(Continued from part 1)
First of all, this concerns the reduction of licensed types of
activities. Second -- legal regulation of all administrative
checks, regulation of these checks and their distribution among
agencies. Third comes the law on uniform registration of all legal
entities on the principle of application through a single window.
Fourth -- a simplified system of registering rights to real estate
and land for urban construction. There must be a simplified
procedure to get permits to carry out investment projects, these
permits being issued through a single window. We also need a huge
number of various amendments to make all these laws work.
This package is a very serious one. In reality it means the
removal of a part of bureaucratic barriers between business and the
corresponding level of state regulation. These laws should expect
tough sailing through government and parliament.
The third direction is corporate culture and corporate
regulation. It is common knowledge that in Russia market
capitalization is becoming some sort of a new fashion in the
behavior of companies but not yet a rule of the game. That is why
the Duma is now discussing a tremendous number of amendments to the
law on joint stock companies, the law on the use of inside
information, the so-called law on affiliated persons, which is also
initiated by the right-wingers in parliament. The government also
is working hard to create a corporate code, a code of corporate
behavior to ensure a new culture in the fulfillment of contracts.
These are to be voluntary rules with a subsequent increased
responsibility for their observance.
And, of course, the creation of general conditions for
investments. We are now discussing new problems pertaining to the
law on production sharing agreements. There are attempts of just a
more formal approach to this problem -- just to increase quotas.
But at the same time everybody understands very well that even
under the old quota all the three agreements were signed. The
problem, therefore, is not in determining quotas but in creating
conditions for the quick fulfillment of contracts. All this now
being discussed in the Duma.
I believe the government is moving slowly with the
introduction of Western accounting standards. These are elementary
technical things which we have been discussing for 10 years now.
Still, even the new simplified standards bear the stamp of Russian
specificity. There is no desire to move to purely Western,
transparent, normal and unified rules of the game. How can this be
explained? I believe this question should be posed to the
government. But that would be a serious incentive to investors.
And the protection of the rights of minority shareholders. The
Duma adopted amendments to the law on joint stock company. The
Federation Council turned them down. The problem of overcoming this
veto will be discussed next week. I believe that there is
absolutely correct criticism concerning the structure of government
and the level of manageability. I mean the entire administrative
system in Russia. I believe that in the next three-four years we
will witness in Russia attempts to create conditions to change the
Constitution, to change the territorial and administrative
arrangement of Russia. You see, the seven federal districts are not
yet as effective as one would have wanted them to be. Primorye
Territory has demonstrated this. Despite the existence of both
federal governors and ministers and local authorities nothing still
works.
The second problem is to change the structure of government.
The matter is not in personalities. The question is in determining
the political component of economic reforms. To this day neither
Putin nor the Prime Minister have said what they intend to build in
Russia, have not said what their basic values are and what a
political system they would like to see in Russia as a result of
their efforts and the passage of some number of years. Before we
have clarity on this it is impossible to form a professional
government. We lack a professional with tremendous political
weight, be it the president or the prime minister, who would ensure
the uniform ideology of the economic reforms.
Before we solve this main problem it would be possible to
solve at least the smaller problem of changing the structure of the
government to make it more manageable and effective. This is the
second direction in the field of administrative reforms that will
be pursued shortly, I believe. These are the conditions, both
political and economic, that I believe are necessary for further
cooperation between Russia and the United States of America.
Thank you.
REMARKS BY DIRECTOR OF THE EXPERT INSTITUTE YEVGENY YASIN
Yasin: Thank you, Irina Matsuovna. I would now like to say a
few words in conclusion of our session. First of all, I would like
to subscribe to many things said by Mr. Aksakov and Madam
Khakamada. But I would also want to state some views of my own as
well.
First of all, the agreed point of view of the American Chamber
of Commerce and the Expert Institute is outlined in the report
presented to this meeting. Copies are available in Russian and
English.
Secondly, I would like to state the views of a person who is
somewhat standing aside, a person who is not a member of government
or a member of parliament, a person who is not going to say
anything in defense of the government or the State Duma, of the
rightists or the leftists, but will express the view of most of
those people who are sitting in this hall.
What are the prospects awaiting the businessmen who are
working in Russia? I think that a person who lives in Russia, a
Russian or a foreigner, observers day after day the collision of
contradictions, passions, contradictions and conflicts which makes
life in Russia interesting, but also somewhat dangerous.
But let us better look at the future from the point of view of
the potentialities of investments and the development of the
Russian economy. In this connection I would like to draw your
attention to a whole number of interesting contradictions. The
specificity of the present situation in Russia is that it has moved
to the second phase of economic transformations, the phase of
restructuring, modernization and economic growth. If we look at
what took place in the year 2000 and the prospects of 2001, this is
obvious. I would not want to concentrate on market conditions that
brought about economic recovery, such factors as high oil prices
and the ruble's devaluation.
It is not the first time that the ruble was devaluated in
Russia. As to oil prices, they were higher in 1983 than now. And
they were also quite high in 1995 and 1996 when economic recovery
in Russia was really out of the question.
I must tell you that a rather strong market sector of vigorous
companies has formed in Russia. They are behaving aggressively on
the markets and are a very dynamic force of the Russian economy.
Our relations with the United States are a simple example of this.
In 1997 the Asian crisis erupted and Russian metallurgy lost
a huge market in South East Asia. Four months later they switched
their exports to the United States, to North America. But after the
passage of a year the American metallurgists decided that they did
not like this and anti-dumping investigations and other things you
know about began. But that is normal, I believe. The reaction and
speed displayed by our metallurgists deserves respect.
I do not think they would have been capable of that in Soviet
times. This is an indication that the market reforms have started
yielding fruit. I mean that we have acquired a rather strong and
dynamic part of our Russian economy.
And it is to this that we owe a substantial growth of
investments in 2000. Unfortunately, a half of these investments is
in the energy sector, the oil and gas industry. But still the
growth of investments is a fact. As to foreign investments, they
accounted for only a small part of this increment. I remember
foreign companies saying "We will invest only when Russians start
to invest." Russian investments have appeared.
But the contradiction of the situation is that there are no
foreign investments. So, it is a rather interesting reaction to the
fact that Russia has begun to more or less normally develop. Now we
are being told: "Aha, since you have just managed to rise to your
feet, you must now pay all your debts." This means that there is no
positive reaction so far. I am not making assessments, I am only
stating the obvious.
Second. President Putin has announced intent to pursue a
liberal market reform. Of course, it can be suspected that he does
not intend to carry out this reform, it can be said that he has
formed a wrong type of government and so on. But I will remind you
that when we were approaching the presidential elections even
declarations of intent to continue liberal reforms were in doubt.
But today we have confidence that they will be continued. Still we
say: "The government is bad, it is losing time, it has missed the
excellent opportunities of 2000."
Yet I must tell you that Gref's rather progressive program was
approved on the whole. It was worked out last year. I will remind
you that a whole number of tax laws have been adopted. There are
proposals to deregulate the economy, to simplify investment checks,
licensing and so on. Of course, when all this is going to be
discussed there will be heated debate.
The Land Code and the Labor Code are being discussed and the
situation is ripening for their adoption in one form or another.
The reform of education is advancing although the attitude to it is
a very wary one. Throughout the past ten years we kept counting on
the West to help us. This is something that we will keep discussing
in the years to come.
But now we are being told that we are bad, we are being
suspected of lots of things and so on. Mostly on the part of the
United States and Europe to a lesser extent. But in reality
attitudes to Russia both in the United States and Europe have
changed quite substantially.
Why? I think that this is due mostly to the crisis of 1998 and
the very big decline of trust in Russia. This is an extremely
important moment. The situation was used for political and other
purposes.
I would like to draw the attention of the Western business
circles and government circles to the fact that in reality the
situation in Russia now is objectively much more favorable for
cooperation than only two or three years ago. The situation is very
favorable for a strengthening of trust and confidence.
I do not want you to think that I am a boundless optimist.
Still I would like to tell you that the situation now is really
much better than several years ago. And, of course, we should have
capitalized on these possibilities. At the same time I see rather
serious problems in the development of the Russian economy and the
development of relations between Russia and the United States.
I will not repeat Aksakov and Khakamada, I will just say that
the prime tasks are to improve the business climate and to fight
bureaucracy. I also believe that we should pay attention to the
very serious factors that slow down Russia's economic growth. I
mean the huge non-market sector, the ineffective sector which
continues to milk the healthy part of the Russian economy. There is
also the shadow economy which is an institutional trap for us and
prevents us from really widely opening the doors to investments,
including domestic investments. The same goes for the export of
capital, national and foreign.
We are also suffering from the weakness of the financial
sector which was in the vanguard of our reforms, in the development
of the market economy before the crisis of 1998. Now it has turned
into a bottleneck. The way I see it, the financial markets in
Russia are simply a model for the training of brokers. Because this
has no real importance. This is illustrated by the fact that they
react to any movement on the New York Stock Exchange to a much
greater extent than to the situation at home, to the situation with
Russian companies.
I believe it is the first time, I think it was yesterday or
today, that we see a situation when a drop of stock on the New York
Exchange or a drop of Dow Jones has caused a growth on the Russian
exchange. But I assure you that already tomorrow they will drop
again because Dow Jones or NASDAQ have dropped.
The Russian banks are in a very weak state. But that is not an
impossible situation, however. As you know from the report, the
banking system services about 25-30 percent of our GDP. This is a
banking system that works with rubles, mind you. You will not see
anything of the sort in any other country with a normal market
economy. The volume of credit investments is in the range of 11.8
percent of GDP while in America it is in the range of 80 or 90
percent. This means that Russian enterprises cannot get normal
credit services. The under-capitalization of the Russian banking
system, according to my estimates, is from 20 to 30 billion
dollars. There are different opinions but I am stating my own
opinion. And this under-capitalization is a very powerful brake.
And all these factors that I mentioned, the non-market economy, the
shadow economy, the weakness of the banking system, all these are
interconnected things. This is a certain mechanism of
counter-action. And very serious attention should be given to this
mechanism.
When tasks for solution are being chosen in this country,
people tend to look not at the most important matter in this.
Sometimes they look for easier ways or take their cue from somebody
else. For instance, Mr. Aksyonenko suddenly showed desire to reform
the Ministry of Railways. And we are now vigorously discussing
this. But in my opinion the fate of transformations in Russia and
the growth of the Russian economy do not really depend much on how
and when railways are going to be reformed in Russia. Frankly, I do
not know a single lucky example of reforming railways in the world.
This was obvious at the OECD seminar that was held in Russia some
two months ago.
As to debureaucratization, deregulation, evening out
conditions of competition -- this is something that we badly need
to compress the non-market sector. We are really behind the
schedule here. On the other hand, of course, these are really tough
tasks.
But I would like to stress that these problems pale in
comparison with those that we have already overcome. And if our
Western colleagues want to invest, I think that a green light is
burning over Russia now. We discussed with Ambassador Collins the
importance of the deal between General Motors and Avtovaz. I wish
this transaction success because it sends a sort of a signal. But
at the same time I would like to stress that the real signal will
appear when medium and small businesses start eagerly coming to
Russia. I mean not such giant corporations like General Motors, but
small companies that will feel secure here, that will feel the
possibility of making money here and simultaneously benefiting the
Russian Federation. I think this is a criterion we should keep in
mind.
Now, finally, about relations between the United States and
Russia. Certain apprehensions are being voiced. They are not
groundless. We have a rather interesting situation now... You know,
like in a communal apartment. Americans, perhaps, do not know what
a communal apartment is. It is an apartment shared by many
families. And they often quarrel, sometimes over nothing. And such
a quarrel tends to mothball generating an atmosphere of tension.
I believe that the situation in our relations today resembles
a situation in a communal apartment.
I am really concerned by the following circumstance. Russia
badly needs the West. It is my personal opinion that Russia is in
need first of all of the United States. For a very simple reason:
the United States is the most progressive, the most rapidly
developing economy, an economic model that is the most effective
one in the world today. For many reasons the American model is
closer to us and we should learn precisely from it. Some people in
our country are saying that we should learn from Europe since it
also has an advanced economy. I ask representatives of European
companies, if they are present here, to forgive me for what I am
going to say. In my opinion, Europe is excessively burdened by
socialism. The load on the economy is too great. And it will be
quite difficult for the European economy to develop dynamically in
the coming years. And this is understood also by the European
socialist governments. I was in France recently and I was told the
following: yes, we will be cutting government spending although we
have street demonstrations all the time protesting against
something and demanding wage increases.
I repeat that the model which exists in the United States
suits us very much. Of course, we cannot apply a carbon copy of it
here. But we could use a lot from the American experience.
Together with Ambassador Collins I attended the opening of the
Insurance Problems Fund which is being established with the help of
the United States. I regard this as something extremely important.
AT the same time there are the fears that different moods will take
the upper hand in America: the post-Communist euphoria is over, the
second super power no longer exists, so why show interest in
Russia? Or, attention should be given to Russia only because it
still has nuclear warheads. Otherwise, it can be ignored. I think
this is a dangerous line of thought. I will use an expression of
Senator Fulbright: "The conceit of strength." I think that America
should fear this today. In my opinion, Russia is of tremendous
strategic importance for the West. There should be not a tactical
but a strategic belief that Russia should become a part of the
Western world despite its uniqueness and tough upholding of
national interests. True, the latter is done also by others who are
part of the Western world. And I think we should work to encourage
such a strategic approach by the West.
Thank you for your attention. I hope that the further
discussion will be even more interesting.
*******
-------------------------------------------
Macdonald Stainsby
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