President Vows To Kill State Corporations

Worth A Look, Crown Corporations, Frontier Centre

In what amounts to a complete repudiation of the economic policies of Vladamir Putin, Dmitry Medvedev, the Russian President, pledged yesterday to disband Russia's inefficient state corporations and called for a probe into their use of state money.

"As far as state corporations are concerned, I think they have no prospects in the current environment," Mr. Medvedev said in his annual state-of-the-nation address, in which he also lambasted the "primitive" structure of the Russian economy and called for its modernization.
While analysts noted the change in strategy was likely made with the full agreement of Mr. Putin, Mr. Medvedev's predecessor, and few details were given, the speech was an acknowledgement that the return to state-run monopolies over the past decade was a failure.
"The global financial crisis hit Russia pretty hard, but it also has revealed some deep and dangerous inefficiencies in the Russian economy," said a report from Stratfor, an Austin, Tex.-based global analysis firm.
Russia has been particularly hard hit by the global economic crisis, which has exposed the dire state of many Sovietstyle industries, among them automaker AvtoVAZ. The money-losing company, 25% owned by France's Renault SA, has repeatedly warned it faces bankruptcy. It has laid off about 7,000 workers and may cut a total of 22,000 jobs, or about a quarter of its workforce.
State corporations under scrutiny include bank VEB, whose supervisory board is chaired by Mr. Putin, and Russian Technologies State Corp., which is headed by a close Putin ally, Sergei Chemezov.
Arkady Dvorkovich, the Kremlin's top economic aide, told reporters after Mr. Medvedev's speech that VEB and Russian Technologies could be turned into joint stock companies as early as 2010.
"Corporations that work under regulations suited to temporary work should, on completing their activities, be disbanded," said Mr. Medvedev. "Those which work on commercial, competitive terms should become modern, open joint-stock companies controlled by the state. In the future, they shouldn't be held in the public sector and should be opened to private investors."
There may be a clear motivation for a return to privatizations: Russia needs the money. It wants to raise US$2.4-billion from privatizations in 2010 and officials have said more state firms will be sold. The government aims to cut state involvement in the economy to 30% to 40% from 50% now.
Prosecutors have been probing some corporations since August and Russian media speculated some state-appointed bosses could lose their jobs after falling out of favour with Mr. Putin and Mr. Medvedev.
Mr. Medvedev, who has ruled the Kremlin since May 2008, had harsh words for the economy.
"We haven't managed to get rid of the primitive structure of our economy, the humiliating raw materials dependence," said Mr. Medvedev, who read from notes for most of the speech.
Mr. Medvedev called for Russia to boost the share of locally produced medicines to half the market by 2020, cut gas flaring dramatically by 2012 and launch broadband Internet and digital TV nationwide in five years.