Russian Economic Reform

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“Decorative” Dvorkovich

Published on May 27 2012
Posted by: jeff

Jim O’Neill, of Goldman Sachs and coiner of the BRIC acronym,  struck a positive note on Russia at a recent conference in London, saying: “There are some good faces in the new cabinet. Arkady Dvorkovich is a natural reformer.”

Once again, Jim has demonstrated his shallow knowledge of Russia (See also my posting of 3 December 2011 entitled “BRIC Jim O’Neill’s simplistic thick-brick thinking on Russia!” under “Expert Group 1:  New model of economic growth. Securing macro-economic and social stability” in the right-hand column.)

Dvorkovich is little more than a “decorative” feature in the new cabinet.

As a deputy prime minister, Dvorkovich does not have his own department. The influence of the deputy prime ministers depends very much on their own personalities, ideas and relationships. Dvorkovich’s only source of power is Medvedev — and Medvedev has been on a downhill slide in influence since allowing his psychological dependency on Putin to over-ride his (correct, in my view) intellectual judgment that he would have been the better president.   

Dvorkovich will be treated with disdain by at the three most powerful figures in Russian economic policy: Vladimir Putin, Igor Sechin and Igor Shuvalov. In addition, he will have put the Finance Minister, Anton Siluanov, and the Finance Ministry offside with some rather – in my view — questionable economic statements and ideas.

Dvorkovich made it clear on several occasions that he would have preferred Medvedv as president, so will have few “brownie points” in Putin’s view.  

Dvorkovich has been a strong verbal proponent of extensive and rapid privatization whatever the market conditions. It is very clear that Sechin has the opposite view in relation to the fuel and energy sector – and not only energy producers, but also transport infrastructure such as pipelines and ports – and is supported by Putin. While Dvorkovich is officially the deputy prime minister responsible for the fuel and energy sector (as well as  agriculture, transportation, telecommunications, environmental issues and non-defence industry) I suspect many decisions concerning the fuel and energy sector (and probably some of the others) will be made without him having any input whatsoever.

My own view is that Dvorkovich has occasionally been somewhat naïve and flippant on the privatizations issue, and I have some sympathy with aspects of the Putin/Sechin position.

Shuvalov will be equally as influential in cabinet matters as Medvedev and officially has oversight of the Finance Ministry and its minister. Dvorkovich will get only limited support from him.

In November last year Dvorkovich was proposing that VAT be abolished and replaced with a regional sales tax.  Siluanov retorted that the VAT verses sales tax discussion has been held before, and VAT won out! A Finance Ministry official described the idea of switching the two as “Utopia”, and questioned the Dvokovich’s knowledge of the numbers involved in such a switch.

(See my post of 27 November 2011 entitled “Decentralization of power and finances” under “Expert Group 12:  Real federalism, local self-government, budgetary relations between the center and lower levels of government” in which I supported the view of the Finance Ministry.)

In July of last year Dvorkovich was promising “to fight to the bitter end” the Ministry of Finance idea of payroll based “insurance contributions” above the set threshold, but eventually lost that battle.

(See my post of 31 July 2011 entitled “Dvorkovich verses Kudrin on Insurance Contribution”  under “Expert Group 3: Reform of Pension System” in  which I supported the view of the Finance Ministry.)

Dvorkovich may be a “natural reformer” – as Jim O’Neill says – but his enthusiasms are not always the basis for sound economic reform policies. Medvedev will listen to him, but I suspect that few others will.