Business | Opinion
Rolling back Russian economic liberalism
many experts hail increased state intervention to save country from crisis
- By Charles Clover, Financial Times
- Published: 23:23 November 28, 2008
During the 1980s, Mikhail Gorbachev had a stock answer to the frequently asked question: would perestroika - Russia's liberal economic reforms - ever be rolled back? "I am certain that perestroika is irreversible," the then Soviet leader, would say. "But everything can change."
Russia's leaders today display a similar attitude towards their economy in the face of the worst crisis it has faced in ten years. Something resembling liberal economics still rules Russia, even if liberal politics vanished long ago.
And the government is still loathe to increase regulation of the economy in response to the crisis in the financial markets and banking system which has started to seep into the real sector, increasing unemployment and wage arrears.
Two months ago President Dmitry Medvedev told leading business people that Russia's commitment to market economics was unbendable: "Nothing in the principles of economic policy will be changed," he said. "There should not be a change in priorities. We do not need militarisation of the economy or a statist economy."
However, a market-based rescue plan for reviving the moribund credit markets and halting capital flight from the central bank have seemingly fizzled. More than $200 billion (Dh734.5 billion) in government bail-out funds announced since September has done little good. Increasingly, a consensus is emerging among Russia's econ-omists, bankers and top business people that liberal economics needs to be given a temporary holiday.
Rescues a failure
Ruslan Grinberg, head of the institute of economics in the Russian Academy of Sciences, last week told a conference hosted by the Association of European Businesses: "The market does not believe in the rescue operations of the government. This liberal capitalism must temporarily stop its existence, and be replaced by a more regulated model of the economy."
The stock market, which has fallen 75 per cent since May, continues to slide and the central bank has lost nearly $150 billion in foreign exchange reserves since August.
Peter Aven, president of Alfa Bank, said that he supports the trend to greater state intervention: "I am a very liberal economist and I believe in very liberal values, especially in the economy, but this is for peacetime. Not during war. This is in some sense a war. And it is essential to implement some non-liberal measures. The main thing is that these measures have to be temporary."
One factor that may lead in the direction of greater state control is the fact that the state is taking collateral for bail-out loans in shares, which may be temporarily "nationalised".
A 25 per cent stake in Norilsk Nickel, the troubled metals producer, which was collateral for a $4.5 billion loan to UC Rusal, the aluminium giant, was recently taken over by state-owned bank VEB. VEB has taken over a number of other stakes in exchange for bail-out loans as well.
In an interview with Russia Today last week, Vladimir Strzhalkovsky, Norilsk Nickel CEO, said he favoured the government taking Rusal's 25 per cent stake as a first step to nationalisation. "I think the state buying into our firm is a positive move. Especially since the government will only give us loans if they get politicians on our board. But that's just a temporary measure in the global financial crisis."
Possible abuses
Aven said he expected reprivatisation of shareholdings forfeited to the government by 2012. One of Alfa Bank's holdings, a 44 per cent stake in Vimpelcom, was taken over by the state in exchange for a $2bn bail-out loan, but Mr Aven said that Alfa would have no trouble repaying the loan on time and the stake would not be nationalised.
Some experts fear greater state intervention will be open to abuse, however. Chris Weafer, head strategist at Uralsib investment bank, said many in the stock market believe the government's ultimate aim is to take control of Norilsk and turn it into a state-run metals conglomerate similar to Gazprom.
"Norilsk Nickel appears to be heading into state control. The administration has never made any secret of its desire to create a national champion company in the metals and mining sector . . . The debt problems at Rusal have presented the government with an unexpected opportunity to fill this gap and it seems that they are going for it," Weafer said recently.
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