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Bailout a la Russe: Government Establishes Tight Control Over Industries

Posted By Yevgeny Volk On December 15, 2008 @ 11:57 am In International | Comments Disabled

The Russian government is aggressively exploiting the current economic downturn to step up its grip over the economy and actually nationalize most of the lucrative industries. The past week saw new examples of this trend. President Dmitry Medvedev endorsed a new business bailout fund to provide direct financial assistance to industrial enterprises bypassing the existing banking system. In fact, the point at issue is establishing an alternative arrangement to finance select enterprises. It would be even less transparent than the present-day bailout mechanism through budget allocations and banks.

Next, Vladimir Putin and the Cabinet members discussed a list of businesses set to receive higher-priority support. There will be some 150-200 of such government-identified companies. This opens up broad opportunities for manipulation and the red tape.

Under the Premier-identified policy track the government has got down to introducing amendments to the federal budget. Next year huge resources to the tune of $16 billion are expected to be allocated for expressly bailout purposes. The better part (around $11 billion) is intended for enterprises of “strategic importance” in the form of government loan guarantees. The government-controlled defense-industrial complex is set to get most of the funding.

The government is stepping up its protectionist measures. To protect farm machinery manufacturers Putin directed to impose a 15% import-duty hike on similar foreign products. In addition, according to the Prime Minister’s resolution, budget allocations for purchasing farm machinery are to reach solely domestic producers. This would have a negative effect on Russia’s farm machinery imports and would deal a serious blow to Moscow’s relationship with its trading partners, particularly, with the United States.

Alluding to the crisis, the government has launched a smooth nationalization of the remaining lucrative industries. From this perspective, the takeover of research-industrial association Saturn, the leading aircraft engine manufacturer, has been a momentous event. Saturn’s management has resisted joining the government-run holding Oboronprom for several years. But presently its board of directors, namely, the majority shareholders caved in under the government’s pressure and had to sell their shares to the minority shareholder, that is, the government. Once Oboronprom was made part of the defense-industrial giant Russian Technologies that enjoys Putin’s patronage, Saturn’s chances of retaining its independence are practically nil now.

These figures indicate that the numbers of private businesses in Russia are shrinking, while the government-run property is swelling. Compared to five years ago when the government controlled 20 percent of joint-stock companies’ consolidated capital, today the figure has approached 50. Its share is still higher in large companies. Clearly, the crisis is going to contribute to government-controlled property growth, while privatization is suffering a setback.


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