ECONOMIC AND POLITICAL PROSPECTS FOR RUSSIA IN AN ELECTION YEAR: "CALM DOWN!"

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The Invest-oil company, backed by Sibneft and the Tumen Oil Company (TNK), has bought a stake in the Slavneft oil company for $1.86 billion, at an auction with a starting price of $1.7 billion. The “Kommersant” newspaper comments: “The results of the auction are not surprising.” According to the paper, from the very beginning the organizers of the auction did their best to distract rather than attract potential purchasers. Moreover, in the course of preparation for the auction, the priorities of the government changed several times. At first, it was announced that the main purpose of selling Slavneft was to raise extra money for the federal budget; but right before the auction “anonymous sources in the government” said that the main objective of the auction was to “find a good private proprietor for Slavneft”.

Apparently, that is why Finance Minister Alexei Kudrin said the government was satisfied with the results of the auction despite the low price of the transaction. According to “Kommersant”, $1.86 billion is to be paid to the federal budget before February 15, 2003.

It is also known that the Rosneft company, which announced on the eve of the auction that it was prepared to pay $2.5 billion for Slavneft, is planning to appeal to the courts against the results of the auction. However, regardless of the results of Rosneft’s efforts, the answer to the main question of the deal is obvious: “There is no transparent privatization in Russia.”

“Vremya Novostei” estimated the results of the auction as the “budget’s victory”. The paper cited Vladimir Maslin, head of the Russian Federal Property foundation (RFPF), who announced that due to selling the shares of LUKoil and Slavneft, the plan of privatization revenues had been “fulfilled for this and the next year”.

“Novye Izvestia” commented on Rosneft’s activities which is planning to appeal against the actions of RFPF, “which had done all possible to carry out the privatization maximally closed, with rule violations, and maximally unprofitable for the state.” At the same time, the paper stresses that Rosneft is a 100% state-owned company. “Apparently, it would be easier for Rosneft to transfer a couple of billion dollars to the federal budget as they are too heavy for its pockets,” says the paper.

According to the “Gazeta” newspaper, the refusal of Chinese CNPC company to participate in the auction can be explained by using of the administrative resource against it. First, RFPF rejected the participation application from the Chinese company three times; then Duma deputies made “anti-Chinese” statements. Nonetheless, this is hardly enough to discourage the Chinese from participation in the auction.

The paper reminds that CNPC announced about its intention to fight for Slavneft on the days of Russian president’s visit to Beijing. However, later CNPC carried out a “deeper analysis” of the situation and found out that structures close to Sibneft and TNK had already owned 24% of Slavneft’s shares. It became obvious that “if CNPC bought the company it would have some hard time.”

Besides, the paper says, “the history of privatization of oil properties in Russia shows that the administrative resource of Roman Abramovich and Mikhail Fridman has always been on top of the budget’s interests.”

The “Vremya MN” newspaper resembles some career stages of the present Chukotka governor. It started in early 1990s, when Berezovsky needed a “special courier” and reliable Abramovich was chosen. Rather soon, he became a “full value business partner” for Berezovsky, and later, the Sibneft company appeared: it swallowed Noyabrskneftegaz and Omsk oil processing plant.

After Vladimir Putin came to power, he announced his thesis about “distancing tycoons from the power”. Many of them did not believe in the intentions of the new president and as a result had to run away to the West. Abramovich voluntarily left to the far north and became the Chukotka governor. “Vremya MN” says, “Apparently, the Kremlin appreciated the deed of the tycoon.”

Now, having bought Slavneft, Sibneft’s owner has substantially expanded his activities and has considerably decreased the gap with Russia’s three largest oil companies – LUKoil, YUKOS, and Surgutneftegaz.

However, some periodicals announced Abramovich the second richest person in Russia after Mikhail Khodorkovsky.

“Abramovich’s advantages are obvious,” wrote Alexander Bekker in the “Vedomosti” newspaper: now, having repaid money to its auction partner – TNK – Sibneft will be able to increase its capital from $10 billion to $15 billion.

The profits of the state are at the same rather doubtful, “The proceeds from the auction are disappointing. Having sold 25% of uncompetitive Svyazinvest, Chubais and Nemtsov lost their positions – and this time it was 75% of an oil tidbit.”

Besides, Alexander Bekker writes, now the government will have to “please the offended Chinese”. Moscow has had to guarantee that the project for construction of a Russia-China oil pipeline will be realized as soon as possible – this is the compensation for the refusal to participate in the auction to China.

At the same time, it will take the state a long time to compensate for its image losses after the scandalous auction. According to Alexander Bekker, “this auction will remind of itself when Russian officials start negotiating with the West on investment projects.”

Moreover, according to “Vedomosti”, the sell of a large package of shares was started not for Sibneft but “In order to attract something like British Petroleum or Exxon Mobil. Such an approach would sharply changed the perception of Russia abroad. However, as soon as foreigners realized they will have to deal with Sibneft and TNK they sensibly declined the invitation.”

As Andrei Ryabov, a member of the Carnegie scientific council, said in the “Profil” magazine, “The unknown thoughts of the auction commission have beaten both the fiscal interests of the budget and the long-term strategies of Russia’s foreign politics.”

Ryabov thinks that powerful industrial-financial groups in Russia have become so influential that they are able to turn any situation to their own interests. These groups have turned into “a state within the state”, while the state has become a tool to satisfy their interests, “As long as they are interested, they are supporting the real state; as soon as the interest is lost – they let the state to pasture independently together with its budget sector employees and pensioners.”

“Profil” writes that as long as this state of affairs is preserved in the country, “the reforms will yield delicious fruit only to a few, regardless of any laws.”

As was expected, the prediction of an anonymous finance ministry employee published in the “Vedomosti” paper did not come true. He supposed that “Perhaps due to privatization of Slavneft we will be able to reject placing $2 billion Eurobonds next year” as the cost of the transaction equals to Russia’s foreign debts in 2003.

On December 20, “Kommersant” announced that “Russia will borrow money again” and said this decision was a sensation.

As Aleksey Kudrin explained at the government meeting while discussing the financial plans of the government for the next years, Russia will borrow $3 billion in 2003 and $4 in 2004 in order to replace short-term loans with cheaper long-term loans.

Hence, “Kommersant” writes, the government has admitted that “three years of economic luck – 2000-2002 – are over and will never be back.”

The circle has closed, “Instead of advanced debt repayments there will be new loans.”

The “Nezavisimaya Gazeta” has published an even gloomier economic forecast and called the coming 2003 “the year of ripening crisis.”

According to the paper, “a number of macroeconomic indices coincides with the indices on the threshold of 1998 economic default.” At the end of the last week, Oleg Vyugin, deputy chair of the Central Bank board of directors, admitted that the inflation rate will exceed 15% this year. However, in early December the government announced that the 14% inflation rate stipulated by the budget will be exceeded insignificantly. According to the paper, the over 15% inflation rate can be considered a failure of the government’s financial policy.

The things in the real sector of economy are also sad: the production growth has stopped. The production volumes for domestic consumption are also decreasing. Consequently, the paper concludes, the 28% increased people’s incomes – reported by deputy prime minister Valentina Matvienko, are not a sign of prosperity in the country.

Like right on the threshold of the default, “pre-crisis living standard” has been reached due to imports, while the Russian industry does not receive any money from consumers.

The whole structure of the economy shows its pre-crisis condition: there are several large companies that are willing to envelope all industrial sectors with their interests. There is no room for small and medium-sized businesses in this system. This causes issues with filling the budget: this year the plan for tax collection failed every month. Hence, the Finance Ministry has to borrow money.

Having analyzed the situation, “Nezavisimaya Gazeta” concludes that the crisis is to reach its peak by the end of the summer or beginning of autumn. At the same time, there is hardly likely to be a large crisis, “On the threshold of the election, the authorities will do everything to hold control of the situation.” In other words, they will suspend the disease instead of treating it, and thus the time will be lost. “Polishing the situation on the threshold of 1996 election brought to the 19998 economic blast.”

Leonid Radzikhovsky wrote in the “Vremya MN”, “2002 has been extremely important for the history of the country. The post-Yeltsin structure has eventually balanced. The elites are happy; the people are clam and generally satisfied.”

At present, Russia is a “raw material state” like in Brezhnev’s times: there are oil, metallurgic, and chemical barons on top, and the “economically unreasonable population” at the bottom. The functions of such a state are obvious: to “keep status quo and to protect the ruling tycoons – 100-150 people who rule the country – from the competition.”

According to Radzikhovsky, the Slavneft’s auction demonstrated it very well. The only difference from Sibneft’s privatization was that “Then, they paid ten times as little as the market price, now they pay twice as little – then the media and the Duma were indignant about it, now they are kindly smiling.”

The author says this is the “freedom of speech” of the ripe oligarchy period, “There is no need to conceal anything, and everyone realizes there is no possibility to be indignant seriously about anything.” Yeltsin’s system has become more stable and logical.”

As for democracy – it was out of the question before, “and now there are no even signs of it, which causes the feeling of deadly boredom in politics.” According to Radzikhovsky, the political life has become a mold.

At present, it is clear that the 2003 parliamentary election is unnecessary to anyone but deputies themselves. At the same time, recently Yabloko leader Grigory Yavlinsky announced about his intention to “liquidate the economic system that had formed under Yeltsin and has strengthened over the past three years.”

“Kommersant” published Yavlinsky’s statement that this system is leading to a “de-modernization of the country”. The Yabloko leader presented to journalists the charters of the new democratic coalition, which in fact closed the issue of uniting Yabloko and the Union of Right Forces. Out of twenty articles of the charters, at least seven are inadmissible for the Union of Right Forces.

The viewpoints of the Yabloko concerning the energy and housing and utilities reforms are diametrically opposite to the standpoint of the right wing. The theses on the Chechen problem stresses that leaders of the parties that support the Chechen campaign will have to “disavow their speeches” if they intend to unite with the Yabloko.

The Yabloko’s charters also attacks presidential envoy Sergey Kirienko: it calls on the potential allies to “oppose to any attempts to settle the so-called power hierarchy in the country”.

Overall, the Yabloko leader says “the people’s trust in the new democratic formation will be meager if it is led by those who support the Chechen war, carry out criminal privatization tenders and selfish defaults.”

In the opinion of the “Kommersant” paper, the theses proposed by Yavlinsky 100% coincide with the program of the Communist Party. “However, if take into account that the communists had nothing to do with the aforementioned crimes, it is clear that they are the only ones to be honored to ally with Yavlinsky.”

At the same time, according to “Kommersant”, the United Russia has acquired the ideology of the right wing – liberalism. However, it has renamed it not to scare away voters – now it is the “socially oriented conservatism”. Only the Union of Right Forces dares to participate in the election under the open liberal banner in Russia.

“Overall, the paper notes, conservatism is not very harmonious with the necessity to carry out large-scale reforms mentioned in the program.” That is why the United Russia plans to reach economic prosperity over 10-15 years not due to active reforms only, but rather due to combined efforts of “efficient proprietors and qualified workers.”

Besides, “the majority of citizens are to be involved in the market relations”, “favorable legislative, political, and infrastructure conditions for development of entrepreneurship is to be formed”, and even “foreign and interior competition among producers of products and services is to settle”. Overall, it all reminds of the programs of the developed socialism times: for all good and against all bad.

Nonetheless, the difference is significant: as “Kommersant” writes, in full accordance with the economic liberalism principles, the program stipulates “reduction of the state’s presence in the economy”.

There are more than enough opportunities for such a reduction: the program says that the state controls “at least 50% of the country’s assets and about 50% of the GDP production.” “Kommersant” concludes, “The economic program of the United Russia is a triumph of liberalism, no matter how party activists rename it.”

Judging by this program, the United Russia is much closer to the right wing than the Yabloko – which allows the most surprising and unexpected election alliances.

At the same time, the “Vremya Novostei” paper writes that according to different experts, including experts at the IMF and the World Bank, the situation in Russia in the next two election years will really be determined as stable.

The majority of experts are very understanding about people’s willingness to have stability after a decade of reforms. So this stability will be accepted as favor no matter where it comes from.

The paper admits that as a results of the parliamentary election the political weight of both the United Russia and the Communists will increase, “The new Duma will be closer to the previous one than to the present.” However, its left wing will be less aggressive and more attention will be pay to social issues.

The predicted balance can be broken only by the fall of oil prices: according to expert forecasts, it can lead to a sharp fall of the presidential popularity rating and then the election can become “interesting and difficult to predict”.

At the same time, “Vremya Novostei” notes, any power dares to start reforms only when there is nothing else left – in these terms, the decrease of the oil dollar current may become a turning point for Russia.

However, famous political scientist Vyacheslav Nikonov wrote in “Vremya Novostei” that “for Russians, happiness is not always connected with material well-being; moreover, the Russian mentality is hardly material at all”

Russians does not have a wealth cult. The people like Putin “not because Russia is a raw materials exporter, but because Putin is young, hard-working, and does not drink.” At the same time, they used to like Yeltsin because he “drank and abused the communists”.

Besides, Nikonov says reasonably, political apathy is rather favorable for the economy, “Apathy is a guarantee against a social explosion. Stability in society is always better than its absence.”

The author reminds that over the thousand years of Russia’s history there were only three “non-stagnant periods” – the Time of Troubles in the 17th century, and social upheavals in the early and late 20th century.

“The rest of time,” Nikonov says, “there was stagnation. The country was developing slowly but surely. As soon as it started moving faster, this led not to happiness but to a disaster.”

So stagnation is better for Russia. And the social peace is much more important that the Slavneft privatization.

Moreover, as Nikonov philosophically noted, “Not only people who care about nothing are apathetical, but also people who are happy.”

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