Russian Prime Minister Mikhail Fradkov in April 2006.
Photo: Ilya Pitalev
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Prime Minister Breaks the Bank
// A Third of the Budget to be under Fradkov's Control on the Eve of the 2008 Elections
The Development Bank, which will be founded with the amalgamated assets of Vneshekonombank of the USSR, the Russian Development Bank, and Roseksimbank within the next year and a half, may well become the most powerful financial and political institution in Russia. At a meeting of government officials yesterday concerning the new bank, which was originally slated to have authorized capital of 70 billion rubles, Prime Minister Mikhail Fradkov unexpectedly announced his intention to dramatically expand both the financial and political capital that will be placed under the Development Bank's control (the new funds will mainly come from the investment fund). The management of the bank itself will basically be in the hands of the prime minister, an arrangement that will significantly increase the influence wielded by the head of the government. Whether or not that will still be Mr. Fradkov in a year or two remains to be seen.
At the meeting yesterday, Mr. Fradkov started by suggesting that the head of the government assume the position of chairman of the bank's oversight committee, which will place the organization of all of the bank's leadership organs under the prime minister's control. Though he opined that the nomination of the chairman of the board of director's should be approved by the president, the prime minister will also have a say in naming candidates.
Economic Development and Trade Minister German Gref then proposed that the capital of the Development Bank be fattened with money from the investment fund when the bank legislation returns to the State Duma for the second reading. By the end of 2007, the 70 billion rubles that are currently earmarked for the bank will have been increased to between 145 and 190 billion rubles.
The investment fund will soon receive dividends from the early repayment of the Paris Club debt. According to calculations made by Deputy Finance Minister Sergey Storchak, in 2007 alone savings on interest-rate payments thanks to the early repayment of the debt will amount to $1.2 billion (31.8 billion rubles), while up to 2015 the total sum is estimated at $7.7 billion (204.8 billion rubles at the current exchange rate). In other words, once those funds are added to the Development Bank's coffers, by 2008 the bank will control almost 300 billion rubles.
The resources that will be concentrated in the hands of the prime minister are not limited to strictly financial matters. Kommersant has learned that the bank may be given control of a significant part of federal investments, in the form of the Federal Earmarks Program (FTsP) and the Federal Directed Investment Program (FAIP). In 2007 these two programs will be worth almost 1 trillion rubles.
The government is also considering giving the Development Bank agential rights on the distribution of federal guarantees of export support. This year, that budget is worth $1 billion (26.6 billion rubles), funds that are currently disbursed by the Ministry of Economic Development and Trade via a creaky and bureaucratic system.
Finally, Mikhail Fradkov stressed yesterday that since the Development Bank will not be a commercial organization, it will not pay any taxes on its profits. In addition, like the Vneshekonombank of the USSR, it will not be licensed by the Central Bank. As a result, the funds that could end up at the prime minister's disposal by the beginning of 2008 could amount to as much as 1.3 trillion rubles – approximately 35% of the federal budget expenditures for 2007 after FAIP, FTsP, and the investment fund are subtracted.
As a result of these maneuvers, the power and influence vested in the prime minister will probably soon increase exponentially. However, the person in the post by that time could turn out to be someone other than Mr. Fradkov. According to Mr. Gref, the bank will not be operational until mid-2007 or early 2008, and the rumor in some government circles is that Mr. Fradkov will be leaving the prime minister's chair before then. In the run-up to the presidential and parliamentary elections, changes within the government are likely once the budget for 2008-2010 has been submitted to the Duma. This time around, President Putin has requested that the budget be submitted by April 2007 – earlier than usual. As time runs out before the presidential elections, the preparations for them will increasingly take on a decisive character.
Petr Netreba
All the Article in Russian as of Dec. 15, 2006
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