The fight for spheres of control between Vladimir Putin and prime-minister Mikhail Kasyanov has entered round two. The first round ended in a defeat for Putin. Yuri Sukhanov, the premier's (and "family" tycoons') favourite appointee for the presidency at the "Slavneft" oil concern was re-instated to the chagrin of the rival chekist group close to oligarch Sergei Pugachev and Russia's president. Criminal charges of tax fraud initially brought against Sukhanov were quietly dropped. Contrary to Putin's strong criticism, the cabinet made no serious changes in its macroeconomic projections. For the next three years, it is keeping annual GDP growth down to 3.4-4.6 percent in its pessimistic scenario and to 4.4-5.9 percent in the optimistic one. Putin wanted much higher figures but was overruled.
However, despite the clear warning from the "family" to stay out of economic matters the president resumed active intervention by calling on the government to protect domestic producers from foreign competition and double-check its plans with Big Business. He even went to the extreme of calling for an industrial policy. This demand, of course, is in conflict with the neoliberal dogma prevailing in the cabinet that sees its task in creating a generally favourable atmosphere for the economy but keeping away from concrete matters of industrial development.
But the government cannot ignore the wishes of the oligarchs who are insistently calling for help in promoting their interests. This includes tycoons, which are part of the "family". Consider the list of demands recently presented by the aluminium and automobile "king" Oleg Deripaska. He wants the government to freeze natural monopoly tariffs, protect domestic companies from imports, re-install the capital investment deduction for purposes of the profit tax, and reduce the VAT from 20 to 15 percent. Apparently, Putin's tactic is now to support some "family" oligarchs knowing that Kasyanov would not dare to object.
And indeed the premier had to call a meeting of the government's Council for Entrepreneurship to consult on its medium-term plans for 2003-2005. Most leading companies were represented. It took a full four hours of discussions to reach agreement on overall growth figures. Business (together with Putin) wanted higher growth but also wanted the government to scale down its estimates for capital investment growth, which are twice as high as expected GDP expansion. This implies that companies should spend much more on modernising their capital stock than they are presently planning,
According to statistics for January-June, 2002 real GDP rose by 3.8 percent (slightly higher than initially projected), but capital investment increased by only 1.8 percent instead of the planned 4.5 percent. The main reason was last year's repeal of the provision under which companies could deduct for tax purposes half of their investment expenditures from their profit. Under these conditions, many companies, including the oil and gas sector, were reluctant to spend money on investment projects. If this situation continues, GDP growth will falter and macroeconomic projections will go astray.
At the Entrepreneurship council meeting, Deripaska repeated his earlier demands for restoring the investment provision but met with stiff opposition from the government side. His position was weakened by Mikhail Khodorkovsky, head of the "YUKOS" oil concern, who unexpectedly supported the cabinet. However, other Big Business representatives joined Deripaska in raising the issue of cutting the Unified Social Tax (UST), which remains a substantial burden. All Kasyanov could promise was to come back to the subject later this year.
German Gref, the Economics Minister, and Kasyanov himself are stressing the consensus reached at the meeting. But it is obvious that the oligarchs are far from satisfied with the reluctance of the government to yield on tax and other concrete matters. Alexei Mordashov, the steel tycoon who also owns a truck and motor engine plant, complained that many privileges initially assigned to his business were eventually dropped in the latest version of the Automobile Industry Development Concept, signed recently by the premier. On the other hand, Deripaska, who controls most of the country's bus production business, got his interests looked after. Kasyanov allegedly took time to personally rewrite that particular section of the government's Concept.
Though Putin stayed away from the meeting of the Entrepreneurship council, he obviously gained a few points by making Kasyanov face the business leaders with their concrete and very divergent demands. It is easier for the premier to play the good cop role in the privacy of his office than to make definite promises in a public meeting, let alone agree to mutually conflicting suggestions.
The president is right in calling on the government to work out a comprehensive industrial policy. So far, the government deals mostly with general projections and structural reforms, while business is more interested in concrete decisions that affect its operations on a daily basis. These two different approaches are apparently in conflict with one another. To make them coincide means shedding the neoliberal dogma and, probably, changing the cabinet, too. It is doubtful that Putin is prepared to do so. At this point, he is interested in tactics of gaining oligarchic support, not in principles.