Maxim Tovkailo
Prime Minister Putin conducts meeting on economic issues
Prime Minister Vladimir Putin presided over a meeting on economic matters at Novo-Ogaryovo yesterday. He reiterated that the Government was not going to use the current crisis to expand its presence in the economy. Paradoxically, businessmen are asking for the opposite.
A letter from the Russian Engineering Union to Mr Putin was unveiled yesterday, in which machine-builders suggest 14 measures of assistance to the sector, including the purchase of the securities of problem enterprises as well as preferential treatment in awarding state orders and a raise of import duties.
The petition to the Government was signed by Sergei Chemezov, president of the Engineering Union (he is also the head of the state corporation Russian Technology). The authors of the letter believe strategic enterprises should issue additional shares, which would then be bought by the state or by state-authorised banks. They propose setting aside reserve budgetary funds for the purchase.
In regard to the state order, the petition calls for increased spending on infrastructure projects that would boost demand for the products of the machine-building industry. The businessmen also advise Mr Putin to first abolish the mandatory deposit the enterprises must make to bid for a state order, and second, to increase advance payments to the enterprises that have landed state orders.
At present, they are paid 30% of the cost of the order in advance, with the remaining 70% after the order is fulfilled. The authors of the letter want to get 70-80% of the contract sum in advance.
Orders from Asia, Africa, or Latin America would greatly help the sector. The authors of the letter are thus asking Vladimir Putin to grant "tied credits" to foreign governments for the purchase of Russian engineering products.
A separate item in the letter has to do with loans - they are asking permission to subsidise their loan rates out of the government treasury. Not all loans, but only those taken out to fulfil a state order (including the defence order). The Government is being asked to ensure that "authorised banks make available easy-term credits refinanced by the Central Bank at an annual rate of 8% for the needs of the national industry."
Pointing out the importance of the engineering sector to the economy, the authors advise the Government to help the sector repay foreign loans. To this end, the state has already dispersed $50 billion to the Vnesheconombank (VEB) state corporation out of the sovereign wealth fund. The problem is that $50 billion will last only until the end of the year.
In 2009, the corporate sector will have to repay $120 billion, according to the Central Bank. In light of this, the authors of the letter suggest that the Government, along with refinancing enterprises through the VEB, pay the external debts "of the key companies in the national industry".
Finally, the Russian engineers are asking to be protected against foreign competition in the domestic market, first, by raising import duties on their products by 30-40% and more, and second, by spreading the rules governing foreign automobile assembly plants to the entire machine-building sector. Components for machines must be produced within the country and local content should be 75%.
PUTIN REPLIES
The engineers' requests seem to have given Mr Putin something to think about. "Nationalisation of the economy is not our goal," the Prime Minister said firmly. However he admitted that the measures being taken by the Government do not quite match the spirit of a market economy. He cited the experience of other countries: "Our foreign partners are doing the same," Putin noted.
He spoke with alarm about the swelling budget of the anti-crisis programme. Support of the financial system and the national industry calls for considerable budget outlays that should match the scale of the problems that have arisen, the Prime Minister noted. However, the Government will not cut budgetary spending in order to support banks and enterprises. "I agree with the Finance Ministry on that issue," Mr Putin admitted.
Even so, the Government may be left with no option other than tapping into reserves to stabilise the financial market. If this were to fail, the ghost of a financial crisis may become very tangible. So far, financial problems have not resulted in a slowdown of the Russian economy.