Putin details Russia’s present and future in his Cabinet’s performance report

Successful pre-crisis preparations 

However, noting that presenting such a comprehensive report in crisis time is ‘an unrewarding task,’ Putin started his speech from a positive note, recalling the sparkling performances of the economy in the years preceding the current crisis. “Our robust performance in the pre-crisis era put our country in an excellent financial shape that enabled it to withstand the most destructive effects of the current global economic crisis,” Putin said. “The Russian free-market and social institutions have now fully demonstrated their stability and ability to withstand these negative trends.” 

Characterizing today’s dire economic situation in the country, which he called a ‘mirror reflection of the unprecedented downturn’ in the global economy due to the ongoing financial crunch, Putin said his government had already poured over R1.4trln from the federal budget into the stabilization of the economy. “This crisis was not of our making, as it did not originate in Russia, but it has affected not only us, but the whole world.” As a measure of the actual gravity of the current global economic malaise, Putin noted that this year’s global GDP will drop into negative, the first time since the WWII. 

Moving into the more problematic areas of his report, the prime minister specifically noted that the crisis has once again not only highlighted, but also exacerbated Russia’s perennial problems, notably, the country’s unacceptably lopsided dependence on international market price trends, little or no diversification of the economy and a stark deficit of the so-called ‘long’ loans and other liquid financial instruments. “However, despite these problems, Russia has so far been able to withstand the catastrophic consequences of the unprecedented global economic downturn,” Putin said. “We owe this to our accumulated financial reserves that had enabled us prevent our economy and its financial system in particular from extinction,” he added, noting that the government’s anticrisis actions have already produced tangible results. “These included the prevention of a total collapse of the national banking system, which was on the brink of defaulting on its obligations,” he noted. “The government helped the banks to protect citizens’ savings and prevent the then-imminent paralysis of corporate accounts that would have driven companies’ operations to a standstill,” he added. “Banks, which had received state financial aid, have been able to boost the volume of granted loans to real economic sectors by over 15%, having approved loans totaling over R1trln.”

However, the actual sum expended so far to mitigate the growing negative consequences of the crisis and prevent the eruption of social chaos is a lot higher. “Along with the generous funding from other government sources such as the Central Bank, the National Welfare Fund (NWF), which holds parts of the billions of dollars accumulated from the oil windfalls in the good, pre-crisis days, and lowering of taxes for both corporations and individuals, the total sum of the state financial interventions to mitigate the market downturn and spur recovery of the domestic economy now stands at staggering R3trln.” 

Highlights of Putin’s anticrisis strategies

Talking about the raging crisis, possible exit strategies and his Cabinet’s ambitious plans for the post-crisis era, Putin said all the anticrisis-measure financial resources are directed at the development of business and social infrastructural projects, innovative programs, provision of financial aid to needing companies that meet specific conditions, as well as boosting military and defense-related corporations, the construction and other vital industries in the country. “Thus, we plan to create a strong infrastructure and technological base for the future development and swift economic recovery.”

CPRF Central Committee Chairman Gennady Zyuganov: “We have yet to hear any distinct answer to our proposals for you to change the country’s economic course, seriously overhaul the Cabinet and realign the government’s priorities based on the real conditions currently prevailing in the country. And, we do not understand why you don’t want to take such measures.”

Putin said the top-priority goals of the government’s anticrisis strategies remain the full activation of corporate activities in the economy, stimulation of growth in domestic demand, support and encouragement of innovations, structural perestroika of the real economic sector and total diversification of the economy. This calls for seeking urgent solutions to such key issues as tax reforms, including the provisions of tax reliefs to businesses across a broad spectrum of taxable issues, reformation of the pension system, effective realization of all the already adopted programs aimed at supporting economic growth driving companies that are currently suffering from the global crisis, etc. 

Thus, speaking on taxation issues, Putin noted that the corporate profit tax rate had already been slashed from 24% to 20%, while taxes on small- and medium-scaled enterprises (SMEs) could, depending on the decisions of the regional governments, be decreased from 15% to as low as 5%, all in addition to the simplification of VAT payments for all businesses in the country. “The reduction of taxation is expected to leave over R600bln for businesses in 2009,” he added. On personal incomes tax, the prime minister noted that ‘it is not economically reasonable’ in times of global financial crisis to introduce a progressive taxation scale policy for citizens in place of the current flat rate of 13% in order not to undermine tax revenue collections. “However, the government plans to continue its policy on the optimization of tax burdens on businesses based on well-weighted and balanced decisions.”  

Also, the government has agreed to embargo the introduction of the increase in the so-called unified social tax, the basis for the formation of the Pension Fund budget by businesses, which was expected to take effect this year till Jan. 1, 2011. The government plans to compensate the expected losses in the Pension Fund budget from the NWF, a move that will help the government to index pensions over this period, because “we cannot afford to execute anticrisis strategies at the expense of pensioners.” 

On fiscal economic stimulus for companies hard hit by the current crisis, Putin said that the government had already helped several companies severely undermined by the global economic meltdown and will continue to help the most innovative and progressive corporations in the country. Specifically noting that the government does not have any legal obligations to help private corporations, including helping them to meet their foreign debt requirements, Putin, however, noted that the government was forced to act in some cases to prevent the nation’s strategic assets pledged by the indebted companies as collaterals in foreign banks from being seized by the creditors in lieu of their loans. 

However, in cases, where businesses cannot be saved because their owners had lacked the foresight to innovate and restructure their operations or irresponsibly economized resources for these purposes in the past, thus making their closures today inevitable, the government shall in such instances provide aid directly to the employees of such companies. “This is because we cannot afford to pump our strained financial resources into non-perspective corporations as such policies will not only be tantamount to conserving ‘the past’ of the Russian economy and a total waste of the taxpayers’ money, but will also be counterproductive as well as contradict our national interests.” The government’s support for employees in such companies could be in the forms of provision of unemployment subsidies, provision of new jobs through the Federal Employment Services Agency as well as encouraging laid-off employees to undergo new or extra qualification courses to make them eligible for new jobs/professions. 

The Opposition disagrees on several issues

From the reactions from the State Duma audience, it was clear that Putin’s presentation only found full resonance with United Russia, the pro-Kremlin majority party in the lower chamber, and its key ally, the Just Party, whose legislators applauded the prime minister several times during his presentation, while the Opposition parties’ reactions were comparatively more lukewarm, including an angry tirade against the report by Communist Party (CPRF) Chairman Gennady Zyuganov. 

LDPR Chairman Vladimir Zhirinovsky:"Our main enemy is the bureaucracy, a part of which is sitting today at the government lodge in the State Duma and silently planning sabotage against our country."

To be fair, however, it needs to be noted that Putin’s presentation was more of formally meeting the obligatory constitutional statutory requirement. This is because, unlike in more developed democracies, where prime ministers/presidents in such appearances before their parliaments usually come under ‘a barrage of sticking questions and tough political drilling’ by the parliamentarians, Putin was saved from such a rigid Q/A ordeal as the questions he was to answer after his presentation were properly ‘doctored’ by United Russia and Just Party, which had filtered all the questions deemed ‘hostile’ to the prime minister from the finally approved list. This also probably explained why the State Duma’s reactions to the report were divided along the party lines. Thus, while United Russia and Just Russia parties hailed the prime minister’s performance as ‘near perfect,’ with the Just Russia faction leader Nikolai Levichev specifically noting that the prime minister projected an ‘assuring picture of the Cabinet's efforts to fight the negative impacts of the crisis,’ other parties, however, were not so generous in their assessments, as one of the LDPR leaders called the report “surreal, being far from realities.” 

However, what could be closer to real political drilling came only from the main opposition Communist Party, which completely down rated the entire report, with Zyuganov, calling the declared programs “an attempt to remedy a very bad situation.” It seems that Zyuganov was particularly most irked by the fiscal, monetary policies and other anticrisis strategies being executed by Deputy Prime Minister Alexei Kudrin, who also doubles as the nation's finance minister, calling them a sure road to compete failure and national jeopardy.  “Putin's proposals are a desire to improve the current bad situation, but with his present Cabinet team, and especially with Kudrin still kept at the helms of the nation’s Finance Ministry, the declared programs are not realizable,” he said. “The only good aspect of the prime minister’s historic appearance today in the State Duma is that he was here to hear that Kudrin’s fiscal and monetary policies and other anticrisis strategies will put the whole country on a direct route to bankruptcy, joblessness and default.”  

Putin remains optimistic 

After taking few questions and exchanging some hot verbal jabs with some of the most vocal Opposition legislators on issues where both sides’ opinions widely differed, the prime minister, however, masterly lowered the ‘temperature’ of the discussions, by expressing his Cabinet’s readiness to work with all the State Duma legislators — both pro-Kremlin and Opposition parties — for the benefit of the whole country. Specifically, Putin said the draft of the government’s Anticrisis Program was put up for public debates and is still open for more useful contributions from all the interested parties. “All constructive ideas and proposals, irrespective of their authors or their party memberships, will be fully inculcated into this program.”

With this ‘olive leaf’ gesture, the prime minister rounded up his presentation on a more optimistic note. More specifically, Putin noted that though the current year will be a difficult one, the government does not intend to shelf its already adopted plans, including the ambitious Development Strategy-2020, a comprehensive plan drawn up before the exacerbation of the current crisis, which envisages lifting Russia into the world’s Top-5 largest economies by 2020. “We shall continue our scheduled development projects because a crisis ought not to completely demoralize a society and derail people’s long-term strategic plans and programs,” he noted. “Our strategic goal is to exit this global financial crisis a much stronger nation with one of the world’s best economies.”