#9 - JRL 6586
Vedomosti
December 2002
THE WHIRLPOOL OF REFORMS
Structural reforms have become obviously unpopular in Putin's team
Author: Korill Rogov
[from WPS Monitoring Agency, www.wps.ru/e_index.html]

IT IS NOW OBVIOUS THAT THE MAJOR STRUCTURAL REFORMS ANNOUNCED BY THE PUTIN ADMINISTRATION WHEN IT CAME TO POWER WILL BE POSTPONED UNTIL PUTIN'S NEXT TERM IN OFFICE. THE REASON IS CLEAR: THE DEPARTMENTS TO BE REFORMED HAVE STARTED PLANNING THE REFORMS THEMSELVES.

Today, it is possible to say that the major structural reforms announced by the Putin administration when it came to power will be postponed until Putin's next term in office.

Four monopolies - the Transportation Ministry, Gazprom, Russian Joint Energy Systems (RJES), and the housing and utilities sector - will not be reformed before the next presidential election. At the same time, the prospects for reforms are now even fainter than three years ago - then, it seemed the presidential team had some consensus concerning their necessity and the direction.

The reason is clear enough: while in spring 2000 economists were developing the concept of reforms, after Putin's victory at the presidential election Herman Gref's program was turned into a governmental program. This meant that the departments to be reformed started planning the reforms themselves.

Two reforms - housing and utilities and RJES - managed to eventually get to the parliament through endless discussions. However, in both cases the executive branch of power presented their compromising amendments to deputies without a consolidated position concerning them. As a result, both suggestions are severely criticized from both right and left wing. The left wing criticizes them for supposed liberalization of consumer prices. The right wing criticizes them for absence of guarantees for creation of competition after the prices are liberalized.

It is easy to notice that the discussions exactly repeat the main argument of the early 1990s: what is first - liberalization or privatization. It is not an accident that major opposing ideologist of both reforms is Grigory Yavlinsky. On the one hand, liberalization under the conditions of monopolized market will lead to concentration of the capital in the management of the monopole companies and redistribution of the properties in their favor. On the other hand, it is unclear how to carry out privatization under the conditions of fixed prices and absence of profitability.

As for the history of reform plans concerning the other two monopolies, it can teach an even better lesson. Since members of Putin's team gained control of both the Transportation Ministry and Gazprom, both companies have been mostly left out of the government's debates. Liberal reform ideas were necessary while they were directed against the previous management teams of those companies - but why bother attacking your own team? Moreover, before the management of both corporations was replaced, their wealth was constantly emphasized; while the new executives at both monopolies are actively promoting the idea that they are experiencing internal crises and extreme financial hardships, saying this should be an adequate argument in favor of both increased tariffs and postponement of restructuring. In other words, the stronger Putin's team grows, the less reforms have been supported inside the team. Currently, structural reforms are obviously unpopular in Putin's team.

(Translated by Arina Yevtikhova)