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Economic Agenda of Medvedev’s Presidency

Economic Agenda of Medvedev’s Presidency
Delyagin Michael 13.03.2008

If economic content of Putin's presidency is possible to express by formula "petrodollars plus order, minus corruption, minus monopolistic using", then "Medvedev's formula" is not obvious yet. Putin's objective task was stabilization; having solved it by the end of 2002, further he (as well as Yeltsin in similar situations) failed to proceed with settlement of more difficult tasks of development; probably, his refusal from "the third term" was caused not so much by fear before the West, but mainly by despair, feeling of own inability to cope with the problem objectively facing the country and desire to try to solve it by new people.

Medvedev's agenda - modernization.

During his presidency he will face objective necessity to solve a number of complex economic problems "pigeon-holed" within the last 8 years.

On ability to solve these problems depends not only his political future but also the future of the whole Russia - in particular, time and depth of system crisis or getting rid of it.

Putin restored statehood, though on the basis of its lacks instead of advantages. But it is objectively adapted to modernization and is used in inadequate purposes - as the tool of total corruption having become true basis of political system. Meanwhile corruption - is not national custom; in present scales it is alien to Russia. Contradiction of purpose of the state to the character of its application (similar to unscrewing of a screw by means of a hammer) causes internal failures. Examples - from revealing of connections between the murderers of Politkovskaya with FSB up to real restrictions of corruption in a number of regions where the group of leaders of regional power structures and governors was destroyed, opportunities of security officials to close criminal cases were reduced and appeals on arbitration affairs should be transferred to the courts not connected to courts of the first instance.

Another example - acceptance of a number of international obligations becoming valid in the first half of 2008 and including carrying out of anticorruption procedures with international monitoring it. Меdvedev can use these procedures all over again for "trainings on kitties" - against regional elites (it's already takes place due to competition for corruption financial streams by virtue of their shortage and concentration) and then, after working off of technologies and creation of infrastructure - against his political opponents, "power oligarchy". Thus he can lean on the West and receive from it concessions for expansion of the Russian business.

Modernization is impossible without bridling of a total arbitrariness of monopolies. Restriction of corruption will weaken their aspiration to overprice (in many respects dictated by growth of corruption interests) and will create political opportunity for promotion in this direction.

Restoration of human capital, instead of chatting about it is necessary for modernization.

First of all it is necessary: to guarantee a living wage at a real level (not at a level of captured Germans of October, 1941) with regional differentiation and corresponding reorientation of interbudgetary policy, to transform each future child into means of increase of well-being, instead of colliding of a family in poverty, to provide quality control of public health services and education with maintenance of their availability to all population, to solve a problem of maintenance of the Russians with habitation, instead of building companies and banks - with profits.

Restriction of corruption will allow to make a choice between two models of modernization. The first - liberal, voiced by Medvedev and representing return to 90th years: "to create conditions" and to wait when business will take advantage of them. Alas - without modernization of infrastructure, political stability and trust (not talking about antimonopoly policy unacceptable for liberal fundamentalists and protection of property constraining arbitrariness of large business) it is possible to stimulate only gamble and corruption but not manufacture and competitiveness. Attempt to return in 90th being carried out by liberal fundamentalists will lead us to these very 90th.

The only alternative - modernization of infrastructure by the state (there is no other variant) which will release business (freedom - redundancy of infrastructure) and will remove rigid restrictions which have appeared at Putin (shortage of electric mains because of reform of electric power industry, decrease in extraction of gas, reduction of extent of motorways and transportations on them, as well as shortage of people capable to work fixed by reform of education - 35% of jobless are younger than 30 years).

To make it now is impossible because of system corruption but its suppression (see item 1) will allow "to embroider" natural restrictions and to create such conditions for development of business which are necessary for it and not for liberal fundamentalists having provided necessary base for modernization.

Modernization of infrastructure will demand refusal from vicious movement of money of the Russian tax bearers on modernization of their competitors (through Reserve fund and fund of national well-being). Madness of investment of money of the state into obviously unreliable hypothecary papers of the USA during hypothecary crisis will become impossible. It will allow to guarantee not only safety but also profitableness of pension accumulation (in 2007 they "were eaten" by inflation in all managing companies) having reoriented them from the unstable share market to infrastructural projects with guaranteed profitableness (for example, modernization of housing and communal services).

Creation of a social base demands protection of interests of consumer rights - most active, angry and influential today "middle class" (15% of population has its consumption level). For this purpose it is necessary to restore judicial system (probably, by Degaul-like total replacement of judges with divestment of rights on a trade for illegal verdicts), to limit arbitrariness of monopolies, to restore state quality control, to encourage self-organizing consumers as unique way of formation of a civil society.

The significant part of the Russian non-primary business incurs losses because of growth of bribes and bad management (caused by monopolism: more than 60% of businessmen do not suffer inconveniences from competition) legalizing them as investment (international reporting allows it).

It allows to involve easily foreign financing for a cover of losses (and for risky projects of development - thus foreign investor frequently did not know degree of risk because the Russian partner was interested in it just a little). As a result to the middle of 2007 a steady model was created at which business ate no longer petrodollars but foreign credits.

That model provided avalanche growth of external debt at the expense of re-crediting of old debts and escalating of new losses for a cover of old ones. Reduction of inflow of the capital to Russia in June - October because of hypothecary crisis complicated that re-crediting at the first stage having raised its cost and having compelled some debtors to pass partially to the property of the creditor (it did not raised their efficiency). Growth of cost of the credit from 10 up to 13-14% inside Russia was reflected even in statistics of financial position of enterprises (growth of balance of cumulative profits and losses decreased from 31,6 % in 2006 to 17.7 %, in view of inflation - fourfold: from 20,7 up to 5,2 %).

March re-crediting will be "bloodless" but in September its scales will be great and is not clear, whether business can cope with them. Situation will be aggravated with hypothecary crisis.

The USA will soften financial policy; it pushes capitals on search of investments in the risky markets, including Russia with its «an oil-and-gas pillow». But crisis compels investors to reset actives, including the Russian ones. If this tendency will prevail, the January outflow of capitals which have renewed after a pause of November - December will amplify and wash away stability.

The bank of Russia emits roubles so far as inflow of currency board. Reduction of its inflow will cause reflex compression of financial policy - and crisis of liquidity. The bank of Russia is not ready to change a system of issue (currency board mummify ability to independent monetary policy) that can lead to catastrophic consequences.

Difficulties of re-crediting of the Russian business and shortage of liquidity will push out it to the sale of actives which will collapse share market and the market of the real estate that will lower ratings of Russia and will demand to increase reserves under earlier taken credits that is it will demand liquidity. The state will be late, will help "good guys" and thus will fail to create financial control (as it prevents corruption) - as a result support of liquidity by it will strengthen inflation and will aggravate crisis of liquidity (an inflationary spiral will appear) even more. Intensity of inflow of capitals will slow down or speed up this process and, accordingly, will slow down or will speed up a collapse of the market.

Probably, there will be now catastrophe in autumn, 2008 - economy will be shaken but it will withstand - however seasonal crises of re-crediting will be inevitable and will accrue (at that becoming frequent as credits will be given each time on worse conditions and for more and more short time). In 2009 crisis will acquire open form. At that even noncritical "jolting" of economy will split our leaders and it will become independent factor of economic risks.

VAT against Uniform Social Tax. Officials of administration of the president passing to the government hysterically demand replacement of VAT by sales tax, ignoring its destructive influence on economy (because of this reason it was cancelled in 2002). The real reason is that for normalization of VAT restriction of corruption which is for the time being not possible for political reasons (without it is impossible to cancel return of VAT on fictitious export) and laborious work on perfection of instructions which present officials are not capable of - it's easier to cancel the tax than to normalize procedures of its collection - are necessary. Meanwhile replacement of VAT with sales tax today is impossible even because it appreciably will speed up inflation which is so high.

Sensation around of VAT is called also to distract attention from descending scale of Uniform Social Tax transforming honesty in the privilege of propertied, giving it disgusting class character and leading, as any injustice, to a low collecting (that «punches a hole» in the Pension fund). Even business is ready to pay Uniform Social Tax on a flat scale in 15% but it goes against the policy of liberal fundamentalists on encouragement of rich and creation of situation when «the poor pay for the rich».
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