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Vedomosti, December 2002

The Whirlpool of Reforms
Structural reforms have obviously become unpopular with Putin's team

By Kirill Rogov

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

Four monopolies - the Transportation Ministry, Gazprom, Russian Unified Energy Systems (RAO UES), and the housing and communal services sector - will not be reformed before the next presidential election. At the same time, reform prospects are now even fainter than three years ago - then, it seemed as if the presidential team had some consensus regarding their necessity and direction.

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

Two reform drafts - in the housing and communal services sector and RAO UES - managed to eventually reach parliament after endless discussions. However, in both cases the executive authorities presented their compromising amendments to deputies without a consolidated position on these issues. As a result, both suggestions have been severely criticized from both right and left wing. The left wing criticizes them for supposed liberalisation of consumer prices. The right wing criticizes them for the lack of guarantees on the creation of competition after liberalisation of prices.

It is easy to notice that the discussions repeat to the word the main argument in the early 1990s: what is first - liberalisation or privatisation. Not surprisingly the major opposing ideologist of both reforms is Grigory Yavlinsky. On the one hand, liberalisation in a monopolised market will lead to concentration of capital in the management of the monopolies and redistribution of property to their benefit. On the other hand, it is unclear how privatisation will be carried out in a situation of fixed prices and lack of profitability.

History of reform plans with the other two monopolies offersan even better lesson. Ever since members of Putin's team gained control of 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, prior to replacement of the management of both corporations, 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 to support both increased tariffs and postpone 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.

See also:

Energy Sector Reform

Housing and Communal Reform

Vedomosti, December 2002

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