Buyer beware: This magazine is owned by Berezovsky.
Chris Doss The Russia Journal ----------------------------
Kommersant-Vlast May 21, 2002 WHY DO THEY GO THERE? President Putin and tycoons: mutual dependence with strict subordination Author: Konstantin Smirnov [from WPS Monitoring Agency, www.wps.ru/e_index.html] TYCOONS CONTROL THE GREATER PART OF THE RUSSIAN ECONOMY - THIS MEANS THE FEDERAL BUDGET GETS MOST OF ITS REVENUES FROM TAXES THEIR ENTERPRISES PAY. THAT IS WHY THE FURTHER COURSE OF MARKET REFORMS AND GROWTH PROSPECTS DEPEND NOT ONLY ON THE KREMLIN AND THE CABINET, BUT ON TYCOONS AS WELL.
When elected, President Putin declared the principle of distancing tycoons from the government. Law enforcement bodies interpreted the principle in their own way and began paying increased attention to details of privatization transactions, due to which the majority of present tycoons became tycoons.
Our society started hearing some serious talk of large-scale reconsideration of privatization results. Then the tycoons decided to unite. On July 28, 2000 a group of tycoons visited the president for the first time.
President Putin did not try to calm his guests down; he stated that they were to blame for recent excesses, as they created that situation themselves. However, three rules were formulated at that meeting. First, privatization results are not to be reconsidered and assets are not to be confiscated from their present owners, as long as they were acquired according to the law. Second, tycoons would no longer interfere in politics. Third, economic legislation is to be liberalized.
All that happened almost two years ago, and there are more than enough observations of how the parties fulfill their agreement.
The president kept his promise not to reconsider the results of privatization, no large-scale property redistribution took place in the country. Now tycoons state it is the first noticeable result of a political compromise between business and the new regime. But why would the president confiscate their properties? The state is unable to efficiently run even what it still owns, for instance, natural monopolies. Speaking on May 15 in the Duma, Prime Minister Mikhail Kasyanov admitted that only the industries where the influence of the state is minimal are developing successfully. So, before the state takes the Norilsk Nickel away from Vladimir Potanin it will have to find another proprietor for this metallurgic giant.
Actually, there are lots of potential and willing proprietors among St. Petersburgers. However, they are unused to such large scales, and appointment of Aleksey Miller to Gazprom proved it. He is still making out numerous financial currents and properties taken aside of the gas monopoly. So, the monopoly needs a top manager who is able to run such a structure, but there is not such a person among former KGB officers. So, the agreement between tycoons and the president on the results of privatization is not a historical compromise between equal players, but an independent choice of the Kremlin. Unfortunately, the Russian president did not find officials who he could appoint as tycoons, as it happened in South Korea.
It should be noted that that was not the end of privatization troubles of the Russian tycoons. For instance, the Moscow Prosecutor's Office is still convinced that Vladimir Potanin owes to the budget $140 million.
In exchange to keeping their property, tycoons promised not to get involved in politics. The examples of Vladimir Gusinsky and Boris Berezovsky demonstrated very well the danger of such activities. So, no tycoons who remained in Russia ever say any ideas on peace settlement in Chechnya or on candidates for the position of director of the Federal Security Service or the General Prosecutor's Office. Many tycoons are unwilling to interfere with conflicts between the authorities and the oppositional media. Recently, a tycoon confessed why he did not join founders of the new TV-6 television channel, "I do not want to put my company under the tank of the state." Judging by the fact that other tycoons are also leaving TV-6 one by one, many are sharing this anticipation.
However, politics is a very extensible concept and it is impossible not to interfere with it at all. It is especially difficult, when tycoons have to protect themselves from law enforcement bodies. In January a number of members of the Russian Union of Industrialists and Entrepreneurs led by Arkady Volynsky visited General Prosecutor Vladimir Ustinov. However, the visit was not a success, and soon after, when the president received Mr. Volynsky, he did not raise the issue of prosecuting Mr. Goldovsky and Mr. Sheremet. Some tycoons violate the promise not to interfere with politics. For instance, Oleg Deripaska is trying to prevent Russia from joining the World Trade Organization. For Vladimir Putin membership in the world trade club would mean acknowledgment by western establishment, that is why he is hurrying Russian negotiators. At the same time, Deripaska is afraid that joining the WTO may bury his automobile business - and he started a public campaign against hurried joining WTO.
The last item of agreement between the president and tycoons is liberalization of the economic legislation. Moreover, they say the Kremlin even promised to tycoons not to apply out-of-date but still not cancelled laws. Independence of the court power from the executive branch of power is not an obstacle here: according to our sources, sometimes tycoons successfully won suits against each other with the help of Alexander Voloshin.
However, lately the authorities and business are much more often discontent with each other. Tycoons think that although the president and the government carry out the reforms, they do not take their interests in consideration to the full. In particular, as a result of the tax reform, the tax burden not decreased in the least, moreover, proceeds tax actually grew. On the other hand, the tax system became more systematized, which allows corporations to make long-term plans. According to participants of meetings with the RUIE participants, the president is sincerely perplexed why the prime minister says the tax burden has fallen, while entrepreneurs say the contrary.
However, the main stumbling block between tycoons and the authorities is liberalization of the currency regime. During the last three meetings with tycoons President Putin seemed to agree to allow tycoons to freely take their capitals in and out of the country. However, the government and the Central Bank are in no rush: so far the norm of obligatory currency proceeds has been decreased from 75% to 50% and the amount of currency to be taken out without a special permission from the Central Bank was increased up to $70,000. however, tycoons work with not thousands, but billions of dollars.
The resistance of the officials is easy to explain - who will want to voluntarily reject control of many millions of money? However, while the officials are no hurry, tycoons' frustration is likely to achieve its peak soon. For instance, recently Kakha Benukidze called the present regime "fascistic".
Currently, it is a turning point in the relations between the authorities and big business. The president is obviously disinterested in collective meetings with tycoons and now prefers more often to talk to them tete-a-tete. According to participants of such meetings, the president needs then first of all as informational sources, independent from both the government and the security structures. So, tycoons are likely to be invited to the Kremlin in the future, but one at a time. Though the president will have to continue collective meetings, they are likely to lose their meaning.
That is why tycoons are in a hurry. At the next meeting they plan to involve Vladimir Putin in discussion of the reduced growth tempo that he seems to be greatly concerned about. According to RUIE members, they will try to convince the president that only fast structural reforms may provide for fast GDP growth. Having got the president interested, participants of the meeting will try to agree with him on a number of principally important issues.
First, entrepreneurs will ask Putin to acquire the position of a supreme arbiter while realizing the most important reforms. In other words, the president will have to make all the most important decisions.
Second, Putin will have to make distinct and clear orders to his subordinates, otherwise the latter would insipid any agreements between the president and RUIE.
Third, economic reforms should be fastened, on the basis of the court reform experience. As is known, it was carried out not by court officials, but by an appointed and personally not involved official, Voloshin's deputy Dmitry Kozak. In particular, this means that restructuring of the government should be carried out not by prime ministers, as at present, but by an outsider.
If tycoons manage to convince the president to make at least something of the aforementioned, for dessert they will touch upon their favorite topic: currency liberalization.
Soon we will find out what tycoon will manage to agree with the president on. In any case, the authorities will be unable to get along without tycoons - then the state machine will stop at all.
First, in fact, the Russian Union of Entrepreneurs and Industrialists plays in Russia a role of a political party with distinct economic program. It is a very important factor if take into account lack of real political parties is Russia.
Second, tycoons possess not only considerable financial but also intellectual resources. It is no wonder that the reform of the Russian Joint Energy Systems is being carried out in accordance with Anatoly Chubais' plan, not the plan of governors, supported by Andrei Illarionov - the former obviously has greater intellectual potential.
The main thing is that tycoons control the largest part of the Russian economy - this means the federal budget is mostly filled at the expense of taxes their enterprises pay. That is why further course of market reforms and growth prospects depend not on the Kremlin and the government only, but on tycoons as well. At the same time, no matter how influential tycoons may be, in the political contact "big business - the president" the latter makes the last decision. And business has accepted this.