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    March 20, 2015

    Putin: The best answer to sanctions is increasing business freedoms





    3/20/2015




    Translated from Russian by J.Hawk



    The President of the Russian Federation said that expanding business freedoms is the best answer to external challenges and limitations. He voiced this opinion appearing at the Week of Russian Business of the Russian Union of Entrepreneurs and Manufacturers.



    “Further expansion of business freedoms is the best answer to external sanctions and challenges. Therefore we will continue to establish the most favorable conditions for those who wish to invest in domestic industry and economy, in the development of technologies and modern-era jobs.”



    The capital amnesty rules in Russia ought to correspond to all international legal demands, so as not to cause suspicion of money laundering, Putin said. “State and business ought to work as partners to overcome the current poor climate and to trust one another. Esteemed colleagues, we can overcome the poor unfavorable economic climate and to establish a stable trajectory of growth only through a state-business partnership, which of course is impossible without mutual trust. We need to have a shared understanding of the country’s strategic tasks and keep our mutual interests in mind.”



    The President emphasized that capital amnesty rules ought to be consistent with the demands of Financial Action Task Force. “They should be absolutely legal and understandable from the point of view of international law, so that nobody should have any doubt that what’s happening in Russia in that respect is wholly in accordance with international law and practice, including from the perspective of not allowing the laundering of money obtained through illegal activities.”



    Putin believes that the current Central Bank lending rate is still quite high. “Indeed, at the moment the funds rate is high. We have not yet established the additional fundamental conditions that would allow us to feel confident, therefore it is still very important to provide targeted assistance.”



    The President underscored that the government ought to adopt practical measures to ensure available financing reaches targeted enterprises.



    The Minister of Finance Anton Siluanov said that the peak negatives which were evident in Russian economy in late 2014 and early 2015 have passed. “We have passed the peak negatives, and we are seeing certain aspects of stabilization.” In his view, Russia’s economy has adapted to new conditions.



    J.Hawk’s Comment: What does all of that mean? For starters, it means Russia is returning (or maybe has returned) not to Five-Year Plans of the Stalin era which, while extremely effective at industrializing the country, also proved extremely difficult to manage, but to Lenin’s “Commanding Heights” model of the economy that was the norm during Lenin's New Economic Policy of the 1920s and which is the norm in today's China, in which the State retains close control over certain strategic branches of the economy (usually through the control of enterprises deemed to be “system-forming” and through state monopolies), while allowing other sectors of the economy to operate under free market principles. This approach is evident in Russia’s import substitution strategy—targeted support for the system-forming enterprises, and maximum liberalization to allow the opportunities created by sanctions and the ruble devaluation to be exploited by private entrepreneurs more swiftly and efficiently than a Five-Year-Plan would.



    This duality of approach is also reflected in the composition of the Russian government, with the “statists” clearly predominating, but the “liberals” (which include Siluanov and possibly even Medvedev) playing and indispensable supporting role. Ultimately Russia needs both of these segments of the elite for its economy to function well—the over-dominance by either of the two is liable to cause economic problems, as Russia’s experience of the 1980s and the 1990s has shown.
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