Translated material
What Dr. Gref didn't prescribe
Mikhail Delyagin
When demand for Russian raw materials exports falls in the world, the domestic economy will immediately feel the shortcomings of the government program
When demand for Russian raw materials exports falls in the world, the domestic economy will immediately feel the shortcomings of the government program
(Photo: Ramil Galiev )
Alexei Kudrin's sensational statement at a meeting of the Federation Council at the end of July about the end of economic growth seems strange at first glance. Especially against the backdrop of impressive macroeconomic indicators, the best in recent years. But upon closer examination, it becomes clear what the Deputy Prime Minister meant.
Over the past two years, economic recovery has proceeded spontaneously, with the state practically not interfering in this process. Now the president, who until recently solved short-term political problems, will have to come to grips with economic problems that are at least “medium-term” in nature. After all, Russia is slowly but surely approaching the moment when luck runs out. The resources of spontaneous economic growth have been practically exhausted: demand on the world market for Russian raw material exports is close to saturation, the positive impact of the 1998 devaluation has finally been exhausted, and domestic demand is low. A decline in world oil prices is not far off (although it is unlikely that it will fall below $22 per barrel).
The economic situation is beginning to deteriorate primarily due to the capitulation of the state to natural monopolies. Gas and oil giants are demanding higher tariffs. And the state agrees to this, although due to the opacity of monopolies it is completely unable to verify whether the increase is justified. From May 1, on average, tariffs for electricity (by 35%) and gas (by 21%) across the country increased, from August 1 - for cargo transportation (18.5%), and from September 10, passenger transportation should rise in price (by 25%). The issue of a new increase in electricity tariffs (by 12-24%) is being discussed. The current situation is quite convenient for the state: it views monopolies as a kind of “tax pumps” that will take “extra” rubles from enterprises and then transfer them to the budget - after all, it is clear that it is much easier to collect additional taxes from four natural monopolists than from hundreds thousands of consumers of their services. As a result, inflation is growing, and it is fundamentally important that it is not of a monetary, but of a pronounced structural nature.
In conditions of passivity of the state, whose leadership will, as now, be mainly occupied with international negotiations and trips related to the settlement of external debt, the inflationary wave will grow and by the end of autumn will significantly worsen the economic situation.
What the program is silent about
It seems that the state simply does not see the importance of structural reform. Entire groups of urgently needed measures have been omitted from the government program, which was tailored from fragments of liberal recommendations of 1997, prepared for the “team of young reformers.” First of all, having devoted a significant part of the program to the restructuring of natural monopolies, the current liberals “forgot” about antimonopoly policy. Meanwhile, one of the most important features of Russia is the exceptional degree of monopolization, and without limiting monopoly abuses, the state will not be able to achieve serious economic changes.
So far we do not have effective control over the price structure of monopolists. The control mechanism needs to be formalized, made almost automatic, by connecting the judicial system to it. Let’s say that a monopoly company’s prices increase three times, while production costs only increase 1.5 times - this is an abuse of the monopoly position, since the consumer has no alternative: you can’t buy gas or electricity anywhere else. In this case, antimonopoly authorities and commissions like the Federal Energy (which would not be a bad idea to be included in the Ministry of Antimonopoly Policy) should automatically refer cases to the court. So far, in such cases, we have tried to fight only with energy workers and gasoline kings, while the rest of the monopolists, for example, metallurgists, feel absolutely free.
Restructuring, of course, is also important, but it must be carried out very carefully. The coming to power of a new political “team” is usually accompanied by a tough struggle with representatives of the old “teams” for control over the most efficient enterprises and their financial flows (and we see that this is already happening in Russia). The expectation of “wars” in itself reduces the efficiency of the companies over which the battle is taking place (since funds are diverted from production turnover to protect against the seizure of power). And when it comes to the restructuring of natural monopolies, in which they are going to sell off not auxiliary, but the main structural parts (RAO UES of Russia, OJSC Gazprom, Ministry of Railways and Svyazinvest), the threat of large-scale man-made disasters inevitably arises. Several years ago, Kazakhstan, which sold its energy system to foreign investors, experienced two blackouts throughout the country (with the exception of a few cities). One can guess what such experiments in Russia entail.
Speaking about the protection of property rights, the government program ignores the essence of this problem - the need for judicial reform and decriminalization of the bankruptcy procedure. At a recent meeting between the president and the business elite, when asked about judicial reform, Vladimir Putin answered in the sense that there are, they say, more important things to do. There is nothing more important than judicial reform: all gaps in legislation, including antimonopoly legislation, will instantly emerge in the course of judicial practice. In the meantime, we practically do not have the judicial system necessary for the normal development of the economy and the entire society. Instead of fighting to ensure the independence of the courts, there are only vague rumors about an attempt to unite the Constitutional, Supreme Arbitration and Supreme Courts and make the judicial system dependent on the executive branch.
Nothing is said in the program about the emergence of sectors of the economy where standard liberal recipes simply will not work due to the high degree of depreciation of fixed assets, significant capital intensity, long payback period for investments (not earlier than “under the third president,” which makes political risks prohibitive high). For these reasons, private capital is guaranteed not to come into the electric power, gas and oil industries even in the minimum volumes necessary to preserve them. Thus, in the first half of 2000, when investment in industry increased by an average of 36.7% (in the glass and porcelain and earthenware industries - by 84%, in the forestry complex - by 66%, in non-ferrous metallurgy - by 48%) , in the fuel and energy complex they decreased by 10%. And the monopolies themselves are in no hurry to spend additional funds raised by increasing tariffs on updating their production infrastructure. As a result of underinvestment, wear and tear of equipment and production infrastructure (power lines, pipelines, etc.) increases. This creates physical rather than financial restrictions on economic growth.
The World Bank has been telling us about inattention to structural policy since 1995, and members of the last IMF mission talked about the same thing, although focusing more on the reform of natural monopolies.
Why did the state forget about structural policy? There are two reasons. The first is purely ideological. Deregulation is seen almost as the main tool for ensuring the country's competitiveness. The government program takes the idea of deregulation to the point of absurdity, understanding it as the maximum withdrawal of the state from all spheres of the economy. Meanwhile, without active government intervention, in some cases it is simply impossible to ensure market freedoms. In particular, it is the state that must use the levers to combat unfair competition, ensure the independence of judges, etc. But it turns out that there is too much state in some areas (say, in the business registration procedure), while in others there is none at all.
There is also a purely institutional reason: all economic policy in Russia is left to the two strongest structures that control financial flows - the Ministry of Finance and the Central Bank. Other departments - for example, the Ministry of Economy - exist only for journalists and, in fact, decide little. And financiers use the tools and methods familiar to them, trying, for example, to combat structural problems with financial instruments. The latest attempts to fight inflation only by diverting money from the market (for example, paying off the Ministry of Finance's debts to the Central Bank or planning the issue of new government securities) are further confirmation of this.
Escape from stupidity
An important indicator of economic expectations in society is the dynamics of capital flight from the country. The first quarter of 2000 brought a real sensation. An analysis of the Central Bank's balance of payments shows that unofficial capital outflow reached $7.7 billion, which is more than a third higher than the level of the same period in 1999. If in 2000 the quarterly dynamics of capital outflow are the same as in 1999, its annual volume will reach 25.0 billion dollars, which is higher than the level of 1997 and only slightly behind the catastrophic 1998 (25. 5 billion dollars). As a result, the share of capital outflow in GDP will reach 12.1%. And based on the results of last year, it seemed that the situation of uncontrolled capital flight was finally reversed, because the speed at which money left the country decreased significantly - almost 1.4 times, the outflow decreased from 25.5 to 18.8 billion dollars.
This year, the structure of “fleeing” capital has changed: if the outflow through semi-legal channels either decreased or did not grow very much, then under the article “pure errors and omissions,” which characterizes the size of completely illegal capital flows, an increase of more than 4.5 times was recorded - from 0.5 to 2.3 billion dollars, that is, the share of “errors” in the total volume of unofficial capital outflow increased from 8.6 to 29.9%.
Paradoxically, the acceleration of capital flight is largely due to the improvement in economic conditions. Enterprises have more money, but investment within the country remains difficult due to structural barriers. The growth in the export of funds means that the improvement is external in nature and is not accompanied by a deep improvement of the economy.
To reduce capital flight, in addition to normalizing political life, it is necessary to improve and rationalize the state's economic policy. After all, capital is not afraid of inflation or budget deficits - it is afraid of stupidity and runs primarily from it.
Another form of capital flight is its movement into the “shadow economy,” which is reflected in the dynamics of legal vodka production. Official statistics do not reflect the dynamics of vodka production itself, but only its legal part, which changes primarily not due to an increase or decrease in production, but as a result of its part going “into the shadows” or coming out of the shadows. This movement is facilitated by the fact that the bulk of illegal vodka is produced not in underground workshops, but in part of officially operating enterprises - on the so-called “third shift”.
The increase in vodka production by 1.5 times in 1999 was caused primarily by the legalization of part of existing production, and not by an increase in output. (It is impossible to explain the 50% rise by other reasons, otherwise one would have to assume that many vodka factories were idle until last year, but this is not the case.) In January-April 2000, the lag in vodka production from the same period last year was steadily increasing: if in January it amounted to only 3.0%, and in February - 8.5%, then in March the decline was already 17.3%, in April - even 22.4%. In May-June, the rate of decline in official vodka production slowed down to 12.0 and 13.3%, respectively, resulting in a 13.1% decrease in legal production in the first five months of the year.
Fork
The emerging deterioration in the economic situation can only be compensated for by conscious and active government policy. Russia's development in the near future will be determined by the ability to prepare ahead of time to solve the problems of external debt (the peak will be in 2003), the re-equipment of basic industries due to irreparable wear and tear (2004), as well as response actions in the event of a fall in oil prices (2005). ).
As for external debt, the Paris Club is unlikely to meet Russia halfway. And even if the Central Bank increases its foreign exchange reserves to $30 billion by the end of this year, the reckoning will still be very painful.
An equally important problem is the investment crisis in basic industries. Problems for power engineers have already begun.
Depending on the degree of activity of the authorities in the field of economic reforms, three main scenarios for the development of events can be distinguished.
First . Implementation of the government program (approved on August 3), which does not provide for a response to any of the threats. Due to the accumulated positive inertia, the fading economic growth will continue until 2002. Already in 2003, sharply increased payments for external payments will completely collapse the economic situation and lead to a resumption of the recession, which will be consolidated and then sharply strengthened by the beginning of the destruction of fixed assets of basic industries in 2004-2005. and the decline in world oil prices in 2005. In the second half of the first decade of the 21st century, this may result in the political and economic collapse of Russia.
Second . Supplementing the government program with standard liberal recipes (consistent implementation of antimonopoly policy, decriminalization of bankruptcy procedures, judicial reform, establishing control over the execution of regional budgets and reasonable transfer policy aimed at ensuring minimum social standards in accordance with the Budget Code).
This policy will help maintain a favorable economic environment and maintain economic growth, despite the increase in external payments. However, it leaves society completely defenseless in the face of an investment crisis, which will lead to a renewed recession. Although moving along this path does not threaten a quick collapse, it is fraught with another “lost decade” for Russia.
And finally, option three. Supplementing the government program with standard liberal recipes and state guarantees (exclusively political) of commercial risks for 10-15 largest investment projects in basic industries. These projects must be selected according to two criteria: necessity for the survival of the Russian economy (as a rule, such projects are aimed at creating and maintaining infrastructure - construction of roads, pipelines, etc.) and unattractiveness for private investors due to the duration of implementation and, accordingly, prohibitively high risks.
Such a policy will make it possible to mitigate the consequences of the dramatic increase in external payments in 2003 and the reduction in oil prices and completely overcome the investment crisis in basic industries. Although moving along this path will encounter many obstacles, Russia will continue to grow and maintain opportunities for modernization and confident progress.
Mikhail Delyagin - Director of the Institute of Globalization Problems