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Today we are holding the 3rd meeting of the Ambassadorial Club of PSI Foundation. And we are going to discuss the recent developments. The speakers today will be the editor-in-chief of MEIMO journal, political analyst Andrey Ryabov and Vladimir Mau, the rector of the Russian Academy of National Economy.

You are welcome Mr. Ryabov.


Distinguished ladies and gentlemen, we prepared brief presentation on the current state of Russian economy. However to describe it in brief I would use the words growing uncertainty. Not so long ago all of the analysts were sure that the inertial scenario of the Russian politics causing keeping on the existing balances of forces will keep on being dominating factors for the month separating us from the parliamentary and presidential elections. In the recent two months namely in may and June huge changes have been happening in Russia which allow us to make a conclusion about this growing uncertainty. First of all a couple of words about the key meta-factors, major factors determining this growing uncertainty. Regardless of the activities and intensions of the key political players.

So the first and the most essential factor is which is unfortunately not mentioned by the Russian press. I wouldnt say that the press doesnt mentioned it at all, however it is on the periphery of its interest. I am speaking about something which does not related the agenda of the elections. It is the question about whether the second period of Mr. Putin presidency will be the period of political, economic, social and administrative changes or it will be another presidency of stabilization, presidency of status-quo. Presidency which will be absolutely the same as the current one. This factor in combination with the lack of clarity, the uncertainty due to this factor combined with the lack of consent within elites on the priorities for the social, economic an foreign types of Russias development during future four years has stimulated the activity of different stakeholders surrounding the president interest groups related to the executive branch, the groups which tried to take advantage of the current uncertaintyin order to impose their scenarios to the other political players, to other subjects of this political action.

The second factor which is no less significant to my mind is that these elections will be the first post-communist elections in Russia when the existing order, the existing governance are not threatened by anything. There was such a threat in 1993, there was a risk of constitution collapse, victory of the revanchist forces, forces of the communist revenge. The same factor existed in 1996. On the elections in 1999 there was a factor of threat to the national security of Russia. In 2003-2004 the factor of threat to the existingpublic order, let me use this term, does not exist any longer. This deprives the elites of incentive to consolidation. The core for consolidation which used to be determined by the existence of external threat, this core, this factor , this framework is stopping to exist. And today more inertial trends appear, trends of the conflicts among different elite branches.

These are the to key political factors the lack of clarity concerning future presidency, lack of the definite agenda and lack of the real threat have become bases for transition from inertial stable development of the political process to the epoch of political uncertainty.

I would not confine my description of this situation by these two factors. In my opinion, the situation has been aggravated even more by dual an even contradictionary position of the president of Russia who according to the constitution and also de facto is undisputable leader. Speaking about this dual nature I mean that the two simultaneously existing scenarios - an inertial one and the one based on changes have been initiated by the president himself. Well, the order was nonordinary. In early may when delivering his annual address to the Federal Assembly the president initiated changes, however when speaking on the concluding press-conference in June he underscored the significance the stabilization-based scenario. What I mean?When we are speaking about the stabilization based scenario it is first of all about several things. The first factor is giving up the idea of the institutional changes in the Russian political system, I mean, in the 20 of June on the press-conference the president giving up the idea of the government responsible and accounting there is the parliament as well as giving up the idea of possible transformation of the existing Russias political system, t5ransformig it from the super-presidential into the presidential-parliamentarian. The second feature of the stabilization scenario the significance of which was underscored by the president is significant change in the attitude towards Mr. Kasyanovs government and the prime-minister himself. During recent months Russias analysts were guessing how long Mr. Kasyanovs cabinet would stay in power. And which other real factors would allow this cabinet to keep on existing. However on the 20th of June speaking on the press-conference the president praised the cabinet what was understood as the fact that Mr. Kasyanovs cabinet was not threatened by anything or anyone. And there is some logic in it. The cabinet of Mr. Kasyanov acting as mediator, let me use Henri Kissingers term, stapler of interests, if you please. So there is no such other government in Russia capable to acting as a stabilizer as a guarantor to this stabilization based scenario. And the third indicator of the stabilization based scenario is the fact that the president is trying to isolate himself from any political party from any stakeholders, trying to demonstrate that hes similarly close to the positions of several parties. That is actually means that the president is choosing the logic of super-presidential republic where the president has no right to be a member to any public association, beyond the boundaries of these political groups and acting as a coordinating power according to Constanse terminology staying above the existing political system. And we know by the second presidency by Mr. Eltsin that it is this system in todays Russia under the conditions of the incomplete transition that this approach is the most successful guarantee of stability. But not for political changes.

So this inertial scenario including its todays content which was declared and has been implemented by the president and the executive branch is developing in parallel the second scenario the scenario of preliminary and private changes to differentiate it from the existing agenda for the second presidency. What does it include? First of all the attack that started on very influential interest groups and stakeholders including the YKOS group and if we have enough time we will discuss more in detail this YKOS case as well as fighting special forces in order to deprive them of those representing various stakeholders. As well as several illusions to possible changes in social and economic policies. So these are the key parameters and features of the second parallel scenario of changes. It may be reasonable to describe different reasons for the president to start this scenario. I would mention here that of course without a sanction of the president this particular scenario would have never been lounged. On the other hand we should underscore that in lounging in initiating of this scenario there are very many stake holder groups are really interested. So I believe that there were several factors that made the president to take a kind of neutral position regard to the second scenario.

Firstly it is a possible loss of a part of real power and authority. Its not only about the implementation of the project called responsible government which also require some additional legislator initiatives however in the political circles of Moscow there are rumors according to which despite all the attempts to create a kind of pro-government, pro-presidential majority in the future State Duma, de facto this majority will be controlled by a number of major companies which will result in a risk of losing by the executive power of control in the supreme legislative body of the Russian Federation. Which is of course one of the most important factors.

The second factor is the conduct of the Russian companies and their desire to combine their assets with assets of the biggest transnational and international corporations. In this case the interest would go beyond the area of control of influence of the executive power. This is actually the second factor causing the appearance of this scenario.

The third factor is about growing uncertainty in the Russian economy and lack of clarity for further priorities.

At last it is the Chechen factor and a number of issues and possibility of a new wave of Chechen terrorism in major Russias megapolises. This factor also has driven to some deviation from the stability based scenario in order to find alternative scenarios and new alliances.

I believe that an important role in these decisions was played by aspirations of the part of the so called St. Petersburgs groups surrounding the president. I would prefer not to use this not very well defined and not correct term those from St. Petersburg because if we ae speaking about the structure of modern Russias political elite of summer 2003 very serious changes should be mentioned in this structure compared to the previous period. Let me make a comment on it which I find to be really important. The fact is that by that period that become clear that one of the leading political and financial, political and administrative clans of modern Russia so called Eltsins family has stopped to exist as a single whole. Te family is becoming fragmented. Today the conflict related this family namely those - one of them being between minister of the press and information Lesin and Oleg Deripaska - being moved to another, public plane. We can see the position of Mr. Kasyanov who understand that only by continuing playing the mediators role he will be able to stay in power. However this role is not in line with the role of one of the members of the powerful clan. There are some signs making it possible to assume that the position of the head of presidents Administration Alexander Voloshin is being changed. And changes are going in the same direction. He is starting to isolate himself from the clan. And finally the abandoning from a political activity by two key persons o f this clan, I mean Tatyana Djachenko and Valentin Yumashev, who focused mostly on private life is also a serious symptom of disintegration of this clan. And finally the fact that Roman Abramovich has starting to transfer his assets abroad and legitimizing hid assets abroad is still another symptom. The balance of forces in the Russian policy and the structure of the elite were two-polar there is a family which was the nucleus, the core of the old Kremlin clans, and there are new St. Petersburgs clans that came to power together with Vladimir Putin. When one center starts to fragment it is inevitable that the same fragmentation will happen in the other center. It would be inappropriate to say now that there is any single team of St. Petersburg people, it is as heterogeneous and as multifaceted as the old Kremlin clan was. The factor of the familys fragmentation obviously encouraged the activity of some St. Petersburg groups, they understood that the moment is ripened to attack the old Kremlin team. And not accidentally they chose two objects for the attack. First YKOS because this company was trying to enter the political arena with the certain strategies of development. I mean here the institutional reform and their outlook on the multiparty system development and the whole range of social and economic ideas and program attitudes. On the other hand, the power structures were another object, those structures that were still close to the old-family clans. I mean here the so called werewolfs case and the attack against some departments of the Ministry of Interior. The meaning of this attack is obvious. Using concrete conflicts to try and to make an attempt of radically changing of balance of forces in their favor. Localizing and isolating of old Kremlin clans and which is even more important then the YKOS problem is an attempt to predetermine an agenda for the second term of the presidency of Vladimir Putin. I mean here the fact that the Russian press had already voiced some of the ideas of these groups, the ideas like consolidation of the national rent to the budget, closing off-shore companies and other restrictive measures applied to big business. Also ideas related to the change of balance of political force for the toughening of presidential power and strengthening the administration by the executive authority. So these points of political agenda are becoming obvious over the recent month. So these two objects for attack YKOS and some departments of the Ministry of Interior currently are indicators showing which of the scenarios coexisting now in the Russian politics will ultimately be adopted by the presidential power. Currently parallel existing of these scenarios isquite unnatural. On my mind that the main criteria of the political development at this modern point in history summer of 2003, will depend on if and when the president gets involved in the YKOS conflict and whether the president will be able to adopt status-quo as the main line of his behavior or whether the president will decide that the problem of YKOS is a partial problem, that it does not effect the overall balance of forces in the Russian politics. And then this scenario based on changes will be actively implemented in the Russian politics this Fall. More than that, the foundation for the successful realization of this scenario together with the further fragmentation of the Russian elite already exists in the pre-election context. I mean the fragmentation of the pro-presidential majority the United Russia, the Party of life and some other small political parties which are now in the state of deep conflict and who target different groups and the executive and who are ready not only fight the common enemy the Communist party but also are prepared to fight between themselves. I think this situation in the pre-election context will reflect the real level of deconsolidation of the elite in this period. And YKOS conflict is an important problem here because the choice of the president will be important and also how it will affect the further development of the Chechen problem. Unfortunately I cans say that if the situation remains as it is now with periodic threat of terrorist attacks in major cities then this factor can radically disrupt the agenda before the parliamentary and presidential elections because it will force the Russian government to face a difficult dilemma either to escalate the conflicts which is deterred by certain internal and international factors or alternatively to start changing in a serious way its approaches to Chechnya as a subject of the Russian Federation and may be even involving international organizations. I believe that the Russian government isnt prepared to both of these scenarios and in its interest is to minimize the influence of this factor which aggravates theexisting political uncertainty.

Thank you for your attention.


Karel Kotek

How do you estimate the influence of Boris Berezovsky on the policies of the Russian Federation?


Currentlywould say the Berezovskys influence is minimal. But if the processes of fragmentation continue Berezovsky as a mediator-politician, mediator with a capital M, could only be an effective and influential politician in a fragmented environment, when all elite groups fight between each other. So in this respect he has certain potential for influence. In particular, using the contradictions between groups he can suggest certain provocative political scenarios to them which later can be used indirectly by other groups. As an example I would mention this scandalous report of the National Strategy Council which was also used by the president and the president referred to it on the press-conference on the 20th of June. Putin started the press-conference answering a question about that report. And the idea of the plot of the oligarchs was described in that report. The report was written by people closed to Berezovsky. So I want to underline that in a fragmented environment Berezovsky can be in demand in behalf of certain elite groups who are thinking in the following way Berezovsky himself is not dangerous, hes far away, his assets in Russia are very small and under control, but his ideas may be understood, may be helpful and we may to use them. But I wouldnt say that even that kind of Berezovsky return to Russia\s internal politic could bring him significant dividends. His success will be used by other Russian politicians.

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Could you explain, Mr. Ryabov, how do you see this new clan, if I understood you correctly, this clan which has political ambitions, but also has economic power. The clan, if I understood you correctly, which is based on the industry that is controlled by St. Petersburgs forces?

May be I didnt say quite accurately. But exactly this clan is only being formed, now we can only speak about some groups of influence. I would call them power groups. One of these power groups are two deputy heads of presidential Administration Victor Ivanov and Igor Sechin. The second group is heads of power ministries, Ministry of Interior and Federal security service. But they are not a single group although they coordinate their efforts. Anotherpowerful figure is a former political representativein the north-western region General Cherkesov. And some other people from St. Petersburg, a term invented by Russian journalists to describe people from St. Petersburg close president Putin who are involved in high-tech industries, such companies as Technoexport, Twell, such persons as deputy ministry of science and technology Fursenko and others who may be do not have a powerful political lobby yet, but nevertheless they have serious influence on the president.

As to financial power. Normally when we speak about their financial resources we mean so called big political triad BMP- but acronym is taken of the names of 3 major financier Bogdanchikov, president of Rosneft, Miller, head of Gasprom and Pugachev, chairman of the foundation board ob Mezhcombank. Their idea was that - because these are mostly state companies and they felt the vulnerability that they can be privatized or can be subject as Gasprom to serious internal reforms. So their vulnerability and instability of financialposition plays role here. Also we must understand that inside these teams there were significant conflicts recently. I mean the conflict between Gasprom leadership and those power ministries. So factors combined and the general instability of the financial base encourages them to behave more actively. And its just my opinion, my interpretation if the president Putin has a limited interest in YKOSs conflict that is get Hodorkovsky to abandon his political ambitions and go back to that unwritten form of convention between the power and the oligarchs over the last years, when the federal authorities did not try to control oligarchs economic expansion, it didnt use the pressure of power ministries at the same time which was common in the yearly years of Putins presidency. And Hodorkovsky violated this unwritten convention declaring his political ambitions the way they were interpreted by the Kremlin. And president Putin has only one interest in this conflict restore the status-quo and achieve a compromise with Hodorkovsky, come back to previous arrangements that existed in the yearly years. But the mentioned groups want to use this conflict with YKOS first to attack YKOS, may be break it apart and prevent its merging with Sibneft and becoming economically and politically independent clan within the country. And secondly to use this conflict in an attempt to promote their own political and social ideology, ideology of limiting oligarchs power, of government paternalism and administrative involvement in economy.

I would say here that president Putin and St. Petersburgs groups have different goals in this conflict. But the problem is that the president, in my opinion, must not miss the right moment to interfere in the conflict. Otherwise the situation will roll on according to its own internal logic and the president will find it very hard to bring it back to initial positions. So it is a chance for these clans to transform from so called semi-elite, insufficient elite into the fully form elite which aspires a monopoly of political influence on the president.

I wanted to ask a question which was asked by my colleague the military attaché of the Czech republic. In your answer you made it understandable that the report by the National Strategy Council was actually concocted by order of Mr. Berezovsky. Dont you think that the attempts of YKOS and Mr. Hodorkovsky to go beyond the boundaries in order to reach and enter the domain of political power, Mr.Hodorkovskys political ambitions, his desire to become independent of the political power in Russia is an attempt to undermine this power, to make a road which could be judged as if not an attempt of a coup but as an attempt to get part of authority. Its really very unfavorable situation for the state and the society at large.


Thank you very much for this question. You have asked my favorite question. To my mind YKOS and his political plans is a favorite topic. I only mentioned it in my presentation.

Now I would like to make a comment on this report by the National Strategy Council. It was not only caused by Mr. Berezovsky, but according to the Russian press other interested groups, otherstakeholders interested in transition from stabilization based to provocative scenario also participated in the development of this report. Others, knowing that such a document was injected in the information space did nothing in order to stop it from attaining its goal. On my mind, this situation is a reflection of the very interesting detail related to YKOS case. The fact is that in the beginning a number of very influential elite groups including oligarchs clans considered this attack not as a kind of systemic changing in the Russian politics, not as a social conflict between the government and the business, but as a private problem of YKOS which try to violate the rules of the game in order to become an undisputable leader for which the YKOS group should have been punished. This waiting stand was taken in my opinion by the head of presidential Administration and a number of his influential deputies, the Head of the government and a number of vice-premiers, as well as a number of Russian companies Heads. I would like to draw attention to how well Mr. Kasyanov indicated his position in this situation. He didnt say that he was against the general line, against YKOS, he said that he was against the methods used against YKOS the methods of tough administrative pressure. This could be read between the lines that YKOS of course must have been stopped but not by using force, not in such rude way. And this factor from the prospective of the consolidation of the rest of the Russian political elite was a kind of signal to the law enforcement agencies to act tough and energetically. They understood that there was none who wanted to protect YKOS at least at this stage. And this deconsolidated position was reflected in the main body of this report showing that not only Mr. Berezovsky but also other groups ere interested in the appearance of such a document.

No lets get back to YKOS. I dont have any relations with this company, I dont represent it but I would like to recover logic of their political ambitions. I would dare to say that its not only based on the personal ambitions of Mr. Hodorkovsky but it was a kind of political reaction to the current events.

First. Based on the opinions dominating in the management of this company during the period of the second presidency of Mr. Putin the country will have to face serious problems including hard social and economic reforms, possible declining oil prices, terrorism threats and very many other problems. Instead of this we cant see today neither a program for the executive branch to counter these new threats and challenges, nor any specific agenda, we dont see the opinion of the president. On the other hand we can see that the president is more inclined to be involved into more global and international problems isolating himself from domestic policies. We cant see energetic and new people in his team who have shown in the recent 3-4 years that they are experienced managers, major political and economic leaders. I am not going to list them but they supposed to be according to this logic. If we dont have any fears to ensure adequate reaction of the government to these new challenges we must help the federal power to create more stable decision making system. The logic of todays Russian political system created by Mr. Eltsin is very simple bad decision is better than lack of decision. We know that Mr. Eltsin made very many bad decisions however all of them were timely. There never have been any vacuum in the political field. Unfortunately today we can see that sometimes political decisions are not made in time, being either delayed or postponed or delegated to lower levels of the government. It's a very serious threat, the threat that we could observe in Michael Gorbachevs time when decisions were postponed, delegated to other branches or levels of power. So the question rises here as how to overcome these difficulties. Lets establish an institution namely responsible government, responsible to the parliamentary majority which will be responsible of reconciliation of different interests, coordinating these interests, relying on the parliamentary parties and will be friendly to the major companies because international the future parliament the position of these companies will be strongly represented.

So here is the logic. Of course behind this YKOSs logic stands corporate interests and it would be incorrect to deny it. On the other hand I would like to say that fairly this logic used to work in order to enforce the stability of the political system of Russia and first of all the stability of the decision making mechanisms. To confirm my point of view Id like to say that as you remember on the 15th of may when speaking to the Federal Assembly of the Russian Federation president Putin in a very cautious way supported the idea of the responsible government. I believe that in the recent month he has changed his position a lot. Its possible according to the leading Russian analyst then in may he believed that in the case of creation of mixed presidential-parliamentary republic in 2008 it will give him great chance to remain in power even after the end of his presidency. This precedent which is called Brazauskas precedent (you remember Lithuanian president who did not go to the reelection but returned to power as a new prime-minister and the leader of the ruling party of Lithuania. This hypothetical chance was considered by Mr. Putin as well in May 2003. Im giving you this example to show that there is no impermeable wall separating strategic plans of YKOS from the policies and strategies considered by the president. But the problem is that under current conditions the presidents choice was made for other institutional forms. In my opinion, it demonstrates once again the contradictory nature of his attitude. On one hand he is not against the changes started by some part of the people surrounding him, but on the other hand, hes supporting the existing political system being the main guarantor for lack of any changes. So how to coordinate conservative political system oriented on the self-survival and changed based policy its a really tough question and on my point it will be very hard for the president to choose between the two.

What do you think about the role of the Communist party under the current political situation and how do you see its prospects for the future election.

I would not revalue the prospects of the Communist party now. In any case they are a very good political recourse for the key political players. I would never call them the first league, if using sporting terminology, even if theyre playing here they would be rating last in this league. Despite all the recourses allocated today to support the party supporting the government I know that the Communists can expect today to have 180-190 votes. However a real forces have started understanding today that the Communist Party of the Russian Federation (CPRF) has become a systemic party long ago and one should never be afraid of it. On the other hand, this party is a really good political recourse which can be used in future policy making and YKOS was one of the first to understand the significance of this political recourse.

Secondly there is a very important detail. Todays transformation of the CPRF into the systemic party with all its anti-western position, appeal to a Stalins times and so on made a possible to the existing elite to conclude that during the future presidential elections (2008) for the first time a candidate of the left party will have a real chance to be elected the president of the Russian Federation. To confirm this thesis I would like to illustrate it by the political reality. For the first time Mr. Seleznev the speaker of the State Duma spoke about it. Of course he is not going to act as a candidate for the presidency but he meant that the candidate from the left party could be a real winner. There is also some movement around Mr. Glaziev. At this point his potential is not really clear. There are different opinions about his potential. But the fact is that to this person, his political ambitions, his political views draw so much interest shows that the governing elite and several groups are developing scenarios providing that there may be a leftist president in 2008. Its understood that it will be absolutely different leftist movement and it will hugely differ from what we had at the previous elections. Its clear that this wave of new lefetst movement will bring new people, I dont think it will be Gennady Seleznev or Gennady Zuganov or some other top politicians. But its evident that it will be system leftist movement, oriented at the participation in the system of existing political institutions. That is why the most advanced groups of interest today re doing their best to enforce their position in this leftist movement. I would not attribute this tactic the activities by the presidential Administration trying so far to use their favorite tools against the Communist party. According to the one of the Administration members: one thousand of small piranhas will be able to eat up a huge wale as huge as a Communist party. We can see today that there are very many piranhas however they are failed to make any damage to the Communist party.

Do you believe that Rogozins New Russia which may belong to this leftist movement and is established today, do you believe that they are this new force you have spoken about?

I think that rather its an attempt to create another piranha, excuse me for such a parallel. The failed Seleznevs project, the failed Sinigins project, we dont know what about the Glazievs project and Rogozins party is from this row. I think that all these attempts are aimed at isolating the CPRF in the way it exists now. I think that the successful will be an attempt to integrate this party in a power structures with its subsequent transformation. Otherwise it will just strengthen the electoral positions of current Communist party leader. The reason of it is that the main division in the voting for the CPRF is very simple whether you are for the current power or against it. Rogozin is a part of the current power then he is not with us, he is another Rybkin, another Seleznev and so on. Thats why we cans support this politician.

I was just trying to reproduce the logic of the voting for the Communist party.

Andrey, can you assess the potential of social-democratic ideas in Russia and the prospects of Gorbachevs social-democrats.

Unfortunately, electoral and other potentials of the social democracy in Russia today are very close to zero for several reasons.

The political and cultural reason I have just spoken about. There is no electoral niche for social democrats. There is a niche for the current power when you should vote for the UnitedRussia or you can be for the opposition. In the cultural aspect it means that you vote for the Communist party. The Russian political mentality is painted in black and white either you are for the power or against it. There are no half-tones. This is a cultural reason.

There is also a political reason. There is no group of active trade unions, active civil society organizations defending the rights of various minorities which are the main electoral base, the main network for social democracy in the western Europe. In Russia the relationships between employers and employees are vertical that is why the CPRF and parties at power ar closer to this type of relationships than social democracy with a horizontal approach with its attempt to oppose within the frame of democratic procedures. And the Russian attitude can be characterized by the phrase: Thank you, dear father, for paying us the pension. Well be able to speak about development of social democracy not only as far as the Communist partys transformation into the systemic party, but also as the basic development of the social structure of the Russian society. When we have modern large enterprises with strong trade-unions that will form the basis for social democracy. But it will only take place in the few years. Its not a question for the current elections or for the next Putins presidency.

Thank you.

The Russian economy has never been as good as it is today. Economic growth has continued for the fifth year running. Preliminary estimates show that economy will grow by 6.9% in this year. Peoples personal incomes grow. And the investments grow significantly. This situation disproved some myths about the Russian economy. The first myth that the Russian economy can successfully develop with low ruble rate and the second that low energy tariffs are necessary for economic growth. We are not observing this over the last 9 months. The ruble rate grows and energy tariffs grow.

What it means? Whats the explanation? I think its due to the fact that in the Russian economy there are certain effective aggressive private cooperate structures that respond the market signals, respond to prices signals, thy actively compete for the internal consumer. And increase of investment is aimed at decreasing costs and improving quality of the products. I dont know whether the events that Andrey described will disrupt this trend, but the situation is positive. The gold and exchange currency reserves reached its historic maximum at 65 billion dollars, the labor productivity is growing.

There are lots of problems but they are being resolved. One of the problems is the situation of stationary transition. What do I mean by this term? Many informal and shadow interactions that were mechanisms of adaptation that were response for the shock of transition periodtoday they have assumed a systemic character. Its very difficult to control them. YKOS was one of the leaders of modernization in this respect. YKOSowners found that it would be much more profitable strategically to gain their profits through growing capitalization, rather than control of financial flows. So YKOS is increasing its own capitalization, it gets involved into humanitarian processes in an outside Russia that created great positive image and increased its capitalization. YKOSs policy is negatively estimated by many businessmen in Russia. YKOS supported Russias entry to WTO which was opposed by the machine-industry sector, for example. YKOS lobbied for building the oil-pipe to Dazin in China. While Transneft company advocated for pipeline to Nahodka. YKOS won so far, it got an intergovernmental agreement that should be signed in September. I dont know whether it will be signed under the current circumstances. YKOS also advocated for a partial pipeline to Murmansk which was also opposed. Such an idea is not new for Russia. We also have a Caspian consortium. I can say that private pipelines are common in Russia. There is now stumbling block here, there are some intermediate forms such as consolidated credits in exchange or permission to pipe oil. But again YKOS here opposed conventional interests. At last, the company also advocates for increase imports of oil products to the USA. It could be said, that YKOS is the leader in diversifying of Russias oil markets, not everybody likes it. YKOS also considers that Russia should not coordinate its price policy with the OPEC countries in the international oil market. I would also add that YKOS supported the parties of extremely right orientation and the CPRF. YKOS said nothing about United Russia. And if you follow polls, they say that United Russia and Communists are competing at the elections, and that part of the Administration that was responsible for the building of United Russia wants to find a scapegoat, someone to point the finger at saying they caused our fail.

So this sum total of these factors brings about the conflict we are speaking about.

But there is one more profound thing. If you follow the economic discussion in our country and if we simplify this discussion there are basically two statements. One thesis is that due to an unusually high level of main Russian exports we should take away the so called natural rent and redistribute it in the centralized way. There are many proposals from automobile building to aircraft building industries. And then to support the uncompetitive industries.

Another more liberal point of view says that we need to improve the law enforcement, and we should not focus so much on the formal growth rates. Growth rates come naturally when the general entrepreneur climate improved in the country. And the way they are so they are!

Recently these talks about natural rent became more active in due to extremely high profitability of the Russian oil companies. When I here that Iraq has an 8 billion debt to Russia, I could say, that only during these 6 months (2003) Russian companies got much more profits than this 8 billion of Iraqi debt. The idea of the redistribution of the natural rent can be seen in the position of the Russian Union of Industrialists and Entrepreneurs, in the position of the Chamber of Industry and Commerce. I dont mention opinions of the leftist economists. YKOS is the first candidate for redistribution of its natural rent and this fact also gives conditions for the situation we were talking about.


If I understand you correctly this redistribution is a source of subsidies needed by uncompetitive industries such as aircraft industry. And if this takes place then such companies as Rosneft will get more possibilities and licenses for the development or is it a kind of tax that would take away part of the profit of the effective oil companies?

Its the second scenario, when the taxationincreases proportionally for all companies. In theory it exists now in our country because as you know export oil and oil products export duty is related to the world oil prices, the higher the price the higher the duty. A tax for mining natural resources has been introduced as a substitute to royalty. Natural environment, circumstances of oil production are very diverse so it would be very hard to complicate the taxation of the oil sector.

The main idea is not to give more to Rosneft, but its a classical policy when some sectors are artificially supported in hope making them competitive in the future. Thats, on my mind, some kind of the repetition of the programs of acceleration may be familiar to people who follows the situation in Russia for a long time.

If you please I would also like to say a couple of words about economic and political reasons for attack on YKOS. Its known that this company in the recent year has been opposing the passing one very important law and one of the laws was lobbied by it. The law it opposed is the so called Sharing Production Agreement allowing the avoiding money transfer to the budget. No surprise that those people blaming YKOS for its not patriotic position saying that the company doesnt want to share with the government in order to support the government and its social and economic policies. And due to the lack of this law the state budget failed to receive certain amounts of money.

And the second law is about taxation of oil companies which was adopted in the spring of 2002 allowing major oil companies to minimize their tax base. And this minor fight between the president and the head of YKOS Mr. Hodorkovsky started, when Hodorkovsky was blaming the government of corruption there was a tough response. In my opinion it was based on disagreement between the government and YKOS on these two important laws. Today the people trying to make the presidentmore tough with respect to YKOS they say: Look, this company doesnt want to support us in this very important election period. And elections are not only promotional campaign but also increasing pensions, wages indexation and so on. And of course all these activities depend on the way the budget is filled up with the money, including money of such companies as big as YKOS. And so YKOS is in a very disadvantageous position, an object for criticism.


What do you think about the role of Duma in Russia and do you think if its really possible for Duma to be represented by people who are independent of Kremlin?


Not so long ago major companies preferred lobbying their interests through the executive branch, currently they understand that to pass a favorable economic law is much better and it would give you much more benefits compared to getting a certain ministry signature. Its very easy to change such signature, but not the law. To my mind its a huge progress that Duma has transformed itself into a real legislator and is keeping under control the lawmaking process.

As to its future. Its my personal opinion. I believe that sooner or later the question of responsible government will be raised again.

The fact that the communist government in some countries the parliamentary institution collapsed and were replaced by the presidential power. So today it doesnt play similar role, I mean today for elite its much better to use other mechanisms of reconciliating interests, doing it through the parliament and through the government.

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It has nothing to do with Russia specific factors. This problem does exist in all post-soviet countries. In Ukraine where the president has his problems the situation is the same. In Uzbekistan where the president does not have any problems of this kind the president nevertheless is initiating these changes in order to create mixed presidential-parliamentary republic. And I think that this institute will continue being a really significant and important one.

I will try to cover the economic situation in Russia. To evaluate a current economic situation one can mention that it is pretty favorable. The results of the first 6 months demonstrate 7% GDP growth which is going to be the level of this year if there is no catastrophe. Investment figures are even bigger which is shown by formal dynamic of investments and the dynamics of sectors such as construction, construction materials manufacturing. It all shows that the basic economic course taken by the government is adequate to the existing economic situation and namely that a taxation policy and profits taxation policy that was criticized last year has shown its efficiency. According to different analysts consolation of investments benefits only had a short term effect. Part of investments was focused on the end of the year 2001 and then in 2002 there was a kind of collapse and then investment growth recovered. I would abstain from evaluating growth and growth efficiency in terminology of doubling GDP or achieving per capita GDP level equal to the one in Portugal. According to the economic history figures themselves speak about very little things, the history shows that Russia had already achieved the level of Portugal in 1937-38 which is unlikely to be a really good indicator in terms of the structural problems we are facing today. If Russias economy grows with a rate which is in line of the European countries and the USA, I mean sustainable development, this would be a real indicator and a really positive evaluation of the course of any government which may be in power in this country.

I would like to draw attention to another qualitative trend which I find to be important in terms of evaluating the situation and developments in the recent 4 years. Today its still hypothesis and well only be able to verify it in a couple of years but if we looked at a dynamics of the recent 5 years I mean the production dynamics and map it on the dynamics, Im sorry for the history reminiscence, of the Soviet economy in 1921-22 we will see a very important trend. The fact is that today like in the 1920-s we are in the face of post-crisis recovery, the recovery which has very interesting features. They were studied by the Russian economists of the 20-s but they are applicable to our todays situation. Namely that recovering growth does not require any investments at the initial point; that investments required at later stages will be very moderate and then therell be a decline. However while evaluating the pre-crisis level one should be very cautious because in the 20-s this pre-crisis level was much higher than in 1913. There always areas which are typical of the planned economy. Of course our todays level is not the level of 1989 because in the Soviet economy products were manufactured not designed for sale, they were products to be given away or free of charge, designed for barter and so on. As for this question when we surpass the level of pre-crisis GDP it will be a very artificial question because today we can only speak about merchantable goods. And GDP figures of the market economy and those of the Soviet economy are almost incomparable. So I am bringing to light this historical parallel because the logic of recovery growth despite the fact that growth rate is big may have not good effects. This declining curve of the GDP dynamics is only good one when the political power is enforcing, you can see the kind of scissors between economic and political power when political powers growing and growth rates are declining. Sometimes measures are needed to overcome the situation, such measures were taken in the 1920-s, when the situation was established very favorable in politically mean but economically the situation was very difficult. And the outcome may be really dangerous.

I can say that if this dynamics remain we will be able to start going away from this crisis. In 2002 we reached the lowest point of growth rate not supported by investment dynamics. Increasing growth rate in 2003 connecting with investment growth allows making a conclusion about a new qualitative stage of economic development when GDP growth is really linked with the investment dynamics. I repeat that well be able to judge in one year time.

There are few nuances we should pay attention to. One is the dynamics of the exchange rate. If what I said is true that we are entering a phase of growth caused by new investments then dependence of our growth on a low exchange rate decreases. The problem of high or low exchange rate from the point of view of growth rates is important when those growth without investment when the economic growth does not involve a growth of labor productivity. If the growth approaches to investments and productivity growth rises then reinforcement of exchange rate is not dangerous. If you look at the other post-communist countries, Hungary, Czechia and Poland, there national currency strengthened all the time. But it was not in a form win for revenue because of cheap recourses but as an inflow of investments, so inflow of currency was in the form of investments what strengthened national currency. And combined with increased productivity the situation was not dangerous as in the case of strengthening the national currency through oil incomes.

I presented an optimistic scenario. If this tendency is true then we can agree with our authorities currency policy aimed at strengthening the ruble and attempting to transform it as a reserve currency of the second level. This is I repeat an optimistic scenario and if the circumstances are right such as strengthening euro, political stability and something that we dont know yet we should not exclude the possibility that ruble may actually become into the second reserve currency. For in 1949 or in 1953 nobody imagined that German mark which experienced two hyper-inflation would become second level reserve currency in 10 years. And ruble has positive background because in the post-soviet space it till plays an important role.

Another problem important from the point of view of economic dynamics is political reforms. Im convinced that we are in the situation using the economic slang of dropping productivity of economic legislation, speaking in English diminishing marginal return. Because each new part of economic legislation gives less return in terms of its application. Because the real problems are in the sphere of policies and judicial systems, governance and military reforms. I am convinced that without addressing these 3 sets of issues we wont see any substantial improvement in our economy.

Speaking about political changes (and I heard the end of the previous discussion) I would not agree with the way of the issue of reviewing the constitution was raised. I believe that the Russian constitution is the first constitution of the postindustrial world and its radically different from XX century constitutions, those thick documents like the German or Brazil ones which described in details all the aspects of economic policy. The Russian constitution is rather broad and general. It is not a constitution of a presidential republic, its constitution of a constitutional monarchy, if you wish. British queen or king has fewer rights than the Russian president but its a problem of tradition not the letter of the law. As opposed to the constitution of presidential republic, French or American, all the functions of Russian president are duplicated. A president may be very powerful, but he can appoint a premier looking only at the parliamentary majority and automatically sign into law the bills adopted by both Chambers of the Parliament. So the change of the model of behavior of the state leader does not need reviewing the letter of the constitution, it means changing the tradition which may be more difficult, but is more sustainable on the point of view of strategic development of the country. In this respect I believe that any changes of the letter of the Constitution are very dangerous because they create a precedent of changing the rules of the game. And the next two generations should get used to leaving by this Constitution, by new rules of the game. And again tradition is much more important. Tradition of parliamentary coordination of interests is much more important than writing such a provision into the Constitution.

You have just returned from Finland. Are you concerned about whats happening here, I mean the YKOS case.

I would say if there is a political component to it thats very sad. If its purely economic it does not require any comments. Naturally Im against using political components playing in such a sensitive field as investment climate in the country. It is obvious and everybody saying it. But you know its interesting kind of test, test for solidarity in our domestic business. Well see if our business can pass the test. If our business is not prepared to take such tests then serves him right.



 - 2003

: 2010

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Excerpts from the Report Russia and World 2003


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