12/04/2008, 00.00
RUSSIA
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Russian leaders exploit crisis to increase their power

Heavy subsidies, especially for state-run companies already controlled by the leaders, and greater presence of the government, which is "buying" participation or key posts in business. But if the crisis continues, Moscow could have problems.

Moscow (AsiaNews/Agencies) - The Russian leadership is exploiting the world economic crisis to reinforce its own position, with assistance programs that are making state-run companies and government control stronger. This is the claim of the prestigious Centre for Eastern Studies, which specializes in the analysis of countries of the former Soviet Union.

Over the 8 years of Vladimir Putin's presidency, Russia's economic policy was based above all on strong earnings from exports of raw materials, like gas and oil, which ensured constant economic growth and boosted public support for the government. Leading companies in key sectors like energy, banking, and automotive manufacturing were re-nationalized, and the key positions were filled by political leaders (Putin himself was president of the board of the leading bank Vnesheconombank Veb, deputy prime minister Igor Sechin had a similar position in the oil company Rosneft, and Sergei Chemezov, one of Putin's associates from the Soviet era, directed the manufacturing company Rostekhnologii). Moscow then imposed strict limits on foreign investment in key sectors, like raw materials, which fostered the expansion of these state companies within the country and abroad.

It has been documented that during Putin's rule, state-run companies have gone from 5% of gross domestic product to 65%, according to the European Bank for Reconstruction and Development.

With the global financial crisis, foreign capital has been yanked from the Russian stock market (which lost about 60% of its value from August to November), causing a crisis of liquidity. This crisis was increased by the collapse in prices for raw materials, as the price of oil went from more than 140 dollars a barrel in July to less than 50 in November. Many Russian companies have had difficulties honoring their debts to foreign lenders, in part because of the difficulties that Russian banks are facing in granting new loans. It is forecast that in 2009, the Russian economy will grow by no more than 3%, compared to more than 6% previously expected. If oil remains under 50 dollars a barrel, the state budget will go into deficit, which will have to be made up from currency reserves.

The government has intervened with aid of more than 200 billion dollars, mainly provided through state banks. It has injected more than 75 billion directly into the banks (especially the state-run banks like Veb and Sherbank); about 7 billion into the stock market (especially in support of state leaders like Gazprom and Rosneft); 50 billion into important companies, most of them owned by the state, generally with the request of appointing government-selected representatives to the company boards, or of control over equity stakes or property and contracts. Moreover, Moscow has instituted protectionist measures, also in favor of companies that it controls: like the 30% rise in tariffs on imported vehicles, which mainly benefits state-run Avtovaz, Russia's leading automotive manufacturer.

Experts accuse Moscow of failing to provide transparency concerning the distribution of this assistance, in such a way as to expand and reinforce its presence in the economy, by buying equity stakes at low cost, or increasing its role in the public banks that have also taken control of private banks (like Veb, over Svyazbank), or even by re-nationalizing private companies under the pretext of rescuing them from insolvency. Moreover, it is also limiting the presence of foreign investors, refinancing Russian companies. And it has also favored the companies that are already controlled by the elites in power, with heavy capital injections.

All of these interventions are justified by the serious crisis, drawing on the extensive foreign currency reserves that the government has accumulated and which Russian leaders estimate will be sufficient for at least two years. But, the experts warn, Moscow will also have to provide subsidies and services for the population. If the price of oil remains low, and the crisis continues for more than a couple of years, the Kremlin could find itself short of funds. This could open up unpredictable scenarios.

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