Johnson's Russia List
#7300
26 August 2003
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A CDI Project
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#18
Russia's Trade-Industry Chamber President Primakov Creates Industrial
Policy through 2010
Rossiyskaya Gazeta
21 August 2003
Report by Tatyana Panina, 21 August; place not given: "Campaigning for the
'Long' Ruble: Yevgeniy Primakov Creates New Industrial Policy"
Today, the State Council Presidium's working group to develop industrial
policy will begin considering projects that have been proposed by the
political parties and the scientific and economic schools. In December,
when the State Council holds its session on this problem, a base concept
will be shaped for state industrial policy for the next eight years--aimed,
naturally, at accomplishing the main strategic task: doubling the country's
economic development by 2010. Among the many documents on this topics,
there is also a program drawn up by Russia's Chamber of Trade and Industry
(TPP). The work was done under the leadership of TPP President Yevgeniy
Primakov. What is the essence of the concept? To explain this, our
correspondent met with Stepan Sulakshin, chairman of the TPP's Committee on
Industrial Development and High Technology.
Desire and Hopes
"It is no accident that our concept is entitled 'Russia's State Industrial
Policy,'" says Stepan Sulakshin. "Other authors very often confuse the
corporate interests of industrial groups and the problems the country
faces. There are differences--differences of principle. The state is
required not only to worry about the economy's growth in its pure form but
also to ensure the stability of this development."
The number one problem is the lack of investment resources, "long" money.
The banks have enough funds that turn over quickly. But there are
difficulties with investments in industry, which yields 30 percent of the
economy's GDP, more than the economy's other sectors. The second problem is
the irrational use of natural resources. There has been intensive
production of natural resources for many years, but meanwhile no one has
been exploring for new deposits. In 2001, for the first time in history,
the country found itself with a shortage of prospected resources. The third
problem has to do with the fact that the state, in the course of reforms,
got distracted from its governance functions. It's not a matter of
totalitarian administration but of the creation of a basis of standards and
laws for governance. The TPP is proposing creating conditions (tax,
currency, banking, budget, customs, and others) for business such that it
has a commercial interest in taking its free capital from the production
branches and putting it into the processing branches and the
science-intensive branches. Today the "raw materials flux" is
unprecedented; it is more than six times the average world ratio.
In order to change the situation, the conception's authors assert, we must
differentiate taxes by type of activity. The higher the standard for the
redivision of raw materials, and the more intellect invested into
production, then the less the tax rate should be. Then it will be
profitable to invest capital in these branches. Simultaneously, on the
domestic market, it is essential to raise consumer demand, which was held
back during the period of financial stabilization. Without this, we risk
jam-packed warehouses and tremendous losses. For example, we have to start
extending credit actively to the population for the acquisition of housing
and durable goods. Simultaneously, the problem of pushing imports out of
the domestic market is being resolved. Right now, foreign trade streams
exceed consumption inside the country, and they have been mounting at
unprecedented rates, reaching 60 percent. In stable countries this index is
tens of percentage points lower.
Cash on the Barrel!
Today, Russia's GDP is a little more than $300 billion. Doubling it means
creating new goods and services worth another $300 billion. What volume of
investments into the nation's economy must there be, and most importantly,
where are we to get the money for it?
"We've solved this problem, too," asserts Stepan Sulakshin. "By 2010, we
need to invest another $600 billion or so into Russia's economy, that is,
$60 billion a year. This is a tremendous figure that exceeds both the
country's annual budget and its foreign indebtedness by several factors.
Above all, we need 'long' money, that is, loans with a repayment period of
five to seven years. The resources of Russia's banks, including Russia's
Central Bank (TsB), total about $150 billion. Russia's credit organizations
could pitch in another $24 billion. And that's it. As we see, our banks'
financial resources cannot solve this problem entirely on their own.
However, they can be activated (today banks are yielding only 5 percent on
investments). Extend credit to industry along the lines determined by the
state, and in exchange the state will reduce the mandatory reserve fund,
thereby freeing up resources for profitable financial operations. In 2002,
about 50 percent of all investments were made by enterprises themselves.
Let us point out that at the same time they were being powerfully
undermined by the clumsy reform of the Tax Code, which took away their
investment breaks. This must be corrected. In addition to this, we must
introduce an even more powerful stimulus--an investment premium. Anyone who
produces more output at the expense of his own resources gets a temporary
tax break from the state. Thus, we must orient ourselves toward our
accessible national resource."
Compared to the world's leading countries, Russia isn't doing so well with
respect to the ratio between its monetary mass and its GDP. In China, for
instance, the quantity of money is virtually identical to the size of the
GDP. Whereas only 17 percent of our money supplies the GDP. If we are to
act on China's experience, then the nationally accessible resources of
Russia that can be used should total $300 billion a year. It's reasonable
to ask, "Won't all this be followed by an inflationary heating up of the
economy?" It will, if these funds are thrown into the financial sector or
into the sector of end consumption. The TPP is proposing a credit mechanism
that precludes the development of that scenario: the creation of a State
Targeted Extrabudgetary Loan Fund for Industry. One of the sources for
filling this fund is supposed to be natural resources revenue. This does
not mean additional taxes for producing companies. But they take in a total
profit of as much as $25 billion annually just on the difference between
domestic and world oil prices. And for the most part they take it out of
the country. We have to have minimal legislative amendments that allow us
to bring this money back for the needs of the entire country.
How will the loan fund mechanism work? Currently, the International
Aerospace Salon is being held. There are quite a few modern Russian designs
there, but not one of our companies can permit itself to buy them. If there
were a loan fund, that fund could order from aerospace builders, purchase
the equipment, and hand it over to the air carrier through a state leasing
company. In this way, we're extending credit to production rather than to
end consumption.
What's the Bottom Line?
If nothing changes, then according to TPP calculations, economic growth by
2010 will not exceed a factor of 1.5, but at the same time the income of
the able-bodied population will remain at today's level. If we take the
most radical scenario ($60 billion in investments per year), then the GDP
will double in eight years. And the population's income will grow with
it--by a factor of more than 2. Enterprises' funds will increase by the
same amount. And tax revenues for the consolidated budget will increase by
80 percent.
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