Moscow News
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October 5, 2009
Privatisation sparks asset grab fears
By Ed Bentley
A new wave of privatisation endorsed by Prime Minister Vladimir Putin could allow high-placed officials to seize control of state-owned companies.
In the wake of the crisis, the government's ownership has shot up as key employers were bailed out, but the Russian premier was quick to assure investors at a forum on September 29 in Moscow that the country would remain a market economy.
"As the situation stabilises and the effects of the crisis are overcome, we intend to reduce state involvement in the economy and, even more than that, we will activate the processes of privatisation," Putin said, RIA Novosti reported.
While many economists are keen to embrace any kind of liberalisation, Martin Gilman, a former senior representative of the IMF in Russia, warned that it could also lead to rent seeking. Managers in de facto control of state businesses have been pushing for privatisation as a way to slip the companies permanently into their own hands.
"The directors and managers of these state-controlled companies can continue to benefit in the long term [and] the normal political way is to privatise the company," Gilman said in a telephone interview. "And then make sure [they] receive handsome blocks of shares in any IPO."
Media reports have compared it to the 1990s when the oligarchs bought up state property on the cheap, but now there are some major differences.
A power vacuum allowed the oligarchs to contest state power in the "shock therapy" era, but a more stable situation with political centralisation and stronger institutions is likely to prevent the rise of a new generation of super-rich.
"It would be very difficult for any group of individuals to come anywhere close to the economic, financial and political power that the oligarchs enjoyed," said Gilman.
The clamour to seize long-term control of state assets was happening before the crisis hit, but the financial meltdown has left the government with a three trillion rouble hole to fill.
"One of the most important reasons is the budget deficit," said Vladimir Osakovsky, an economist at UniCredit Securities. "The government needs extra resources to fund that."
Despite the potential grabbing of assets, any move to liberalise the economy continues to be viewed positively by economists, including Gilman.
"Government ownership of enterprises is not a very good use of money," said Gilman, who is now based at Moscow's Higher School of Economics. "Some of them even rely on state subsidies."
Putin's comments echoed those of his deputy Igor Shuvalov and Finance Minister Alexei Kudrin, giving extra authority to the hope that Russian companies will be forced to survive in the free market.
A reported 5,500 companies will be up for grabs but it remains unclear which sectors will be going under the hammer.
State monopoly Gazprom will remain one of the government's key assets, retaining exclusive rights to the export market in the medium term, Reuters quoted Putin saying.
Meanwhile, troubled automaker AvtoVAZ could be partially nationalised with state-owned bank VEB set to acquire shares, RIA Novosti reported. Although this seems contradictory to the privatisation policy, the car market's collapse appears to have forced the government to step in to protect jobs.
"It is clear that VAZ is a near bankrupt company and depends 100 per cent on government assistance for survival," said Osakovsky.
