RUSSIA’S ECONOMIC MYSTERIES: THE STATE IN SEARCH OF THE MIDDLE CLASS

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The dismissal of Viktor Gerashchenko from the Central Bank came as a real political sensation, despite persistent rumors and the stubborn Gerashchenko’s repeated statements that he did not care about it.

According to the latest rumor, the head of the Central Bank was ready to part with his job in September, which was supposed to be the end of his term. Nonetheless, he was dismissed in March; besides, it was initiated by the president. Moreover, he was dismissed at the moment when the Duma started debating amendments to the law on the Central Bank.

As the “Vedomosti” paper explained, these amendments propose, in part, the establishment of a National Banking Council, which is to be a permanent body involving Duma deputies and members of the government, who are supposed to oversee the work of the Central Bank. Gerashchenko, who is reputed for clear and courageous formulating of his standpoints, thought appearance of this body to be a “stupid thing, which is very dangerous”.

However, Gerashchenko’s position, who has long repulsed all attacks from the government, is well known. “Vedomosti” stress that Gerashchenko was dismissed “at the moment of a decisive fight for the independence of the Central Bank”. According to the paper, “this is causing misgivings”, especially at the background of the discussion on the time and methods of the banking reform.

From the standpoint of the “Nezavisimaya Gazeta” paper, Gerashchenko is one of the few Russian officials, who used to be “not only the symbol of stability, but also of the “state” professionalism”. According to “Nezavisimaya Gazeta”, his authority used to be so great that “skeptical expression on his face was enough to cause an immediate storm of criticism against the government”. That is why Gerashchenko’s dismissal should be considered as an evident apparatus victory of Mikhail Kasyanov, though this is not an utter victory.

On the one hand, the Russian government will no longer have caustic comments that the governmental activities “mildly speaking are hard to explain with state logic”. The present candidate for the position of the head of the Central Bank Deputy Finance Minister Sergei Ignatiev is by no means promoted by Kasyanov, as he is much closer to Finance Minister Alexei Kudrin – the rumor has it he also has disagreements with Kasyanov.

“Nezavisimaya Gazeta” supposes that appointment of Ignatiev would be a compromise, a political alliance between the former “Family”, “old St. Petersburgers”, to which Kudrin and Ignatiev belong and the “new St. Petersburgers”. “Nezavisimaya Gazeta” refers to the latter famous banker Sergei Pugachev, who has been greatly interested in the Central Bank since he became a senator. As is supposed, by autumn, when the leadership of the Central Bank is scheduled to change, the positions of the “new St. Petersburgers” are to become stronger – foreseeing this, Kasyanov and Kudrin decided to forestall it as losing control of the Central Bank would mean for them losing of control of the credit-monetary policy of the state.

On the contrary, governmental sources of the “Vremya Novostei” paper state that Mr. Ignatiev belongs to no team, “even to the St. Petersburgers, though he undoubtedly originates from the City on the Neva River”.

However, according to the paper, representatives of the Finance Ministry guarantee that the new head of the Central Bank will be 100% loyal to the president and the government: that is why the president made this personnel decision.

However, from the standpoint of the “Vremya Novostei”, it is not always possible to be simultaneously loyal to the cabinet of ministers and the head of the state. According to the sources of the paper, lately, the presidential administration has lost its interests in changing the status of the Central Bank. The government on the contrary is greatly interested in the Central Bank, in particular, in its Vneshtorgbank part. As is known, Viktor Gerashchenko categorically objected to rejecting control of the Vneshtorgbank. As for Sergei Ignatiev, the presidential administration expects him to be rather a “technical not a political figure”. Obviously, Mr. Ignatiev is unlikely to avoid politics at all, as “preparation for the forthcoming presidential elections has already started,” concluded “Vremya Novostei”.

The “Vedomosti” paper made a curious suggestion concerning appointment of an “impeccable official and St. Petersburg intelligentsia representative Sergei Ignatiev” instead of Viktor Gerashchenko.

According to “Vedomosti”, observers are vainly trying to guess what super-project the “new St. Petersburger” is to implement at his new job. It is not prior preparation of the “Central Bank Empire” for the presidential elections, only Boris Berezovsky doubts about their result.

As for nationalization of the Vneshtorgbank, of course, this objective is easy to achieve without Gerashchenko, thought he paper says it is not serious enough to be a “super-project”. Overall, the paper believes that neither the banking reform, nor the currency liberalization or the credit-monetary policy needed presidential interference. Moreover, disagreements in the viewpoints of Gerashchenko and Ignatiev on these issues are minor, “None objects to the “market free hand” as long as it is the hand of the state.” Besides, the stated obedience of the new Central Bank head has its own limits, “Ignatiev will not do for the role of a weathervane”.

Thus, it turns out that dismissal of Gerashchenko has no reasonable grounds. That is why the paper suggests another explanation, “Apparently, Putin is simply tired of Gerashchenko’s charisma, as his major argument in any discussion is an arrogant grin of the only professional in the country.”

While for Ignatiev, who has long been in the apparatus, subordination is a very important thing. Anyway, from Now on President Putin will no longer find himself in an unpleasant situation, when the head of the Central Bank uses any opportunity to stress his professional superiority over the head of the state. It is a rather ridiculous explanation, but many people believe it has some grounds.

The “Novaya Gazeta” paper is much brasher about the presidential personnel decisions. According to the paper, Putin’s actions concerning personnel are always “flash-like like a car accident”, while his dismissals resemble “special operations for overthrowing local princes”. At the same time, his appointments are like “personnel policy of Turkish sultans, who preferred to appoint to the most important positions not noble independent grandees, but powerless slaves, who were fully obliged to their master and devoted heart and soul to him.”

However, the paper stated that Sergei Ignatiev is different, “he is a most professional Russian financier, and he is completely different from Viktor Gerashchenko, a remnant of the Soviet-Primakov’s epoch.”

Overall, the paper writes, the example of Gazprom made it clear to the authorities, what “appointments of Riesenschnauzers end in”. Last week the share market of the gas concern first fell by 10% after head of the Moscow tax police Viktor Vasiliev announced his intention to institute a criminal case against the Gazprom leadership for tax evasion. Then, the share market started growing after the government approved of Gazprom’s 140.8 billion rubles investment program. According to “Novaya Gazeta” all this is easy to explain, “The market doubts competence of the appointed loyal dogs so much that it is ready to nervously react on any trifle.”

As for Gerashchenko, it is not his first dismissal: first time he was dismissed in the early 1990s, during fighting against the “communist heritage”. In 1992 the “young reformers” government was forced to return “retrograde Gerashchenko” to his position, having faced the threat of hyperinflation rate.

Second time he was dismissed after the 1994 “black Tuesday”, when ruble suddenly fell and similarly unexpectedly rapidly restored its position. Gerashchenko was again invited to lead the Central Bank after the 1998 economic default, when no one else was able to stop falling of the ruble rate.

According to “Novaya Gazeta”, his latest dismissal can be considered the last one: the Central Bank will finally be tamed, Gerashchenko will finally be free, as a result, all “branches of power except the presidential one” will become irreversibly decorative.

Nonetheless, a majority of observers agree that it was Mikhail Kasyanov who initiated Gerashchenko’s dismissal and managed to convince President Putin of necessity of this measure. If this is true, another personnel innovation of the prime minister should also be mentioned: recently, he suddenly appointed as his aid on macroeconomic issues one of the most violent opponents of the government policy Mikhail Delyagin.

According to the “Finansovaya Rossia” weekly, observers have already compared appointment of Delyagin as aid of the prime ministers and appointment of Andrei Illarionov as a presidential aid. The paper reminds that Illarionov also keeps criticizing the government, which allows the presidential administration to “easily maneuver between polar-opposite opinions on any issue without becoming a hostage to the governmental course.”

Now, the “Gazeta” periodical explains, Delyagin is to become Illarionov’s vis-a-vis, “For a year and a half Kasyanov had to personally reply to Illarionov. Now the status will be equal, the Kremlin and the White House will fight through their aids.”

The experienced fighters have more than enough topics for discussion. For instance, Illarionov is known to be a supporter of decreasing the ruble rate – according to him, it is an important means for increasing the competitiveness of the Russian economy. Actually, Delaying agrees with this, however he believes that the state should “reasonably interfere with the economy”. The new prime minister’s aid states, “there are regions, where no grass can grow without state aid.”

At the same time, it is obvious that Illarionov’s calls for ruble devaluation will mean devaluation of people’s incomes. Besides, the presidential aid believes it is necessary to decrease budget spending and reject a fixed minimal wage. The aid of the prime minister, in turn, stated, “the main strategic danger is that a large-scale of social issues may be resolved at the expense of business.” Business is interested in paying minimal taxes, and a low ruble rate is extremely profitable for manufacturers. “Gazeta” explains, that, in fact, both aids say the same.

Overall, it seems the country is to expect serious changes. An observer of the “Vedomosti” paper Olga Romanova commented on the changes in the Central Bank leadership, “Good bye the strong ruble policy, good bye the obligatory sale of currently proceeds. There is a strong impression that the authorities are starting something more serious than a banking reform or a currency liberalization.”

Judging by everything, a ruble devaluation is inevitable, “It is no accident both the government and the presidential administration simultaneously speak of a complete exhausting of the growth potential, caused by the 1998 intensive therapy.” Now the government has found another way to push the stopped economy ahead, it is called “ruled ruble devaluation”.

This seems to be a rather doubtful way. As Olga Romanova notes, “ruled devaluation is the same as ruled democracy. Perhaps, it works somewhere, but it has nothing to do with the Russian reality.”

Until now, the ruble rate was held within a certain corridor only due to Gerashchenko’s obstinacy, the “Novye Izvestia” paper stresses. Now the dollar rate is to undoubtedly grow, “as both exporters and the prime minister want”.

So, the country will have another reason to remembers of both Gerashchenko and strong ruble, and independent Central Bank, and large gold currency reserves. The paper sighs, “Unfortunately, it will be too late.”

As the “Profil” magazine noted, “the rumor that there is to be another political and economic crisis in Russia are more and more distinct.” As is known, the cease of the economic growth in Russia was caused by falling of oil prices, so far it has not resumed despite a graduate extrication from the oil crisis.

Recently, the Russian Tax and Fees Ministry reported that the tax plan was not fulfilled for the first time over the past three years. Head of the ministry Gennady bukaev publicly criticized his ministry. However, “Profil” is convinced that the real reason is different and it is a serious reduction of the tax base as a consequence of the already mentioned cease of the industrial growth.

According to analysts, this time the 1998 crisis will not repeat, however, it is obvious that the raw material dependence of the Russian economy has not been overcome yet. The society is still collecting questions that have no answers, or to which the Kremlin has no answers. In particular, “Profil” considers an evidence of this repeated reschedules of the presidential address to the Federal Assembly. First, it was scheduled for the end of March, then it was to be done in the beginning of April, recently, another date was announced, April 18….

Meanwhile, the magazine reports, they say about the crisis of the present power, as well as about “strengthening of the positions of the Moscow group” headed by Mikhail Kasyanov and on re-orientation of a part of the political elite on him. There is also rumor about forming headquarters for preparation for the 2008 presidential elections.

“Profil” writes, “It is clear that headquarters are not formed six years before the elections. It is also clear that this rumor may have a totally different ground and less obvious that preparation of a predecessor objectives. However, the trend is apparent enough.”

Anyway, the magazine believes that the more stagnant the economy is the more rapid are the political processes, “So in the near future the slumber of the Russian political elites will end, to the delight of analysts and the media.”

As the “Vedomosti” paper reports, Standard & Poor’s recently stated that political stability in Russia, which has been so hard to establish, currently depends only on the personality of its creator, the head of state. That is why at present any increase in Russia’s credit rating is out of the question. Thus, the major obstacle for foreign investments in the Russian economy is its political system.

In these terms, Union of Right Forces leader Boris Nemtsov made the most radical statements at a New York conference on “Investment in Russia”. According to him, President Vladimir Putin now controls four national television networks, the Federation Council, and 250 Duma seats. At the same time, Nemtsov explained, the Kremlin believes in theory that European-style democracy is impossible in Russia and that our country needs a “controlled democracy”.

In accordance with these statements, Helena Hessel, Director of S&P in Central and Eastern Europe stated that Russia cannot be considered a democratic country because of the weakness of its political institutions. Another S&P analyst, Conrad Royse, specified that a mass support of politician Putin is a positive factor, however speaking of long-term prospects, it should be admitted that steady development requires more than just concentration of the power in one hand – it requires all the necessary institutions.

On the contrary, Russian experts, for instance, deputy president of the Interros holding Sergei Aleksashenko, think that as the president is to keep his authority for the next six years it is enough for increasing Russia’s investment attractiveness.

Rector of the Superior Economics School Yevgeny Yasin states that Russia has two alternatives for development: “One basing on business, another basing on the bureaucratic system.” Despite his role of political stability factor, Vladimir Putin unfortunately, has oriented on bureaucracy, including security structures. According to Professor Yasin it is a potential danger. Meanwhile, as the “Profil” magazine states despite all the attempts to “build capitalism” Russia will always be a country of officials and not of bourgeois, in accordance with all historical traditions of our country.

There have never been bourgeois in Russia, except the times when the authorities were interested in its appearance. As for the nutrient medium that created large fortunes in the west – small bourgeois or the middle class, it has not appeared in Russia. “Profil” emphasizes that a social layer that does not include “teachers, doctors, scientists, engineers, the military, officials, and many other social groups on which the real life of the country bases” cannot implement the basic, stabilizing function of the middle class. Instead, the Russian middle class involves not only entrepreneurs, but also “bandits, prostitutes, secretaries, and other minor servants of large firms.”

There is no full-value middle class in the country also because there is no solvent demand of medicine, education, science, and so on – all this is still guarded by the state and its officials and lives a miserable life.

The “Moskovsky Komsomolets” paper gives statistics presented by researches of the Russian Academy of Natural sciences: 550 of 1,000 Russians have a daily income of $1 and less. Another 310 people of 1,000 can afford spending $2 a day. Meanwhile, it is the $2 sum that is the poverty line by international standards. All that is beyond this line is called abject poverty. This makes it clear that despite all efforts of specialists so far it is impossible to discover the middle class in Russia.

This may be a reason why some well-known players in the Russian political theater have not stinted on impressive statements lately, having felt once again the unsteadiness of Russia’s economic ground.

For instance, the aforementioned Mikhail Delyagin, now the prime minister’s advisor on macroeconomics, said in his interview with “Ogonek” magazine that he foresees the future of Russia to be “unpleasant and rather non-democratic”. According to him, “The society has degraded so much that democratic methods are not enough.” Besides, in Russia, where the Asian component has always been strong, “free will of masses” does not increase competitiveness of the country in the least. Delyagin states that liberalism in Russia does not work not because of economic reason, but because of mentality, “Liberalism is for people who are able to take the responsibility for their actions. Unfortunately, the Russian population is not ready for freedom yet.”

According to the present aid of the prime minister, Putin’s regime is nothing but a “last attempt of a civilized mobilization of the society”, which has not been a success as yet. Delyagin explains, “A society is a living organism, first it tries painless methods, them he agrees to try more and more painful methods.” Russia has tried to “modernized in relaxation, in democratic conditions”. However, it has not been a success and the prospects are alarming, “Well, we will elect Putin for his second term. However, if this attempt fails, after Putin there will be an attempt of non-civilized mobilization. Otherwise, the country will break up.”

Indefatigable Boris Berezovsky is unexpectedly optimistic in his interview with the “Moskovsky Komsomolets”, “Despite the fact that the majority of Russian society has a slave mentality, this does not determine the future of Russia. The future of the nation is determined by another part of society, which already numbers in the millions, who have already realized their dignity and have a sense of independence.” Judging by everything, Berezovsky is speaking of Russia’s “virtual middle class”. However, further on the exiled tycoon is sorry that “at present the majority of Russians are again afraid of the actions of the government, which greatly resemble 1937.” Besides, Berezovsky’s associates and the main pillars of Russian liberalism – the Russian tycoons – have no responsibility and are cowards, in Berezovsky’s opinion.

Still, he continues to place his hopes on them, realizing at the same time that his hopes are unlikely to be realized until “complete lawlessness begins in Russia”.

Besides, Berezovsky has another political instrument, the Liberal Russia party. “We intend to do our best to oppose the government’s attempts to restore the authoritarian system in Russia.”

The “leader of non-parliamentary opposition” formulates his goal in lofty terms: “All my actions are actions aimed at building bridges between the present liberal forces of Russia and the Russian citizenry, despite all its degeneration.”

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