#13 - JRL 7435
TITLE:
PRESS CONFERENCE WITH GLOBALIZATION INSTITUTE HEAD
MIKHAIL DELYAGIN ON RUSSIAN "OLIGARCHS"
[INDEPENDENT PRESS CENTER, 11:00, NOVEMBER 21, 2003]
SOURCE: FEDERAL NEWS SERVICE (http://www.fednews.ru/)
Moderator: Welcome to the Independent Press Center. I am glad to introduce Mikhail Gennadiyevich Delyagin, Chairman of the Presidium and head of research with the Globalization Institute. He will speak on the topic "Investment Pact: Terms of the Covenant Between Society and the Oligarchs".
Delyagin: First of all, laws cannot cover everything and so agreements within society between significant social forces are natural and indeed inevitable. Sometimes it is agreements among political parties, sometimes among more diverse social forces. For example, even in developed countries business and the state constantly discuss and agree on prospects of development and these agreements are then presented as strategic programs.
In less developed societies broader strata take part in such covenants and these cover a wider range of problems. Practical example is Spain after Franco.
In Russia society and the political system have not jelled, the laws are imperfect, the mechanisms of law enforcement are lacking. So, such covenants are more significant than in more developed countries.
The Putin presidency began with the so-called Shashlyk Agreement, the term has become current, and it refers to a mutual non-aggression pact between big business and the state. And that was a time when the term "equidistance from the oligarchs" was coined. But by the beginning of this year that agreement had spent itself. This was because from the point of view of business the state did not come up with the necessary strategic priorities and failed to guarantee development. The businessmen said that one and the same plant costs different amounts in Papua New Guinea and in the Untied States. So, if a factory is on the Russian territory, Russia should in any case be closer to the United States than Papua New Guinea.
But the strategic development program of the state and especially the measures that the state is taking do not seem to point in that direction. Our property is in danger not because it can be taken away, but because it can become devalued because of inefficient development, inefficient state policy.
From the point of view of the state the situation too was absolutely intolerable because throughout 2002, for all the favorable trends, there was a tangible growth of social protest. This did not translate itself into strikes because the current Labor Code imposes strict limits on strikes, but it was reflected in sociological surveys and in the way people felt. The growing discontent was definitely prompted by excessive influence of the oligarchs on the state, because the oligarchs blocked attempts to redivide the petro dollars in a more democratic way and this brought an adverse reaction from the state.
Besides, inside the state a group of oligarchs was forming whose appetites were growing. All this mutual dissatisfaction burst open in the YUKOS case, and the conflict between business and the state developed from latent into open. In other words, this is a not a clash between two economic entities -- the state and a corporation -- it's a clash of two or three people it's not a clash over the political activities of a certain company or even over the appetites of force agencies. It's a result of the exhaustion of the "Shashlyk Agreement" signed in 2000.The previous agreement between the state and business has been fully exhausted, and therefore the time has come to sign a new agreement.
The congress of the defeated, the 13th congress of the RUIE outlined the contours of a new agreement. The contours are quite clear: the state will not attack business anymore, businessmen have been forgiven for their sins, they are allowed to keep their property, on the one hand, and serious and considerable benefits were offered like a two-year postponement in land payments; on the other hand, business will give unconditional political support to anything the state does just because it's the state.
However, this agreement fails to resolve the fundamental contradiction between the dissatisfaction of business with the absence of an effective state strategy, and the dissatisfaction of the state with the fact that business has too much influence on operational decisions that government officials believe prevent them from developing an effective policy. This is why this will be a temporary agreement. And, of course, this agreement does not take into account the growing appetites of force oligarchs because after YUKOS has been digested, just as Sibur and Gusinsky's empire were digested, someone else's turn will objectively come. Everybody understands that, on both sides of the informal negotiating table.
And this raises a serious task of looking for a foundation for a new systemic agreement. Business proposed such an agreement, it proposed it quite promptly. In the very beginning of the attack on YUKOS, immediately after the arrest of Lebedev and Pichugin, the business community understood everything or at least it felt everything and proposed a social program in exchange for property. In short, the state guarantees property and business raises pay to its workers and perhaps even shares some of its profits with the public sector to implement sweeping social programs, to build schools and hospitals. But that is not a satisfactory proposal for the state, moreover it is unsatisfactory for the state. The state does not need social programs because the state has already won the elections, no one has any doubt about it and so from the point of view of the state there is no need for social support of the population.
The state has built up a managed democracy, it is not interested in the population as such. The only moment when the population can make a difference, elections, is more or less a settled problem and the 2004 budget demonstrates eloquently that the state does not care about social programs. In other words, business is offering the state something that the state does not need. It's as if I, for example, offered you a physics textbook. Most of you are not interested.
But this proposal is not interesting to society maybe because in the course of the YUKOS conflict, in the course of the split within the CPRF which was to a large extent orchestrated, attention has been attracted to privatization and the natural rent and society perceives the social programs of the oligarchs as a bribe, as a handout. People say, we want everything not a small fraction. We want justice throughout the country and not a couple of schools and a couple of hospitals.
Besides, everybody understands that if the oligarchs offer this so easily, they will share only a small part of their profits with society and this indeed looks like bribe or a handout. Therefore, the question of a systemic agreement remains open.
I think that such an agreement is possible. No agreement is possible though between YUKOS and the Prosecutor General's Office because the conflict went beyond this agreement when it was still possible. But an agreement between business and the state in general is possible and is actually inevitable because it's a condition for the normal development of society.
What does business want? Business wants stability and ownership guarantees, it wants unshakeable guarantees. Business wants to hear the date when it will be told, well guys, from December 1, 2004 -- 2003, I am sorry, it's just an example, all discussions about property will be over. There will be no more complaints about ownership rights to means of production, not to a wallet lifted out of the pocket. And no more cases will be opened. You will keep whatever you have at the moment. All disputes that arise after December 1 will be considered, but everything before that is not to be touched. That's what business wants.
Business understands that it wants too much because a good deal of property was acquired unlawfully, if not most of it. The distribution of property by using methods that are doubtful from the legal point of view was obviously a rather perceived decision for liberal fundamentalists, for a very big part of our reformers because it chained business to liberal fundamentalists, because any other force could have contested these ownership rights. So, it was a rather conscientious policy, and now we can see its destructive results.
Business understands that it wants very much. Basically it wants the state to refuse to apply the law to anything that happened in the last 12 years. Business fears to spell out its wishes because it understands that it would be too much.
What does the state want? The state wants business to develop the country. The state understands that it is much more profitable for business to invest in Guinea-Bissau than in Russia, and it will feel much more comfortable investing in Switzerland and Britain than in Russia. But the state wants business to develop Russia in spite of its immediate interests. But the state, too, fears to say it outloud because it also understands that it wants too much and wants things that are not quite lawful. The law allows business to do anything it wants. It cannot be chained to one country under the law. And the combination of these two illegitimate wishes creates the outlines of the grand pact that may be concluded if not now, then in the future. The state must tell business, "Okay, this is the date and prior to that date no property issues will be considered. Until that date property, ownership of the means of production, is immutable even if it has been acquired through theft, fraud and so on." If a businessman has committed a crime against an individual in the process of obtaining that property, he may be jailed for burglary, murder and so on but he cannot be stripped of that property. In exchange for this the state demands for business total financial transparency before parties.
And secondly, over a long period, say 20 years, every businessman should keep 90 percent of his capital in Russia and invest it in Russia. Obviously, this contradicts all the instincts of any normal businessman. He wants to work on Cyprus, he wants to work in England, he wants to work in Africa. Obviously, this limits the global expansion of Russian business. But it meets the interests of Russian society because if the global expansion of Russian business continues at its present pace, very soon it will cease to be Russian business. It will become transnational, it will go to the United States, it will go to Europe leaving behind it a scorched field with a ruined infrastructure.
A big problem is the fact of property abroad or rather, the incomes from that property. What part of those profits should be repatriated to Russia is negotiable. This is actually a very dangerous condition for both sides. We should not kid ourselves about it. But there won't be any other opportunity for us to develop our country except by concluding such a pact. Something similar happened in France after the Second World War. Of course, there it was totally informal, it was the spin-off of serious political agreements that seemed to be about something else.
The advantage over the purely statist way of development consists in this, that business by investing in Russia and being locked up in Russia will discover that the hardship of Russian life will become intolerable for it. If you work in Russia and have half of your business here while your main interests lie outside the country, you can take bureaucracy, corruption and inefficiency in your stride. Ultimately, you are going to leave this country. You can leave it behind to stagnate in its present shape.
But if you are voluntarily confined to this country for a certain period of time, you will have to put the state into better shape, you will have to exact better performance from the house managers, from the police and so on. And that is a market mode of using money, it is more effective than if the state tried to do it. Let me stress that this constitutes a violation of the law on both sides. This is an unlawful compromise. Moreover, it is a compromise that runs counter to the instincts of both contracting parties. The state and society renounce seeking redress for historical injustices in order to ensure justice in the future. Business for its part renounces some of its freedom.
Obviously, there will be offenders in the business community against this pact and they will have to be punished in some way and that will look very unseemly. And clearly such an agreement cannot be reached at short notice because business has no trust in the state, because the state by consistently violating procedure, and law is all about procedure and no more than that, thereby demonstrates the rightlessness of all those who are concerned about their rights. The majority of society does not understand it because the majority of society does not think about its rights.
But for the tiny stratum that thinks it has some rights, systematic violation of procedure is a serious message and the slump of the stock market and increased outflow of capital are indicators of all this. In general, business does not trust the state. And the state on the one hand, is laboring under an illusion that it will put the oligarchs under control, people do not understand that they cannot take everything under control, that even though they have the whole power of the state on their side, that power is incapable of generating development and therefore they are nobodies.
But on the other hand, the state ignores the population. The state, having built up a managed democracy has contempt for the population and therefore it has no one to lean on. And therefore the state has not strength to take a tough stand in negotiations with business. The state has the strength to make attacks on business, even perhaps to systematically blackmail business. It is strong enough to force business to shut down and to be scared and to vote as it is told. But the state does not have the strength to force business to strike a constructive compromise, a compromise for the sake of development.
But the contradictions between the state and business are so apparent that I think that within five years we will come to such a compromise one way or the other. Perhaps, it will take for an economic crisis, perhaps it will take for a political crisis, perhaps without any crises both sides will see the light suddenly and the state apparatus will be purged. It happens in history.
But we have no other options to ensure normal and effective development of the country. We have no other methods to create a system capable of modernizing the country. So, I think that within five years we will arrive at a formal or informal, complete or partial agreement that will cover part or all of business. Business stands less to lose and the state stands less to lose if such a pact is concluded: property in exchange for investments. I will stop there and I will be gland to entertain your questions...
Moderator: Your questions, please.
Q: You speak all the time about the state. But we know that in European countries and other developed countries they speak only about the government because the state is something bogus. Do you have any complaints with respect to the government? Because the state is something unreal but this is a real thing.
Delyagin: You know, I wouldn't say that our state is unreal. Of course, I wasn't very specific. I was speaking about that part of the formally existing state machine that actually operates. It's the presidential administration plus the government leadership. Let me assure you that the presidential administration is not the executive branch. Clearly, I don't mean sham structures like parliament or the judiciary in its present condition, and if it's in good condition, it is not designed to ensure development.
But my complaints about the government are very simple. First of all, it is unmanageable within because the Chairman of the government cannot order a minister to do something. I mean he can order but if the minister does not obey his order, he can't do anything to this minister because he does not appoint this minister. He can only go to the president and complain about this minister. But given our planned system, if he complains about his own man, the president will be only too happy to replace him with his own person to weaken the prime minister. And if he complains about the president's man, he thus personally insults the president. And one doesn't do that. It's an institutional problem.
The substantive problem is that the government has been implementing one and the same program since 1994. Back then Yevgeny Yasin developed this program by creatively transforming Gaidar's program of 1991 vintage. Since then this program has been supplemented with small bits and parts, but on the whole its ideology and commitment have not changed. The country has changed beyond recognition though and it has actually fallen apart, but the program and strategy remained the same. This strategy became invalid in the middle of the 1990s and certainly by the year 1997. Everything that could have been done under this program was done. And what couldn't have been done, wasn't done. However, huge strategic problems, which I discuss every week, remain unsolved. These are unprotected property, the lawlessness of monopolies, the appalling poverty of the population, the appalling differentiation between regions, and the appalling wear and tear of fixed assets, primarily infrastructure, and the degradation of human resources.
In some spheres the wear and tear of fixed assets and the degradation of human resources are approaching a critical point after which big systemic problems will begin. As far as human resources are concerned, on the one hand, it's the absence of skilled labor, and on the other hand, it's the lack of young specialists because people have not been taught for 15 years since there are simply no one to teach, and those who are studying are still trying to leave the country.
In the field of infrastructure, in addition to the housing and communal sector, these are also airfields with worn out runways, railway tracks, and the Moscow metro.
Q: So, it's total decay.
Delyagin: I use the metro conscientiously once a week. I do that in order not to forget what normal people look like and what they do. But when I worked in the government, I practically never got there in the rush hour because I came to work too early and returned home too late. Or I went to work during the day. I have got caught in the rush hour a couple of times since then because I finish at six p.m. But I can tell you that it wasn't like this two years ago. So, degradation is quite noticeable.
Soil is deteriorating. Machinery and equipment in agriculture are falling into decay. Our agriculture, at least its grain- producing sector, is going through a crisis. The petrodollars we are going to receive next year from high oil prices will be eaten away by the crisis in agriculture. This crisis will absorb huge sums of money, and the crisis in the housing and communal sector as well. In other words, we will get very much money, but we will have much less free money than we have this year.
So, our economy is in trouble. As it turns out, we may as well go bunk even in a shower of petrodollars if we do not use this shower wisely. So, these are my complaints with respect to the government. I think that I am supported not only by the communists but also by a good deal of the right...
Q: In other words it's degradation.
Delyagin: It's the degradation of life support systems.
Q: Could you explain what you meant when you spoke about (inaudible)... force oligarchs like Berezovsky, I mean Gusinsky who (inaudible) ... I can't quite understand how these force oligarchs can do this if the Prosecutor General's Office (inaudible)...?
Delyagin: Force oligarchs are a broader notion than the Prosecutor General's Office and they include not only force structures but also some oligarchs. And I think that the people who are suspected of combining these features -- a classical example is the Tri Kita case where certain people were suspected of having been both force agency people and oligarchs.
When we say that Gazprom is formally under state control and that NTV is under Gazprom's control, and therefore formally it is under state control, when a good deal of Sibur is formally under state control through Gazprom, we must understand that the effectiveness of management in these companies has not increased. It has not increased because a considerable portion of these companies' cash flows is still used ineffectively not for modernization or the payment of taxes to the state but for the benefit of certain managers. While before these managers worked as owners or acted on behalf of the private owner, now they act on behalf of the state. At least I have such a feeling.
I cannot say that such and such person steals money from some concrete company. I cannot do that because from the legal point of view it would be a formalized statement. But I have the impression that these processes have not abated. I don't have a feeling that efficiency in Gazprom increased after the non-state team of Vyakhirev was replaced by a state team of Miller. I don't have such a feeling.
I don't have a feeling that charges of graft brought against Rosneft have nothing to do with reality just because Khodorkovsky is in prison not for slander but for fraud. If he were in prison for slander, I could understand that.
Q: Mr. Delyagin, what is your assessment of the YUKOS case, its short- and long-term prospects, not only economic but also political?
Delyagin: With respect to economic consequences of the economic case, my opinion is not really important because there is an opinion of the market, and the market has fallen from 640 to 540 RTS points. I mean the stock market. After the president urged everybody to stop being hysterical, the market stopped being hysterical and fell further to 480 points the day before yesterday. Frankly speaking, I didn't look through the indices yesterday because it wasn't really interesting anymore. In other words, it has fallen by one third.
If it were not for YUKOS and if the tendencies of the second quarter continued, we would have now at least 750 points, but we have 480. And that's the difference. That's the price of the stock market paid for the YUKOS affair.
Business has also responded to Khodorkovsky's arrest, but we don't have the statistics yet. Business responded to Pichugin' s arrest as well. While in the second quarter the net capital influx was, if I am not mistaken, $2.4 billion, the net outflow of capital in the third quarter was $7.7 billion. These are official data released by the Central Bank. Most authoritative analysts believe that in both cases the actual figures are much bigger, that is the influx in the second quarter and the outflow in the third quarter were bigger. Some say the influx in the second quarter was 2.7 and the outflow in the third quarter was 8.4. And it seems that even the Central Bank agrees with them. So, about $10 billion changed their direction. And that's how business responded.
However, we must remember that these are Russian statistics. This is not a net capital flow a year across the border. It's a capital flow across the border plus the flow of savings inside the country between rubles and foreign currency. When we speak about the outflow of capital, it's not just capital flight from Russia, it's also that corporations and people convert their savings from rubles into dollars and euros. It's two tendencies merging together. So, this is an integral assessment, both with respect to business and people.
It's a very transparent assessment. And I think the causes are not economic. Of course, oil extraction will not suffer because of this, because the top manager has changed or part of the stocks has been frozen. The causes are political. Politically, there seems to be a positive aspect that a businessman tried to engage in politics but got kicked out. First of all, my conviction is that this businessman tried to engage in politics not because he had gone off the rocker, not because he was suffering from megalomania, but because the situation was absolutely hopeless, because -- I know it from my own experience, and I saw how it worked, when no decisions were adopted and if a decision was adopted, it was never implemented.
There is a need, this need is created by everybody, but nothing was done for years and business that depends on the state policy, at least from purely strategic priorities -- oilmen, just as gasmen, think ahead for as long as the pipeline can work, and that is about 25 years. If they do not think for 25 years ahead, they will not survive. People experience appalling uncertainty and appalling fear. They want certainty and they see that they have to influence the state one way or another.
Khodorkovsky decided to meddle in politics not because everything was so good. And Khodorkovsky was punished not because he went into politics, because all other businessmen are also trying to engage in politics. I think there are people in the Communist Party from RAO UES of Russia, too. So, I don't think it's something unique, the financing of the communist party. It's just that YUKOS was the most transparent company. It was transparent not because it wanted to be transparent but because they had brought their operations to transnational level and they tried -- I am sorry, they tried to become transparent. And when you are transparent, you have to say whom you are financing because otherwise you are not transparent.
If you read the lists of various parties, you will find there not only YUKOS but all of our business, perhaps, not as openly as YUKOS, but all of them are there. Go to Pravda.ru, it's a web site, and read about the exposed lobbyists of other commercial structures within the Communist Party. YUKOS has two or three people there, one of whom is no longer in business and used to be in YUKOS in the past, his name is Muravlenko, but others -- and all of them responded to the punishment of YUKOS for being transparent, for trying to live by law.
Today they say that YUKOS is a terrible company. Maybe it is. All business is terrible. But how does YUKOS differ from all other companies then? Just because it tried to live by law? And what does it mean to live by law? And this means that you cannot wheel on me, as we say in Russia, you cannot blackmail me, you cannot force me to finance political problems and so on. And this means that my relationship with business is based on law.
It turned out that this is a serious insult for the state. There is also such a thing in Russia as medium-size business. These are people who hate oligarchs even more than communists do. Communists hate oligarchs for ideological reasons because it's unfair, but medium-size business hates oligarchs because oligarchs, being monopolies, do not allow medium-size business to work. Given the lawlessness of monopolies, they do so in a very harsh and effective way.
In the last several months I have talked to a large number of medium-size businessmen I know. Since all of them like the president and support him -- medium-size business is not where one can afford a squabble -- all of them, without exception, have 20-minute sessions of expressing their hatred toward YUKOS and oligarchs in general, and they do so very sincerely. When I asked them how their business was going, they told me -- they can be clearly divided into two categories: those who have smaller businesses say, You see, it's terrible because if they can do such things to majors at the federal level, they will simply raze us to the ground and we have neither lawyers nor political cover to protect ourselves. After elections they will no longer have to fight turncoats and they will raze us to the ground. And people are beginning to reduce their activities and get ready for being razed to the ground.
The second category is bigger businesses. They say, we are doing just fine, we are expanding, we are gong international and next year we moving our headquarters from Moscow to Frankfurt or London or Cyprus. They are just trying to protect themselves from an attack by moving their business out of the country. They also know that authorities will crush them. They also fear the lawlessness of force. But they are stronger, they can flee the country, and they flee. Even educational institutions do that. Just the day before yesterday, a very respected person came up to me and said, I am moving my school from Moscow to Germany. Why don't you agree to become the head of its branch here?
This is a tendency. People are scared because in attacking YUKOS the state violated procedures that guarantee lawfullness. Lawfullness is not the law itself but how this law is applied. My rights are guaranteed by this procedure, and if it is violated, it doesn't matter what the law says, because I have no real rights. If I am entitled to a lawyer, they may club me in between his visits. So, what's the problem, why do I need a lawyer? And I actually don't need one.
In attacking YUKOS the state conspicuously violated this procedure. It might have done it without violating the procedure, but it violated it and turned a local operation to restore order into an act of intimidation for all those who think they have some rights. I think that it's not just Putin but even Ustinov did not have this in mind. It's just that people have a certain type of mentality and they act accordingly, they do not understand that they have declared a war not on big business but on those who think that they have some rights in this country.
They cannot win this war because this war is against that part of society that ensures its development. If you defeat the part of society that ensures its development, you stop the development of the country and have a crisis like the one we had in the Soviet Union. But this is a war, and there is no place for a compromise in it because when your money is taken away from you, you are ready to give the money away for the sake of comfort. But when it comes to your way of life, and that's exactly what it is about, you cannot give it up.
So, the part of society that thinks it has some rights will give up some of them, of course, but will fight for others. And this conflict cannot be resolved peacefully. It will lead to an economic crisis that will also be a political crisis and it can be resolved only by civilizing and reformatting our entire political system. This will not happen soon. At least I don't think this will happen in 2004, but it's inevitable. And this crisis will create conditions for the investment pact I have just told you about.
Q: The journal Russky Mir. In the spring when the agenda for national discussion included the question of redistributing the incomes from raw materials, the following proposal was made: on the one hand, it was finally to privatize 100 percent of mining companies, to make them completely private; but on the other hand, to ensure the state monopoly on trade with raw material resources. The issue was mainly hydrocarbons. So, Mr. Delyagin, in your opinion did this proposal have indeed something constructive and could it not become the basis for an agreement between the large raw material business and the society?
Delyagin: The substance of the compromise is that the state takes the super profit from business, the state takes the difference between domestic and external prices. This amounts to saying that it takes the oil rent, and secondly, a significant part of the mining rent.
The profitability of oil business will be slightly higher than the average figure for industry. In that situation the oil business is not interested in engaging in oil business. That means that the state needs another oil business -- other oil producers, other top managers who agree to get a different wage. In reality it is a more stringent condition than the investment pact. Yes, you can draw a salary of 10,000 dollars a month, but you will spend it in Russia, barring, perhaps, the tourist trips. And there will be no problems. And here you will draw not 10 thousand dollars but three thousand dollars. It is a much more stringent requirement that business is supposed to meet. It is possible.
I said it not coincidentally that such an investment pact, the one that I spoke about, is the softest and the most comfortable pact for both sides. The state can simply nationalize everything and that will be it. It is also a normal option. The British Petroleum was a state company up to the late 1980s, I think. In Norway it is still state companies. And why not? But it is a different business. And even if it gets formally private and there is the foreign trade monopoly, its nature will be different. It is a more profound transformation, sterner and more violent for business than the one I talked about.
I try to proceed from minimizing the impact. It is the principle of the minimum permissible impact. Say, it is possible not to cut the tree but rather tear away a small piece of it. What is the trouble in this case? It is the need to consider the state of our society. I do not tire of repeating that if we had a Kosygin in the state, I would be the first to join the Communist party and demand the nationalization of all and sundry. But the fact is that if the state takes the property away from some Abramovich, then the benefit to be derived from that property will go not to society, but to precisely the same Abramovich, only the one who is part of the state, who wears epaulets, probably from the "correct" city and so on.
Q: Mikhail Gennadyevich, you have hypothesized concerning what is possible. But where do you get the confidence that the state wishes to have investments inside Russia? I take it that state officials are fighting to create a situation when there is no extra money in Russia. They resort to measures not to weaken the currency control, not to make capital export attractive and they do everything to prevent the development of the domestic market, to prevent the payment of wages to budget-funded employees and so on. Where do you get such confidence?
Delyagin: You see, people have convictions. People's convictions are liberal-fundamentalist. And you have very correctly described the convictions of a large part of our leadership -- it is liberal-fundamentalist convictions. And there are convictions and there are interests. It is very uninspiring to be in charge of a dust bin. It is very uninspiring to govern a country which is prepared to throw stones at a car with federal plate numbers. And the continuation of this policy will lead precisely to such a situation. And people understand this.
So, either the officials or the politicians become aware of their interests and will sacrifice their convictions, or they will be replaced in the course of a political crisis. I do not imply that say Comrade Kudrin will become concerned to increase investment. I do not mean to say that Comrade Illarionov will feel a concern for investments. I do not meaning that Comrade Gref will feel a concern for investments. To understand this, compare the changes in Gref's rhetoric as it changed over the last four years. It is quite a bemusing spectacle. Indeed, it was changing. What was changing was only the rhetoric but still. These people can be replaced within a five-year time horizon and most likely not once. It is because after the presidential elections they will, as part of the government, be replaced by precisely similar people but who have not yet had time to compromise themselves, and they will surely be replaced after a crisis.
It is a different thing that now there is a technical, not political, possibility to discuss that but I said that I take a skeptical view of this possibility.
Q: Mikhail Gennadyevich, the second aspect you described is the complete financial transparency of our business. You will excuse me but some time in the past I studied the matter and I analyzed our system. Even after those relaxations that occurred, including those that will come in 2004, it still requires that business should pay taxes several times more than it realistically earns itself. With such a system is it possible for the business to develop in terms of financial transparency?
Delyagin: You are approaching the matter from the other side. Actually, you are like Kudrin. You take the existing tax system and you say that it is unshakable.
Q: No, I say after all that.
Delyagin: And I say, on the contrary, that we are locking business in one room with the tax system. And now let us see what will happen with the tax system 20 minutes later, when business will be confronted with the stern need to pay taxes. Financial transparency is a technological question because indeed it is impossible in the world to hide significant amounts of money. Say, you can hide 50 thousand or 100 thousand but if you try hiding 500 thousand, that will mean big problems.
And the costs involved in breaking up big amounts of money into small tranches are sufficiently serious. So, the financial transparency can be ensured by technological measures, at least in regard to big and the biggest businesses.
I say that precisely that locking business up in the country we will force it to modernize the country. Business will have no other way out. Now we have the liberal principle that a tax company, an oil company and a mechanical plant must pay similar taxes. As a result, the tax gets unsustainable for the mechanical plant and almost unnoticed for the oil company because of the different levels of profitability. I think that the tax system will very quickly begin to take account of reality. Very quickly.
Q: You mean that so far it accommodated it the other way?
Delyagin: Business is not interested in this. It can coexist with any tax system because I can effectively throw the money out of the country.
And mind you incidentally that at present, from July 1 next year the country will introduce a liberalizing of currency regulation. The substance is, translating it into the technical language, that there are no obstacles in the way of taking currency out of the country and business may not return the currency receipts into the country. This is precisely the response of business to such a tax system.
Moderator: Now it seems clear.
Delyagin: It is the reaction of business through the state.
Moderator: We are about to adjourn. I think there are no more questions and in this case I thank you all very much for your attention.
Delyagin: Thank you.
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