Publication: Monitor Volume: 3 Issue: 111

On June5 the Duma voted 288 to 6 to denounce the 1992-96 privatizationprogram as "unsatisfactory." Mullanur Ganeev, the chairmanof a Duma commission set up to examine privatization, describedits results as "chaotic" and "criminal." Hesaid that companies were given away at nominal prices to corruptcliques, meaning that, although 57 percent of the nation’s firmswere privatized, the state budget received only $3-5 billion.(Interfax, June 5; Reuter, June 5; RTR, June 5)

First Deputy Interior Minister Vladimir Kolesnikov told the Dumathat 34,000 privatization-related crimes had been committed since1992, with 500 officials arrested in 1996 alone. Alfred Kokh,the head of the State Property Committee (GKI), defended the program,telling the deputies that the economy would have been in worseshape had privatization not been implemented, but that the daysof mass privatization are now over. (NTV, June 5)

Despite their protests, the Duma is unlikely to try to renationalizeRussian industry. Such a move would encounter strong oppositionfrom economic lobbies, and would probably be blocked by the FederationCouncil and the presidency. Moreover, even the Communists in theDuma seem to realize that the age of central planning is longgone, and do not have the imagination to construct an alternative.

In fact, the real threat to privatization would seem to come notfrom the Duma, but from the economic and legal failings of theChubais program. The general sluggishness of the economy and lackof profitability mean that many private owners are walking awayfrom debt-ridden firms or simply not showing interest in the firstplace. (The latter applies to most foreign investors.) About one-thirdof privatized firms are insolvent, and in some regions there isa process of "creeping renationalization" under way.Local authorities are gaining control of privatized firms by acceptingshares in return for waiving local tax debts. Also, Russian courtsare reversing or freezing individual privatizations on a case-by-casebasis (as in April’s reversal of the 1992 privatization of Yakutia’sgiant Lenzoloto gold mine).

The privatization program was forced through before an adequatelegal basis had been prepared, leading to considerable confusionover property rights. The 1992 voucher program was passed as alaw, but the cash privatization which began in 1994 took placeon the basis of presidential decrees. Many procedures (such asthe 1995 share-loan auctions) lacked transparency and contradictedsome aspects of existing Russian legislation.

Despite these problems, the government is pressing ahead withprivatization on the basis of individual sales, in order to raisecash for the hard-pressed federal budget. An auction of 25 percentof the shares in the telecom company Svyazinvest may takeplace as early as next week. The sale is expected to raise $1billion, but foreign investors may be wary, given the collapseof an earlier auction of Svyazinvest in December 1995.Kokh hopes to raise a total of $2 billion this year, mainly throughthe sale of state shares in oil companies such as Rosneftand LUKoil. In the first quarter of 1997 $430 million wasraised through privatization, mostly of small local properties.(Delovoi mir, May 30)

Chechnya Negotiates Novel Agreement with Russia.