Translated material
Alexey Kudrin moved the market
And he promised to talk to the FSB
Finance Minister Alexei Kudrin, who is currently on a visit to the United States, last Friday made a strong bid to confirm full membership in the Financial Eight. Taking a brief break from an IMF conference in Washington to talk to reporters, he told the press that dollar instability and the high US trade deficit were calling into question the dollar's status as the world's reserve currency. A few minutes later, news agencies reported: Kudrin’s comments caused the euro to rise against the dollar by 0.3%.Strictly speaking, this is not the first time that the head of the Ministry of Finance has expressed such thoughts, but so far this has not caused such a reaction from the markets. In the evening of the same day, Mr. Kudrin participated as an invitee in a meeting of G7 finance ministers and heads of central banks. The G7's final statement also touches on the topic of exchange rates, saying that greater policy flexibility is desirable in countries with large balance of payments surpluses, especially China. But this not new idea, apparently, did not excite currency market players.
Meanwhile, Alexei Kudrin had to once again prove himself on Friday as a minister-reformer from a G8 country. The Carnegie Foundation organized a meeting for him with representatives of US official and business circles. The head of the Ministry of Finance told them in detail about the problems and successes of economic policy.
Mr. Kudrin said that the stabilization fund, which is holding back the strengthening of the ruble, is politically very vulnerable: “Both left parties and United Russia want to spend part of the funds, and this is a major issue of political discussion.” But these formidable forces have serious opposition: “We in the government and the presidential administration agreed that the main parameters of the budget should not be exchanged for populism in the pre-election period.” The national projects, which required 160 billion rubles this year, from Mr. Kudrin’s point of view, do not affect the main parameters of the budget, and the approach to the budget will remain quite conservative. “Although politically there will be a very big battle in which there will be a constantly criticized person. But we will stand. We have such a plan,” he assured without much firmness in his voice.
Listing the reforms being carried out by Russia and coming to the tax sector, the minister said: “The Yukos syndrome is hovering over everyone, but we will continue to establish clear rules in the tax sphere.” Now, Mr. Kudrin said, there is a “very tough dialogue” between the state and business on tax issues, but he is personally confident that a compromise will be found. As an example, he named the bill on amnesty of undeclared income, which is planned to be submitted to the Duma by May 1.
Mr. Kudrin's statement on reform of the gas industry sounded unexpectedly optimistic. He noted: “Kasyanov’s government failed to approach this issue, but we will now approach the first draft of this reform.” At the same time, he explained why we should not wait for Russia to join the Energy Charter: it contains a number of articles that impede investment, and also does not spell out the issues of energy transit and the development of nuclear energy. “If finalized, the charter can become a serious tool for ensuring security in the development and supply of energy resources,” the minister emphasized.
Then Alexei Kudrin complained that the West did not accept Moscow’s proposal to pay the remaining debt to the Paris Club ahead of schedule and replenish the capital of the International Development Association with these funds (which, as is known, was depleted as a result of last year’s 100% write-off of debts to African countries). He said that Moscow is even ready to make an additional contribution in the amount of $580 million by saving on interest on the debt, but there is still no agreement from the creditors.
The head of the Ministry of Finance added some optimism by declaring his confidence in Russia’s accession to the WTO and that “all documents will be signed this year.”
By this point, the audience was a little tired of the abundance of successes and problems, but Alexei Kudrin stirred them up in no time. He said that at the airport he noticed the Welcome to United States! Homeland security (“Welcome to the United States! Homeland Security”). “In Russia, we are not yet ready for such jokes, but here it would sound like “Welcome to Russia!” FSB,” he said, causing a burst of laughter. And he added that he would definitely recommend “to his colleagues” to adopt the American experience.
It turned out that even after this there were questions for Mr. Kudrin - about YUKOS, and about Gazprom, and about the WTO, and about the FSB.
The famous economist Anders Aslund asked the head of the Ministry of Finance how he could explain the trend towards renationalization of property and, in general, the strengthening of the state in the economy. Alexey Kudrin said that, from his point of view, “there is a very clear structure in the trend that is called renationalization.” Firstly, “the results of the privatization of oil companies today are assessed as negative at one time, including within the framework of the so-called loans-for-shares auctions.” “Of course, this raised expectations that the results of privatization would be revised,” he continued. “The President gave guarantees that this will not happen.” The authorities intend to solve the problem through subsoil legislation and restrictions on the access of foreigners to strategic deposits based on clear principles. In general, the process requires “clear regulation that would allow the state to realize its interests in terms of rent, taxes and the environment.” “The government has a feeling that until these rules are fully developed, direct state participation guarantees the realization of interests,” the head of the Ministry of Finance concluded, but added: “Further privatization of oil companies will be carried out, but nationalization, in my opinion, will not will".
The second element of the structure of the “so-called renationalization” is the defense industry. Alexey Kudrin said that Russia is modernizing its army and starting in 2010, switching to a new generation of weapons. Therefore, the authorities are “concerned about the restoration of production” in this area.
“When we see a serious jump in the index on the stock market, then a correction occurs. Now we see a correction after certain processes that have taken place in recent years. I don’t see any drama here,” Mr. Kudrin summed up the complex topic, which turned out to be so easy in his interpretation.
With the same ease, he answered the question about the differences in positions on gas market reform between his words and the statements of the head of the Ministry of Industry and Energy, Viktor Khristenko. “Then you will find out a compromise option,” he promised, referring to future decisions of the authorities. And he added that “liberalization will occur: third parties will have access to the export pipe.”
The representative of Georgia asked the minister how Russia could simultaneously strive to join the WTO and organize a blockade of Georgian wines. Mr. Kudrin explained that his optimism about joining the WTO is based on the results of specific meetings with American officials, and trade wars also occur between WTO members. But even with Georgian wines, he showed himself to be an optimist: “I think that both sides will sort out these claims and find a solution. People in Russia love Georgian wines, and I think we will speed up this decision.”
Apparently, influenced by the minister’s joke about the FSB, one of the meeting participants asked him about the reasons for denying entry to Russia to the famous businessman, head of the large investment fund Hermitage Capital Management, William Browder. Being the largest investor in Russia, he has not been able to obtain an entry visa since the fall. And Alexey Kudrin was not ready for this question. He said that he did not know the details of the situation around “this gentleman,” but “apparently, special authorities are looking into this and, apparently, there are doubts about some of his operations.” “The very fact of investment does not exempt from certain rules,” he formulated the legal status of investors. And, apparently wanting to show that there is no need to worry so much about Mr. Browder, he painted a gloomy picture: “I know that in Russia there are many problems for entrepreneurs, there are a lot of unfair and controversial situations in relation to foreign entrepreneurs.”
Today Mr. Kudrin plans to visit the New York Stock Exchange, and it is probably better not to talk about injustices against foreign entrepreneurs there.