“Russia’s accession to WTO was hindered by political reasons” – Finance Minister
RT: Aleksey Leonidovich, there have been so many predictions like that, what makes you believe this one will come true?
Aleksey Kudrin: Real work began in 2000. At that time I was head of a governmental commission to deal with WTO ascension, but Herman Gref was the main driver. The key stage was in 2004 when we signed an agreement with the EU. It really seemed then that we had covered more than half the ground. Then, in 2006, we signed an agreement with the US, and it seemed to us we had covered 90 per cent of the way.
However, every time something hindered entry. In my view, political reasons did. Last time it was Georgia that dampened our relations with the US, when we could not solve even a purely technical issue with the US.
Now, thanks to the agreement between Obama and Medvedev, and their fixing the deadline, we have achieved positive results in our bilateral relations. It appears to me that should this political will remain, everything is possible. In fact, we lacked it, which was the main factor – we lacked it in the last period of the Bush administration.
Now all the work has been transferred to Geneva where we are facing much fewer questions. So I believe there is a political will and a desire by all, and what’s left is up to our ministries’ employees to complete everything.
RT: Does this mean most obstacles have been left behind, and countries like Georgia won’t be a problem?
AK: As you have said, there are certain obstacles as yet which we are going to overcome gradually. What I was mentioning we would have to have about four months to finalize the documents, I did not consider it an obstacle resulting from Georgia.
Nothing threatens, but we have to co-ordinate all the provisions of the Customs Union with all the previously reached agreements on the WTO with all the countries.
Inside the Customs Union we have agreed on the principles that as of today we are taking our agreements with our partners – the working group on the WTO – as a basis, and the ascension will be based under Russia’s terms. Mainly technical questions remain.
RT: Let's imagine Russia joined the WTO, how is it going to change the Russian economy?
AK: For the Russian economy the level of tariff shelter will be determined with the help of import taxes from all over the world. For example we produce similar products, but we protect ourselves from the same products of other countries with 20 per cent tariffs. Over a transition period of between 7 to 10 years, we should lower our average tariffs to 7 per cent. It means that tariff protection will become slightly lower and this is what orients our businesses to be more effective. There are three spheres that should be gradually liberalized – flow of capital – which Russia has done, commodity flow – this is under the WTO, and labor movement which allows the workforce to migrate to where the economy is on the rise. Russia should liberalize in these directions to be able to gather at the right time and place for all these factors: capital, product facilities, new technology and workforce.
RT: Recently, the Russian government announced that the shares of 10 major state companies will be put on sale. Will those shares be available to foreign investors?
AK: Certainly. The privatization regime is public and on a national scale, except for certain strategic enterprises. This list contains mainly oil companies, apart from a number of others for which a special procedure is required. At this point I can’t tell you exactly what restrictions will apply and for what companies. As soon as the list of companies is published, we’ll specify them.
RT: If the sale happens, how will this affect Russia's accession to the WTO?
AK: Strictly speaking, these privatization issues are not within the WTO’s competence, so this may not affect the ascension. As a whole though, when a positive reputation of Russia is created as a country open for investment and increasing the private sector share of major companies, then trust in Russia is growing.
RT: Let's move away from the WTO, at the International Monetary Fund meeting this year you received an award as the best finance minister of the year. Everyone was saying that Russia coped with the global financial crisis better than expected. How attractive is Russia in terms of foreign investment at the moment?
AK: The heads of major financial organizations who I have met with in the past three days are very keen on Russia. With interest rates very low in the West, it is possible to earn something only on emerging markets, preferably where the ratio between profitability and reliability is optimal. Russia is showing exactly this. Thanks to the government’s strict credit policy we have good Forex holdings, which means we are not afraid of devaluation or default. The country’s budget balance is good, so is the balance of payments. In this respect we are very attractive.
RT: Many in the West are concerned about the level of government interference in the Russian economy, and there are a lot of discussions about that. What is being done to reduce the involvement of the government in the economy?
AK: First of all, interference of the state in the economy is a fact, and we must see where and how it takes place. The first major tier is state involvement through stakes in major companies and corporations. As privatization is underway, selling major stakes will solve this issue, which will soften fears.
Second, it’s about state-run regulating agencies, including those that collect taxes, issue licenses, and check the quality of production and norms. The quality of state regulation needs to be improved. We admit this and all of us are working on that. The new draft law on the police is meant to improve their work.
Concerning taxes, we have created a new package of laws on the quality of tax administration and responsibility of tax inspectorate employees.
RT: Earlier you said that the tax burden on Russian business will be increased in the near future, but the pressure on Russian business is already high. Why was this decision made?
AK: This decision is linked to the increase of pensions in our country. For a very long time pensions were too low. In late 2009, an average pension was an equivalent of US$200 a month. That’s too low and it does not correspond to wages – the average salary being about US$700.
For several years we prepared an increase in pensions. However, it so happened that when we were increasing them, the crisis occurred and revenues got smaller. After weighing all the pros and cons, the government decided to continue with the pensions hike. They will mean increases of 40-45 per cent. Starting on the first of January, company payments will increase from 26 to 34 per cent of the salary pool. This will be sensitive for all companies.
RT: What's the main problem with the Russian economy today, in your opinion?
AK: It’s about the weakness of market and state power institutions and the quality of administration of state functions. In other words, excessive interference from the state and insufficiently clear regulation with the notorious administrative barriers lower competition in the economy – it’s when an official helps win a competitive bid. This is the main obstacle for further development, because the macro-economy and the state finances are good.
RT: Finance leaders on that IMF meeting were discussing so-called battles of currencies. The US and the EU complain about China and some other countries deliberately devaluing their currencies to aid their exporters. And this may lead to trade wars. How serious is that and where does Russia stand on that matter?
AK: Currently there's no battle of currencies and it's very likely that it's more of an expectation that one day currencies will become a more serious tool in the competition. At the moment the best examples are the US and China. The situation there is unique, but I don't think we can say that such a war is taking place in other parts of the world. On the other hand we might say that some disproportionate distortions are forming in currencies, for example some moves of the American side may influence currencies. Most likely there are fears that some day such a war will become more serious. But I can say that the possibilities to play around with currencies are very insignificant or short-term, although China is the exception, the country that goes beyond any rules. It's conducting an aggressive policy due to strong government control in its economy and foreign policies. Market economies don't have such opportunities for a strong administrative course.
RT: Also, at the IMF meeting this year – we know that the EU and the US have the loudest voice within the organization, and emerging markets would like to have a bigger say on the IMF board. Any success on that?
AK: Historically, the Bretton Woods institutions – that is the IMF and the World Bank – have obviously been under the influence of the US and the EU, and still are. As the new growing markets are in fact a locomotive of economic growth and have much money, their role is insignificant in decision-making on the world market.
During a crisis it is crucial to have all the decisions well-balanced, which means representation should be proportionate. Today it is not proportionate, so there are fears that the decisions to be adopted won’t be based on a fair and proportionate representation, not in the interests of the whole of the world economy. So the question of changing the quotas is ripe, although it would be so undesirable to lose one’s vote and influence when it comes to decide. We have not yet found a final solution.