and allowing investment banks access to Central Bank money.
It is also confirmed there that the government once again intends to examine the possibility of supplemental capitalization of the Housing Mortgage Credit Agency (Russian abbreviation AIZhK) in December. AIZhK received 60 billion rubles from the government last month. Now new funding is being considered.
The points on “support of the domestic market” open show that semi-prescriptive distribution of state money will be carried out by the Central Bank with special authorization. “Price preferences” will be instituted for state suppliers, including suppliers to state monopolies (Gazprom, Russian Railways, Transneft, the Federal Network Co.), by 2010. When all other considerations are the same, Russian goods can be purchased for prices 5-25 percent above those of foreign goods. Competition for state orders for 2009 and 2010 may begin in December. The government plans to announce that, for the first time, priority will be given to Russian producers in mass state purchases.
The plan does not include any principle changes in sectoral support practices. The government clearly does not intend to misuse the national enterprises that have been engulfed in the crisis. It drafted laws this month that allow shares in “strategic” companies to be bought up through convertible securities and other means, those measures are mentioned only in the chapter on defense industries. Apparently that measure is not being considered elsewhere. On the construction market, the government intends only to keep its promise to buy up apartments worth about 80 billion rubles from their builders. In agriculture, they will be given the opportunity to take out credit from Vneshekonombank for major projects and to receive subsidized rates on Central Bank refinancing of bank credits. The government is not going to deny itself protectionist defenses, but they will be moderate enough. First Deputy Prime Minister Viktor Zubkov announced the implementation of one point of the plan on Saturday – a reduction of 300,000 tons in the quota on poultry imports. No analogical decision on pork has been made yet. A government commission gave support to the Russian auto industry on Friday by raising duties on foreign cars from 25 to 30 percent beginning next year. Duties on a “wide list of goods” are to be reconsidered.
The plan does not include “crisis” compensation to consumers, entrepreneurs or the public. Unemployment benefits will be increased in connection with fears of growing unemployment. Small business, which feels the impact of falling demands fastest of all, is being promised Vneshekonombank credit, benefits for renting state-owned premises and, unrealistically, more access to state orders. The two-year delay for converting from the unified tax to the impost tax, which entrepreneurs won, will be extended, but only to pharmacy chains. The government ignored all tax reduction initiatives except for the faster amortization of a number of assets after 2010. Cost-cutting in the government will be minimal as well. This month and next, the state monopolies and state corporations will hone their investment programs for 2009 through 2011. Not a word is said in the plan about reconsidering budget expenditures for target programs, although Putin spoke of that last week.
Dmitry Butrin
All the Article in Russian as of Nov. 10, 2008
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