Kasyanov Attacks Gref Over Economic Growth
Moscow Times
Monday, March 17, 2003
By Simon Ostrovsky, Staff Writer

A day after castigating Finance Minister Alexei Kudrin for slow progress on tax reform, Prime Minister Mikhail Kasyanov turned his wrath on German Gref, attacking the economic development minister for not doing enough to spur the economy.

"You have one month to calculate all the information and formulate a plan ... to create the conditions for economic growth of 7 percent to 8 percent in 2007 to 2008," a visibly angry Kasyanov told Gref's ministry at an annual meeting attended by top officials from other ministries and the Kremlin.

Kasyanov said he ordered Gref and Kudrin "half a year ago" to come up with ways to reduce the tax burden on companies, particularly in the manufacturing sector, "but they have failed to appear."

"The economy essentially remains a monoculture. ... Industries other [than oil], with rare exceptions, are non-competitive. The problem is deepening, it is enough to look at the structure of investment to understand it," Kasyanov said.

He said Gref's foot-dragging on improving the transparency of the so-called natural monopolies -- Gazprom, Unified Energy Systems and the Railways Ministry -- had hurt the government's ability to optimize tariff policy.

"The government is doing its utmost to limit tariff increases, but the Economic Development and Trade Ministry's analysis of natural monopolies in 2002 was, at best, superficial and fragmentary."

Kasyanov also lashed out at Gref's ministry for not making information more readily available to potential foreign investors, and for not getting rid of overbearing bureaucracy for entrepreneurs.

"We need measures that will work today, tomorrow, three days from now," he said.

Thursday's weekly Cabinet meeting on tax reforms ended early after a heated debate between Kudrin and Kasyanov. The prime minister wants a corporate tax cut package put through parliament so it can take effect in 2004, but Kudrin wants any cuts to be accompanied by reductions in government spending.

The clash was the first real public sign of a split in the Cabinet, and political analysts said Kasyanov's rebuke of Kudrin was a defensive move ahead of parliamentary and presidential elections. Both men are considered potential prime ministers in the next administration.

But some media reports over the weekend suggested another reason for Kasyanov's irritation -- he has been trying to quit smoking.

Whatever the real motive for the attacks, Gref defended himself and his ministry, saying good governance required teamwork between all ministries, a comment seconded by Kudrin.

"We frequently blame the Economic Development and Trade Ministry -- which is responsible for forecasts and planning -- for unfinished business that is the responsibility of other agencies," Kudrin said.

Nonetheless, Gref said Kasyanov's ambitious target for economic growth would be possible, but difficult, to hit.

"This is a very complicated task, but it is not impossible," he said.

Gross domestic product has grown 20 percent in the last three years, but half of that figure came in 2000. Last year, the economy grew just 4.3 percent. And the government is shooting for between 3.5 percent and 4.4 percent growth this year.

Although nearly every economist is expecting healthy growth over the next few years, opinions are divided over whether Kasyanov's goal is achievable.

"It's wonderfully ambitious," said Roland Nash, head of research at Renaissance Capital.

"But just saying it won't make it happen. The barriers to that kind of growth are still very large."

Troika Dialog chief economist Yevgeny Gavrilenkov, however, was more optimistic, saying Kasyanov's wish could become a reality as early as this year.

"This year's growth will undoubtedly be greater than last year's," he said.

Gavrilenkov based his optimism on the "unique situation on the market."

There is an abundance of cash looking to be put to use. Because of low interest rates on government bonds, a lack of financial instruments to invest in and gloom pervading much of the global economy, the only place to invest is the real economy, he said.

"This is what the country's reformers dreamed about all throughout the nineties."

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