Publication: Eurasia Daily Monitor Volume: 1 Issue: 117

Russia has seen controversial political initiatives, acute security crises, and bitter electoral battles in the last half-year. What it has not seen is a series of consistent economic steps or proposals for economic reforms; even debates in this area have dried up. Nobody in Moscow reflects anymore on the presidential order to double the GDP, the summer excitement over the banking crisis has vanished without much trace, and the occasional warnings that mind-boggling oil prices might not be that healthy after all do not make much of an impression (Nezavisimaya gazeta, October 28).

Normally this time of year, economic priorities would be noisily debated in connection with the budget discussions in the State Duma. The budget has been duly submitted, but the Duma has gone through its requisite hearings with remarkably little disturbance. This may partly be the consequence of the pro-Kremlin United Russia party’s supremacy in this parliament, but to a significant degree it is also the result having few clearly defined priorities in this budget, except for allocating more funds to defense and security structures (Moskovskie novosti, September 24; Ezhenedelny zhurnal, September 27; Ekspert, August 30).

The lack of any relevant signals from the apex of the “executive vertical” has become so obvious that experts have begun to argue about the disappearance of economic policy (Gazeta.ru, October 27). That is even more surprising, given that the massive inflow of petro-dollars creates ample opportunities for the government to undertake large-scale and far-reaching projects. The range of alternatives is very wide indeed: from basic infrastructure (i.e. constructing highways and modernizing energy grids) to fundamental research, and from buying a new fleet of military aircraft to upgrading the decaying urban heating and waste-collection systems (Polit.ru, October 20). In reality, however, none of these alternatives is pursued, while the scale of accumulated problems is generally recognized.

The government prefers to accumulate the extra profits in the specially created Stabilization Fund and in the reserves of the Central Bank. These accounts have been growing recently by as much as $5 billion a week, achieving in late October the record level of $105 billion (Newsru.com, October 28). This accumulation helps in keeping inflation in check and slows the strengthening of the ruble against the dollar, but such smart financial tactics cannot qualify as economic policy.

One serious and long-debated step that was taken during this autumn was the signing and ratification of the Kyoto protocol, but it remains unclear how this breakthrough fits into the economic plans for the near future (Gazeta.ru, October 27). The decision was taken personally by President Vladimir Putin, and Prime Minister Mikhail Fradkov, comparing notes with the EU commissioners in Brussels the day before, had been plainly unable to explain Russia’s position on that issue. As for the negotiations on Russia’s entry into the WTO, some horse-trading with key partners, particularly China, has been registered this autumn, but membership in this club is perceived more as a political matter, while its impact on the Russian economy is still questionable (Politcom.ru, October 25).

It might appear logical to discern the goals of economic policy in the relentless pressure on Yukos, which is widely expected to culminate soon in the dismemberment of the company and the incorporation of its key assets into the Gazprom empire (Gazeta.ru, October 28). Indeed, with that de facto re-nationalization, the state would firmly control the “commanding heights” of the energy sector and would be able to direct its development. So far, however, the only “directives” from the Kremlin to the “independent actors” in this sector were not to meddle in politics and to pay more taxes (Kommersant, October 29). These orders are duly followed, but at the same time the oil companies are strongly discouraged from investing their free capital into “heavy” assets. The government, from its side, is not doing it either, and as a result the investment in new drilling and in expanding the existing production is falling — and Russia is unable to increase its oil exports at this time of extra-high demand or plan for production increases in the near future (Nezavisimaya gazeta, October 27).

The wishful thinking about Putin’s second term as a period of radical economic reforms was cut short when he appointed such a quintessential political nobody as Mikhail Fradkov to be Prime Minister. Fradkov probably does not expect to stay in this position for long, so except for making a mess with the reform of the government he is quite content to do nothing and finds no need for economic policy in the time of plenty. His only worry is to constrain those few remaining liberals in the government who have begun to argue that the net result of the non-policies is the slowdown of the oil-driven economic growth (Kommersant, October 14).

Fradkov expects orders from the Kremlin, but Putin’s narrow circle of trusted lieutenants could generate few ideas about how to use the hard-won control over the key economic assets, except for enrichment. For them, control is very much a thing in itself and not means to an end, so central planning and dirigisme — advocated by some old-timers and feared by new entrepreneurs — are not feasible options. It is not state capitalism that gradually comes about with the taming of oligarchs; this system is more of a rentier bureaucracy with probably a very limited life span.