GROWTH AND REFORM…
In 1999, says statistical agency Goskomstat, Russia’s gross domestic product rose 1.2 percent in the second quarter, 6.7 percent in the third quarter, and 7.3 percent in the final quarter of the year. Goskomstat director Vladimir Sokolin estimates growth in the first three months of this year at 6 or 7 percent, and President Vladimir Putin recently used an 8 percent figure. These are remarkable numbers for an economy that has been in steady contraction since 1991.
What’s going on here? The Goskomstat data confirm what the public guessed: More exports and fewer imports make Ivan a rich boy, or at least a less poor one. The August 1998, devaluation that knocked the ruble down from seventeen cents to four cents in a matter of weeks turned Russian buyers away from foreign goods. Import volumes fell by roughly half in the fourth quarter of 1998, and by half again in the first three months of 1999. For calendar year 1999, import volumes were reported down 13 percent, while exports rose 4.5 percent. And Goskomstat does not adjust for the routine cheating that overstates imports (to justify sending more rubles abroad) and understates exports (to avoid bringing so many dollars home). If the over- and underinvoicing were taken into account, the swing in trade would probably be twice as great.
The surge of growth from import substitution has its limits. One barrier to expansion is, paradoxically, the same energy sector that provides so much of Russia’s export strength.
A key to Russian growth is ending the “payments crisis,” the circle of arrearages in which the cash-poor government collects few taxes and pays few bills, leaving its suppliers to pass the losses on to their vendors and employees. The fulcrum of the payments crisis is Gazprom, the natural-gas monopoly that is the country’s largest company and largest taxpayer. Gazprom has faced pressure before to pay its taxes–from Minister of Energy Boris Nemtsov, for example, and briefly from tax chief Boris Fedorov–with little result. Vladimir Putin’s Kremlin, with less fanfare, more gradualism, and a firmer hand, seems to making progress where its predecessor failed.
To pay its taxes, Gazprom must collect its bills. Forty percent of Gazprom’s domestic sales are to United Energy Systems (UES), the monopoly that produces and distributes about 80 percent of Russia’s non-nuclear electric power. To force more money out of UES, which is in arrears to Gazprom by about US$3.5 billion, Gazprom is cutting back on deliveries. That forces UES to cut back on power production.
To pay Gazprom, and to become attractive to investors, UES is said to be seeking approval of a 50-55 percent rate hike this year. Gazprom, with large dollar-denominated debts and a growing gap between domestic and export prices, needs a rate hike as well. So the near-term prospect is less gas and less electricity, with higher prices for both. However necessary that may be, it is not a formula for rapid economic expansion.