#18 - JRL 7300
Russia's Trade-Industry Chamber President Primakov Creates Industrial Policy
through 2010
Rossiyskaya Gazeta
21 August 2003
Report by Tatyana Panina, 21 August; place not given:
"Campaigning for the 'Long' Ruble: Yevgeniy Primakov Creates New
Industrial Policy"
Today, the State Council Presidium's working group to develop industrial policy will begin considering projects that have been proposed by the political parties and the scientific and economic schools. In December, when the State Council holds its session on this problem, a base concept will be shaped for state industrial policy for the next eight years--aimed, naturally, at accomplishing the main strategic task: doubling the country's economic development by 2010. Among the many documents on this topics, there is also a program drawn up by Russia's Chamber of Trade and Industry (TPP). The work was done under the leadership of TPP President Yevgeniy Primakov. What is the essence of the concept? To explain this, our correspondent met with Stepan Sulakshin, chairman of the TPP's Committee on Industrial Development and High Technology.
Desire and Hopes
"It is no accident that our concept is entitled 'Russia's State Industrial Policy,'" says Stepan Sulakshin. "Other authors very often confuse the corporate interests of industrial groups and the problems the country faces. There are differences--differences of principle. The state is required not only to worry about the economy's growth in its pure form but also to ensure the stability of this development."
The number one problem is the lack of investment resources, "long" money. The banks have enough funds that turn over quickly. But there are difficulties with investments in industry, which yields 30 percent of the economy's GDP, more than the economy's other sectors. The second problem is the irrational use of natural resources. There has been intensive production of natural resources for many years, but meanwhile no one has been exploring for new deposits. In 2001, for the first time in history, the country found itself with a shortage of prospected resources. The third problem has to do with the fact that the state, in the course of reforms, got distracted from its governance functions. It's not a matter of totalitarian administration but of the creation of a basis of standards and laws for governance. The TPP is proposing creating conditions (tax, currency, banking, budget, customs, and others) for business such that it has a commercial interest in taking its free capital from the production branches and putting it into the processing branches and the science-intensive branches. Today the "raw materials flux" is unprecedented; it is more than six times the average world ratio.
In order to change the situation, the conception's authors assert, we must differentiate taxes by type of activity. The higher the standard for the redivision of raw materials, and the more intellect invested into production, then the less the tax rate should be. Then it will be profitable to invest capital in these branches. Simultaneously, on the domestic market, it is essential to raise consumer demand, which was held back during the period of financial stabilization. Without this, we risk jam-packed warehouses and tremendous losses. For example, we have to start extending credit actively to the population for the acquisition of housing and durable goods. Simultaneously, the problem of pushing imports out of the domestic market is being resolved. Right now, foreign trade streams exceed consumption inside the country, and they have been mounting at unprecedented rates, reaching 60 percent. In stable countries this index is tens of percentage points lower.
Cash on the Barrel!
Today, Russia's GDP is a little more than $300 billion. Doubling it means creating new goods and services worth another $300 billion. What volume of investments into the nation's economy must there be, and most importantly, where are we to get the money for it?
"We've solved this problem, too," asserts Stepan Sulakshin. "By 2010, we need to invest another $600 billion or so into Russia's economy, that is, $60 billion a year. This is a tremendous figure that exceeds both the country's annual budget and its foreign indebtedness by several factors. Above all, we need 'long' money, that is, loans with a repayment period of five to seven years. The resources of Russia's banks, including Russia's Central Bank (TsB), total about $150 billion. Russia's credit organizations could pitch in another $24 billion. And that's it. As we see, our banks' financial resources cannot solve this problem entirely on their own. However, they can be activated (today banks are yielding only 5 percent on investments). Extend credit to industry along the lines determined by the state, and in exchange the state will reduce the mandatory reserve fund, thereby freeing up resources for profitable financial operations. In 2002, about 50 percent of all investments were made by enterprises themselves. Let us point out that at the same time they were being powerfully undermined by the clumsy reform of the Tax Code, which took away their investment breaks. This must be corrected. In addition to this, we must introduce an even more powerful stimulus--an investment premium. Anyone who produces more output at the expense of his own resources gets a temporary tax break from the state. Thus, we must orient ourselves toward our accessible national resource."
Compared to the world's leading countries, Russia isn't doing so well with respect to the ratio between its monetary mass and its GDP. In China, for instance, the quantity of money is virtually identical to the size of the GDP. Whereas only 17 percent of our money supplies the GDP. If we are to act on China's experience, then the nationally accessible resources of Russia that can be used should total $300 billion a year. It's reasonable to ask, "Won't all this be followed by an inflationary heating up of the economy?" It will, if these funds are thrown into the financial sector or into the sector of end consumption. The TPP is proposing a credit mechanism that precludes the development of that scenario: the creation of a State Targeted Extrabudgetary Loan Fund for Industry. One of the sources for filling this fund is supposed to be natural resources revenue. This does not mean additional taxes for producing companies. But they take in a total profit of as much as $25 billion annually just on the difference between domestic and world oil prices. And for the most part they take it out of the country. We have to have minimal legislative amendments that allow us to bring this money back for the needs of the entire country.
How will the loan fund mechanism work? Currently, the International Aerospace Salon is being held. There are quite a few modern Russian designs there, but not one of our companies can permit itself to buy them. If there were a loan fund, that fund could order from aerospace builders, purchase the equipment, and hand it over to the air carrier through a state leasing company. In this way, we're extending credit to production rather than to end consumption.
What's the Bottom Line?
If nothing changes, then according to TPP calculations, economic growth by 2010 will not exceed a factor of 1.5, but at the same time the income of the able-bodied population will remain at today's level. If we take the most radical scenario ($60 billion in investments per year), then the GDP will double in eight years. And the population's income will grow with it--by a factor of more than 2. Enterprises' funds will increase by the same amount. And tax revenues for the consolidated budget will increase by 80 percent.
Top • NextAug. 26, 2003: #7300 • #7301 • JRL Home
- Back to the Top -