Putin’s new economic policy

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

Russian President Vladimir Putin, who was inaugurated for a new six-year mandate on 7 May, has signed ambitious decrees, but very little is expected to change in the way the country will deal with foreign investors, argues Bogdan Sumenko.

Bogdan Sumenko is an analyst of the Ukrainian Foundation for Democracy "People First" .

Vladimir Putin signed his first decrees on the day of his inauguration. Legislative initiatives of the newly elected president of the Russian Federation have to deal with almost all social and economic aspects of Russia’s future life.

However, the majority of decrees are mainly of declarative nature and lack specification of mechanisms of their realisation. Guidelines included into the new decrees coincide completely with the economic aspirations voiced by Putin in his pre-electoral programme.

Hardly anyone can question the Russian president's will for reforms. However, the historical experience of Russia tells us that reforms in this country are possible only under the condition of new people appearing at the wheel of power. Significantly, from the moment of Putin's first presidency, the present political establishment practically hasn't gone through any changes. And the situation will hardly change in the next six years of his mandate.

The majority of assignments given to the government of the Russian Federation by the president are due to be realised before 2018 – when the next elections will be held. For now, all responsibility for the internal social and economic bloc falls upon the prime minister, Dmitry Medvedev.

The quintessence of the legislative innovations is Putin's decree to introduce the bill on state strategic planning and to confirm the basic directions of activity of the government of the Russian Federation until 2018 by 1 December. The main governmental programmes ("Development of the transport system of the Russian Federation", "Development of public health services", "Culture of Russia" and others) are expected to be adopted before the New Year. 

In the foreign policy arena, Eurasian integration through the Customs Union and the Unitary Economic Space has every chance to become the highest goal. However, the creation of the Eurasian Economic Union without Ukraine seems difficult to realise.

The chances of giving flesh to the idea supported by Putin to create a state company for development of the Far East and Siberia are growing considerably. One of the decrees clearly speaks of the need to accelerate the development of these territories. 

Foreign investors are, first of all, interested in Russia’s oil and gas assets. However, according to the new decrees, the privatisation of the state energy monopolies is postponed for the time being. On the whole, from the beginning of 2012, a tendency of postponement of the declared and widely advertised privatisation can be clearly noticed. The previous government was constantly showing readiness to implement such privatisation. Its main motivation has been the lack of funds for large-scale investment projects on oil and gas sites. Besides, the Russian authorities thought it useful to issue positive signals to foreign investors, on the eve of the elections.

One can imagine that the main objective of postponing privatisation has been the increase of capitalisation of the state energy monopolies. However, these tactics look more like a struggle between applicants for the best places in the new office which would run the country’s fuel and energy complex. On the whole, it is known in whose interests the privatisation will be conducted, and the state company on development of the Far East and Siberia will be created. It is sufficient to analyse which companies work in the region, to whom they belong and compare them with the lists of the richest people (not only in Russia).

Thanks to the good will of the Russian leadership, the process of controlled entry of foreign companies into the development of oil and gas deposits of Russia has been activated. During the admission of companies, apart from their financial participation, considerable attention has been given to the exchange of technologies and assets. By attracting several foreign companies with equal shares in each project, Russia aimed at minimising risks. The policy of granting tax preferences to separate projects has started to be introduced. 

Most of the instructions to the government, formulated in the decree for long-term economic policies, are not supported by a mechanism for their implementation. By this decree Putin puts a number of tasks before Medvedev on achievement of economic indicators of the future social and economic development of Russia.

In particular, an increase of the volume of investments to 27% of gross national product is planned until 2018. However, it is not absolutely clear why such a percentage was chosen and what investments are meant: foreign, internal or private? 

Regardless of the Russian government's optimistic forecasts concerning the termination of capital flight from Russia after the presidential election, the situation continues to worsen. The Ministry of Economic Development estimates $43 billion in capital flight over the first quarter of this year. According to the central bank, in 2011 capital outflow has reached $80.5 billion.

On the whole, Putin's decrees show his wish to demonstrate determination in fulfilling his pre-electoral promises. Even if they smack of populism and impracticability of their realisation, these legislative initiatives cover almost all target audiences – from simple citizens of different professions, to branch experts and political scientists. And more importantly: they are designed to reduce the protest claims of the Russian society.

The chance to implement market reforms in Russia will depend on the extent of the authorities’ ambition to keep state control over the oil and gas sector. The access to this sector will be strictly controlled by the central power. The business rules for foreign companies would hardly change in substance. Their success will depend on their ability to find mutually acceptable compromise with the Russian leadership."

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