Publication: Monitor Volume: 6 Issue: 49

While Vladimir Putin’s economic program remains something of a mystery, the acting Russian president has given some more hints, including a call for greater economic freedom. “The higher the degree of economic freedom of economic entities, the higher the development of the state,” he said this week while on a March 7 visit to the textile-producing region of Ivanova. But he, who has consistently stressed the need for greater state regulation of the economy, ran short on details of how he would provide such freedom. He did say that the government would try to lower interest rates to make it easier for enterprises to borrow and to centralize government purchases from factories in the light industry sector in order to improve demand. He also said that the government would “aid” local governments in order to help them shoulder “social costs.” “If we help light industry and free up the funds they spend on social needs, then after a while these companies can contribute to the local budgets to a greater degree,” Putin was quoted as saying. He promised that the government would defend domestic producers and prevent “wild competition” between them in order to promote growth and foreign investment (Russian agencies, Reuters, March 7).

These comments, like others Putin has made concerning economic policy, have tended to be a hodge-podge of liberal and statist ideas, perhaps reflecting the mix of ideas coming from his economic advisers. These include such liberals as Yevgeny Yasin, the former economics minister, but also reportedly include people drawn from Russia’s security services. There have also been contradictory statements. First Deputy Prime Minister Mikhail Kasyanov, for example, last month ruled out any significant tax cuts, while Putin himself, in his recent open letter to voters, called for lower taxes with improved collection. Putin’s vagueness on economic policy, of course, might well be a deliberate campaign tactic.

On the heels of Putin’s speech in Ivanova, the Organization for Economic Cooperation and Development (OECD) released a report stating that while the Russian economy has grown since the August 1998 financial meltdown, its recovery remains very fragile due to lack of structural reform. The OECD reported that the Russian economy grew 3 percent in 1999 after shrinking 5 percent the previous year, and that inflation had dropped from 84 percent in 1998 to 37 percent in 1999. The OECD, however, added that future growth and prosperity would depend on “the ability of the government to jumpstart the process of structural reform in this difficult context.” The report said that among the key barriers to economic progress are the “virtual economy,” including the extensive use of barter, and poor governance and corruption in Russia’s regions, which stymies the development of competition and rule of law. Echoing Putin’s speech in Ivanova, the OECD said that Russia’s federal government should shoulder more social costs and give financial assistance to needier regions (Reuters, Agence France Presse, March 8).

While some of the credit for Russia’s post-August 1998 economic recovery can go to the stimulative effect which ruble devaluation had on domestic industry–by making foreign products more expensive–another key factor has been high world oil prices, which has provided the Russian government with a significant windfall. That, however, may be changing: Oil prices on the London exchange dropped nearly 10 percent yesterday on news that Saudi Arabia and Iran plan to increase their output. While oil prices remain very high–US$31 a barrel–a downward trend would make it that much more difficult for the Russian government to make fiscal ends meet (Russian agencies, March 8).