#6162
[Second Issue of the Day]
#6
Gazeta
March 29, 2002
RUSSIAN ECONOMY MAY BE RUINED IN A MATTER OF MONTHS
Economic growth is a matter of trust in the state
Author: Svetlana Ivanova
[from WPS Monitoring Agency, www.wps.ru/e_index.html]
AN INTERVIEW WITH VLADIMIR MAU, DIRECTOR OF THE CABINET'S ECONOMIC REFORMS CENTER. HE DISCUSSES GOVERNMENT DECISIONS WHICH AFFECT THE ECONOMY - SUCH AS TAX REFORMS. HE DESCRIBES SOME IDEAS CURRENTLY ON THE TABLE, AND GIVES HIS VIEWS ON LIKELY DEVELOPMENTS IN THE RUSSIAN ECONOMY.
THE CABINET WILL DISCUSS AMENDMENTS TO THE LAW WHICH WILL MAKE LIFE EASIER FOR SMALL BUSINESSES. PRESIDENT VLADIMIR PUTIN REMINDED THE CABINET RECENTLY THAT THE AMENDMENTS SHOULD BE FORWARDED TO THE DUMA ON APRIL 10 AT THE LATEST. DUMA SPEAKER GENNADI SELEZNEV SAYS THE AMENDMENTS WILL CERTAINLY BE PASSED BY THE LOWER HOUSE, EVEN THOUGH NO ONE HAS SEEN THEM YET. THUS, THE PRESIDENT WILL KEEP ITS WORD TO SMALL BUSINESS OWNERS, AND ECONOMIC GROWTH MAY GET SOME ADDITIONAL IMPETUS.
Question: Our rate of economic growth these past three years has been one of the highest in the world. Unfortunately, growth all but stopped last autumn. The World Bank considers that small business has not been involved in the economic reforms over the past decade. In what direction should the tax reform proceed in order to initiate more economic growth?
Vladimir Mau: Taxes are an important factor in economic growth, but not a critical factor. Our tax reforms aim to meet the economic demands of the state in line with its administrative capacities. Getting rid of state hypocrisy is an important factor in creating a healthy economy.
Economic growth is more than just a factor of the tax system. This is a matter of trust in the state, in general. Companies may not fear that taxation may be toughened soon. They fear that once they have revealed their true revenue, taxation will be raised again several years from now. That is why the tax reform in itself will fail without simultaneous administrative reforms and reforms of the court system.
Question: And these reforms are lagging behind?
Vladimir Mau: It is clear that the tax reform is a pioneer. Actually, we do not have problems with economic legislation. Everything is fine there. As for court rulings, they are still bought and sold. This situation seriously undermines the positions of the Russian market in the eyes of potential domestic and foreign investors. Russian capital is leaving the country and settling in the West even though Western markets are less profitable. The thing is that the cost of contract is so cheap that investing there turns out to be more profitable in the end. If we want to win over investors, we need a moratorium on higher taxation for the next five - or, even better, ten - years.
Question: What legislative form should it take?
Vladimir Mau: No forms. It should be a decision by consensus, like a statement by the president for example. Economics is a psychological discipline. Belief is sometimes more important than laws. If the regime promises no tax rises, the market will respond. All the same, it would be better if it was a joint statement of all political parties represented in the Duma.
Question: What does the president think of the tax risemoratorium idea?
Vladimir Mau: He takes it seriously. I do not know whether it will be included in his address to the Federal Assembly but it may be included in the budget address.
Question: What about the idea of a tax amnesty?
Vladimir Mau: I do not think the amnesty will solve the problem of slowing economic growth. It doesn't solve the problem of security, you see. Call a tax amnesty, get money here, and criminals will commandeer it immediately. Tax amnesties do not promote trust in the regime.
Question: What should be done to increase this trust?
Vladimir Mau: It is necessary to avoid unusual measures.
Question: What do you mean?
Vladimir Mau: The Russian economy has been growing over these last three years. The rate, however, has been slowing. A considerable part of the Russian elite is distinctly nervous nowadays. There is the impression that political successes are not backed up by economic successes.
Panic over the diminishing growth rate would be the worst possible thing under the circumstances.
Question: How serious is the danger?
Vladimir Mau: Serious enough. We hear more and more frequently that the capacities of the institutional reforms have been exhausted, that we need more than 3-5% a year, that the government isn't taking decisive steps to speed up economic growth. Hence the temptation to take some extraordinary measures to achieve a breakthrough.
Question: What kind of measures could they be?
Vladimir Mau: They are well known, and are mostly restricted to the growth of the role of the state in the economy. First and foremost, we are advised to return to the traditional "industrial policy" again. It means we should determine industrial priorities, redirect financial resources, and so on...
Question: We've concentrated on what Russia should not be doing. But what should be done?
Vladimir Mau: If it is seasonal, then we should not do anything at all. If the reduction of the growth rate is connected with economic cycles, then we need a smart anti-cyclic program.
We should not rule out the possibility that we are moving toward a deeper structural reorganization of the Russian economy. In this case, we should do just what we have been doing - steadily build institutions of a free-market economy, ensuring stability of the rules. Correct decisions are usually boring and trivial, while unusual ones are effective but dangerous.
Question: How serious a threat for the government is the possibility of panic over declining rates of economic growth?
Vladimir Mau: The government is somewhat immune in this respect, but we hear a lot of advice. Any economy may be ruined, and an unstable economy, like Russia's, may be ruined that much easier. Support certain industries and neglect others, pass a deficit budget - and that's that. The xcenario for an economic crisis is simple.
Question: And how long do you think it would take to ruin the Russian economy?
Vladimir Mau: A few months.
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