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9 Feb, 2009 18:58

Think tank slams bailouts as big business asks for more

The Institute of Contemporary Development has blamed Russia's financial crisis on “fundamental, structural flaws in its economy,” which have “nothing to do with the West,” slamming bailouts for inefficient industries.

Russia's Finance Minister told Business RT in November the United States is «99 per cent» responsible for the world financial crisis. Prime Minister Putin echoed that last month in Davos.

But the ICD, whose trustees include President Medvedev, claims Russia's real problem is its vast, old-school industry. Oil, gas and metals make up 80% of exports. Its new report warns the Kremlin wants to give more money to inefficient firms in the crisis, something it can't afford. Since August Russia's already spent a third of its then $600 Billion in reserves. According to Professor Igor Yurgens, Chairman of the Institute of Contemporary Management, Russia should be weaning itself off relying on commodity exports.

“Structural changes which were necessary a long time ago – we nagged on it for quite some time. The most obvious one is hydrocarbons and their dominating role both in our budget and our revenues.

We're running out of time because the necessities, social pressure – unemployment, all of those troubles of any crisis – will push the central government to a certain set of measures of social distress, that is to say helping them out, industrial mono-cities, obsolete branches of industry and so on. And the reserves are not enormous, we've depleted one-third.”

But Russian industry says the Government cash is keeping people in jobs, and helping the competitiveness of major Russian exporters over the longer term. Russia's largest coal producer, SUEK, has just been lent more than $250 million by VTB. Anna Belova, SUEK’s Deputy CEO complains banks aren't handing out enough.

“There is no access for the long-term investment money in the Russian banking system. Currently there is not access even for the current financing.”

On Monday President Medvedev called social commitments his priority. That makes propping up Russian industry – whether deserving or not – the lesser of two evils, unless a major jump in unemployment is to be factored into Russia’s precarious 2009 Budget scenario. But with the bulk of reserves expected to be used this year, those getting the bailout funds will need to shape up to make the government outlays seem a worthwhile investment. Support on this scale is unlikely to come around again.