GOVERNMENT GIVEN 48 HOURS TO REWRITE THE PLANS OF DEVELOPMENT UP TO 2020
The meeting of the Government Presidium, which was scheduled to discuss the plan for Russia's long-term development submitted by the Ministry of the Economy, has been canceled. Prime Minister Vladimir Putin gave another 48 hours to end the disputes over Plan-2020, which has been in the works since 2006.
The chances that the concept will be approved by the Government on October 1 are not great: the main arguments between the Finance Ministry and the Economics Ministry focus on the list of "technical" loose ends identified by the Prime Minister.
A Government Presidium meeting scheduled for yesterday at the White House was to see a final discussion of Russia's long-term social and economic development up to the year 2020, summing up the proposals made by President Dmitry Medvedev and former President Vladimir Putin from 2006 up to date.
Early last week, the plan was still expected to be publicly approved by the Government. However, the integrity of the Government's plan was dealt a few blows yesterday. Plan-2020 was discussed in the presence of Prime Minister Vladimir Putin, but the meeting of the Presidium and government approval of its main document, as announced by Vladimir Putin at a meeting of the State Council in 2006, were cancelled. The meeting at the White House was hastily renamed, from a meeting of the Government Presidium into a meeting at the Prime Minister's Office.
According to Kommersant, the decision to cancel a meeting of the Presidium was made on Friday, September 26, during a meeting at the office of First Deputy Prime Minister Igor Shuvalov. Government sources say that the Ministry of Economic Development was only able to present three approvals of Plan 2020 to the White House: from the Communications Ministry, the Ministry for Emergency Situations, and the Federal Financial Intelligence Service. All the other ministries and departments have sent to the White House their disagreements and remarks on the Plan, which is being developed by the Economics Ministry. Instead of the Presidium giving the plan a stamp of approval, yesterday's meeting might well have developed into a battle between Economics Minister Elvira Nabiullina and her opponents, above all Finance Minister and Deputy Prime Minister Alexei Kudrin.
"Last week, the Finance Minister asked the Government to postpone approval of the budget strategy (developed by the Finance Ministry - Kommersant) and the 2020 concept until November 2008," Deputy Finance Minister Oksana Sergienko said in an interview with Kommersant.
Mr Putin's decision was a tactical move. "The Government has rejected our proposal," a Finance Ministry spokesman told Kommersant yesterday. The Presidium meeting was canceled and Vladimir Putin hardly mentioned the Plan during the meeting: instead, he said that work on Plan-2020 was in the "final stretch" and that the document would be discussed by the Government on October 1. This leaves the Government's economics team just two days to iron out all the differences. The Ministry of Economic Development submitted the initial draft of Plan-2020 in March 2008, but its final discussion was postponed from May to August, and then to September 22 and September 29.
The Prime Minister listed the "technical" issues to be resolved within 48 hours. These issues are in fact the main problems of Plan-2020. Mr Putin explained that decisions had to be made on reform of the pension system in order to include it in Plan-2020, "ensuring favourable macroeconomic conditions for the implementation of our plans and strengthening the credit and financial system," "implementing the plans to improve the infrastructure and create new growth points in the regions".
The Health Ministry told Kommersant yesterday that no meetings were scheduled on the pension reform over which the Economics Ministry, the Ministry of Health and Social Development and the Finance Ministry are in disagreement: "We have passed all our documents to the White House, and it is up to the Government to make the decision." The questions of "stability" and "infrastructure" are the main causes of the conflict between the Economics Ministry and the Finance Ministry over Plan-2020. The key element of the plan from Ms Nabiullina's point of view, a tax cut (notably the VAT cut), cannot be approved by the White House on October 1, as President Dmitry Medvedev has postponed the decision until 2009, in connection with the economic crisis.
On October 1, Plan-2020 will be discussed not by the Government Presidium but by a monthly meeting of the Government itself. Apparently Vladimir Putin hopes that the differences within the government's economic team will be resolved in two days. So far, a compromise is not in sight. After the meeting, Deputy Economics Minister Andrei Klepach insisted that the Ministry did not intend to change Plan-2020, in spite of the situation in the world financial market and would only agree to "some changes in the measures and instruments of achieving the same goals."
On the eve of the meeting, the director of the Strategic Management and Budgeting Department of the Economics Ministry, Oleg Fomichev, claimed that the Finance Ministry's proposals (contained in the Ministry's budget strategy up to 2023) would not allow the accumulation of sufficient resources to meet the social and economic development targets set by the strategy. He also accused the Finance Ministry of a reluctance to make radical changes in the national budget policy, which is based on "inertia", and does not meet the targets of the Plan that require massive state investments.
The Finance Ministry is likewise not prepared to yield: Deputy Finance Minister Sergei Shatalov said after the meeting that he saw no possibility of a compromise on the issue of pension reform or reform of the single social tax, among other possible issues. "The proposal will either be accepted or rejected," he said yesterday.
Technically, it is impossible to agree with the Finance Ministry's initiatives and to keep Plan-2020 intact, since the plan assumes that the problems of pension reform can be solved by increasing the single social tax and cutting VAT, and affirms the belief that the sovereign wealth fund should not be spent to support the pension system but be used instead to build an innovation-driven economy.
It is unlikely that Vladimir Putin will, over the next 48 hours, try to solve the issue by a rumoured personnel reshuffle. Andrei Klepach has indicated that Plan-2020 may be approved on October 1, while the Government will continue the dispute over its concept. He proposed that after considering Plan-2020, the Ministry of Economic Development should be instructed to come up with a long-term economic development forecast that could provide the basis for altering Plan-2020 to adapt to new circumstances.