Post-election Putin promises seen hard to implement

By bne IntelliNews March 9, 2012

bne -

Now Russia's presidential and parliamentary elections are over, attention is turning to how the reform programme will progress over the next few years. President-elect Vladimir Putin laid out an ambitious plan in a series of articles in the run-up to the March 4 presidential election, but he has his work cut out to put them all in place.

Uralsib summarised the key reforms promised by Putin, and comments on the likelihood that these reforms will be successful. "We understand the success of a reform as its ability to achieve declared objectives. There is thus a substantial difference between formal adoption of key reforms and their end results - for example, it is relatively easy formally to resurrect direct elections of governors, but the so-called presidential filter and the ability of the president to dismiss governors due to 'lack of trust' would ensure the accountability and loyalty of governors to the federal centre," Uralsib said in a note.

Political reforms:

• Liberalization of registration procedures for political parties and of parties' participation in parliamentary elections (500 member threshold to form a party, no signatures for participation in elections)

• Liberalization of candidate registration for presidential elections (no signatures for candidate registration)

• Direct election of governors (subject to the so-called presidential filter)

Institutional reforms:

• Legal-system reform (more transparent, more efficient, less punitive)

• Reduction in bureaucracy and state regulation of the economy

• Elimination of systemic and everyday corruption

• Adoption of best institutional practices from developed countries, promotion of competition among institutions and government officials at all levels

Economic and social reforms:

• Reduction of the state sector (privatization of government stakes in selected key state-controlled enterprises)

• Reform of the state procurement system (introduction of a federal contract system)

• Modernization of the economy (including tax preferences for R&D-intensive sectors)

• Modernization of the armed forces (including transition to a professional army and a radical increase in wages to the military and police)

• Healthcare reform (including a radical increase in wages to personnel)

• Science and education reform (closure of inefficient entities, increase in expenditure on infrastructure, wages, grants to talented scientists, and stipends to students)

• Demography improvement (simulation of high fertility by child support lo large families, subsidized housing, mortgages, and pre-school care)

• High social spending (including further indexation of pensions, state employees' wages, disability allowances, and child support)

One of the main obstacles to putting several items of this programme into place is the cost; despite its oil wealth, even Russia can't afford several items on the list.

The most expensive reforms would be modernizing the army, social spending, health care, science and education. In addition, elimination of corruption and legal-system reforms would require considerable spending, as the key elements of these reforms is a multifold increase in compensation for state officials to reduce graft.

"We believe that it would be impossible to finance all of the above reforms under the current tax system. This is the main reason that we do not expect most of the costly economic reforms to be carried out after the elections, including ongoing increases in pensions and wages to state employees, and substantial increases in stipends, disability allowance, and child support. These not being carried out would adversely affect Putin?s popularity in the medium term; he would lose a good deal of the popular support on which he currently relies, namely from recipients of social benefits," Uralsib speculates.

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