In an interview with RJ assistant editor Ekaterina Larina, Alexei Ulyukayev, first deputy finance minister, comments on the general state of the Russian economy.
Alexei Ulyukayev was appointed to the post of first deputy minister of finance a little over six months ago, when President Vladimir Putin began to form a new Cabinet.
Previously, Ulyukayev was deputy director of the Institute of Economy in Transition – better known as Yegor Gaidar's institute – where he was considered the top economics expert. Ulyukayev's appointment to the Finance Ministry was welcomed by the covert and overt liberals, who saw it as a sign of a rational approach to economic problems by the new administration.
As Finance Minister, Alexei Kudrin combines his post with that of deputy prime minister, while Ulyukayev is the de facto supervisor of the Finance Ministry. He spoke to The Russia Journal about key economic issues facing Russia, including its large foreign debt and the uncertainties of the new year.
The Russia Journal: The government has been criticized of late for not taking full advantage of a favorable economic situation and bringing about serious growth.
Alexei Ulyukayev: Life is more complicated than any model. You can't look at the different factors in isolation. Devaluation, for example, cut imports and created opportunities for domestic companies. But at the same time, it reduced consumer demand. Or take the improvement in the trade balance – it doesn't give the economy anything directly, but the indirect effect is that exporters and suppliers settle their bills on time and with real money, which improves the overall financial situation. You can't calculate this positive effect, though some critics of the government think you can.
I think that given the current situation, economic policy is satisfactory, especially macroeconomic, budgetary and monetary policy. It's not easy to keep inflation in line with a high balance of payments and only limited means for sterilization. Real sterilization can only be achieved by a developed system of financial markets. Until we have these developed markets, we will have only limited means at our disposal and won't have high sustainable growth. Growth over the next two years will be even lower than now because the financial situation will be a bit worse.
RJ: But is there a way to measure improvement?
AU: The amount of real money used to settle payments has doubled. This we see in payments to the railways, Unified Energy Systems and Gazprom, and also in budgetary and extra-budgetary funds.
RJ: Observers have noted a tendency to create new monopolies of late. Is there a move toward increased state economic regulation?
AU: Government monetary policy has been satisfactory, but the same can't be said for the policy regarding structural measures, competition and improving the quality of the national market. There's no move toward state capitalism, but there have been hasty decisions. What we're doing with leasing, for example, is wrong. One of the main problems with our budget process is that state finances and private-sector finances aren't separate. We're trying to change that. It's probably not the best idea to work through state banks, but what choice do we have?
RJ: Do you agree with the idea of setting up a debt agency?
AU: I think we need state agencies, and not just for debts. Rosselkhozbank, for example, can't be a universal bank, but it could be an agency.
RJ: Your Ministry was to carry out an inventory of state banks and provide a reorganization plan by Dec. 1. Is this plan ready?
AU: Not yet. The inventory has been difficult. The main question is what to do with these banks. We're talking about over 300 banks at all levels, and all of them can be reproached for using free resources ineffectively. We need to set our priorities straight. What do we have? What can we, as the state, pay and not pay? Do we need tied credits? Budget guarantees? There's no one answer yet. We're still thinking. We haven't yet been able to define the state's role in the economy.
RJ: But sooner or later, you'll have to decide, for example, whether to keep state guarantees.
AU: This year, a part of the budget has been set aside for development, and state guarantees are a part of that. Next year, we won't have this. Clearly, if there are to be state guarantees, they should only be for infrastructure projects.
RJ: What about gas or oil projects?
AU: Investment in them should come from private companies.
RJ: But oil and gas firms say the government is trying to take their income away.
AU: We take 20 percent from them. If we double that to 40 percent, that's not so much. I only understand them when they say the government keeps changing the rules of the game. The problem isn't that we take a lot from them, but that it's never clear how much we're asking for.
RJ: Are we going to pay our foreign debts?
AU: Of course. There's little choice. We could have a technical default and then start haggling, but that would work against us, bring our ratings down and so on. The maximum we can hope for is that the Paris Club will give us a few months' grace period.
RJ: So, we won't pay in February?
AU: Not if we get a deferral. We need it while we try and work out what's going to happen to our balance of payments. It's not easy to make forecasts for the balance of payments; we already differ with the International Monetary Fund on this. They think the economic situation is better than it really is. We have an open economy that is heavily dependent on many factors – oil prices, currency fluctuations and so on. But to keep up our payments, we have to cut back non-interest related expenses. This means decisions such as whether to finance the coal industry, for example. I don't think we should seriously cut back these budget expenses.
RJ: Will you be able to control the situation as noninterest expenses like wages and pensions rise?
AU: Additional income in next year's budget won't go toward non-interest expenses. It's possible, though, that we'll have to go back to this over the course of implementing the 2001 budget. If we have to meet all our commitments to the Paris Club without any loans from the IMF or World Bank, that will mean about 150 billion rubles. If we are to keep maintaining everything, this will require collecting 240 billion rubles. Clearly, we won't manage this, this is why we might have to reallocate additional income.
RJ: Will you be able to push amendments through parliament to cut back noninterest expenses?
AU: I think so. The fact is that we've tried everything and are on the threshold of default.