Dire public finances are reportedly forcing Russia to sell stakes in some of the country’s biggest nationalized companies, in a rare loosening of the state’s airtight grip on the economy.
Markets welcomed the Russian finance ministry’s apparent shift toward privatization. However, the prospects of a fundamental change in economic governance in Russia are slim. And even if the sale occurs, the Kremlin’s clutch on industry — although slightly less white-knuckled — will remain firm.
«It could be seen as part of a renewed emphasis on a more liberal policymaking agenda — if you’re being very, very optimistic,» said Neil Shearing at Capital Economics in London.
The move merely represents the most painless way to replenish coffers pillaged by the oil market, he said.
Russian fortunes, which rise and fall with the fluctuations of energy markets, have vaporized since the onset of the global recession and the plunge in oil prices from a peak two years ago. As a result, Russia faces chronic budget deficits and is fighting a shortfall this year of around US$80-billion.
To plug the budget hole, a tentative plan reportedly awaiting approval by Prime Minister Vladimir Putin will see minority portions of 10 major firms sold to investors. It’s expected to generate US$29-billion.
The company’s reported to be on the block span a number of sectors including banking, hydro power, transportation and power infrastructure. Most notably, the list also includes Rosneft, the country’s biggest oil producer, as well as Transneft, which controls the biggest oil pipeline network in the world.
At face value, the move answers calls for economic reform and liberalization. After all, Russia’s economy is highly dependent on oil revenues and has been characterized even by Russian President Dmitry Medvedev as inefficient, uncompetitive and corrupt.
But Russia has in the past loosened its economy only to the minimal extent required to maintain political control, said Aurel Braun, professor of international relations and political science at the University of Toronto.
True economic reform would require legislative change, he said.
«If you’re going to have a real market economy, you’re going to need to have genuine constitutional limits on the state,» Mr. Braun said. «I see this privatization as a positive step, but not necessarily a transformative move.»
The asset sale would be the biggest in Russia since the early 1990s, when a chaotic series of privatizations saw oil and metal assets sold on the cheap to a number of well-connected businessmen now known as oligarchs.
Under Mr. Putin’s presidential reign from 2000 to 2008, he wrested control of some of those assets, including oil concern Yukos, then run by Mikhail Khodorkovsky, once the country’s richest man. Khodorkovsky was then prosecuted for fraud and imprisoned.
But Mr. Putin is far from a crusader against private wealth, Mr. Braun said.
«It is not that people around Putin are averse to getting rich, they are just averse to people they don’t trust getting rich,» he said.
While it is unclear how the selloff will be conducted, it is likely to further enrich the siloviki, the anti-Western, conservative security apparatchiks who back Mr. Putin and control most of the government, Mr. Braun said.
He said not to expect the kind of privatization in the U.K. under the Margaret Thatcher government that created a large shareholder class with a vested interest in economic stability.
But the Russian government is not likely to repeat the mistakes of the 1990s, Mr. Shearing said.
First of all, although budget deficits are high, public debt remains manageable, giving the government the option of raising money through the markets, a route unavailable in Yeltsin’s days.
«Although institutions are weak and ultimately corrupt in Russia, it’s not as bad as things were 20 years ago,» Mr. Shearing said. «Not much better, but not bad.»
