Russia's new finance minister pledges to be "Mr Prudence" 2.0

By bne IntelliNews February 1, 2012

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In his first major interview since he was moved into the post full-time in December, Russia's little-known Minister of Finance Anton Siluanov has pledged to continue the conservative fiscal policies of his former boss and predecessor Alexei Kudrin. He makes all the right noises for the markets and Russia's liberals, but critics would point out that's the fashion in the government right now.

Siluanov's outline of his policies to Vedomosti should offer some optimisim to investors who mourned the resignation of Kudrin - Russia's "Mr Prudence" for the previous decade - in September. He insists that the state must not increase expenditure and should privatize state assets, just as Kudrin did, and also adds his own new initiative to fight the shadow economy.

After Kudrin quit his job in protest at spiraling defence sector expenditure, the market expected his successor would be a siloviki appointed "yes man", who would open the state's coffers to all connected comers. The initial interim appointment of Siluanov, a little known career bureaucrat in the finance ministry, reinforced that pessimism.

However, with Siluanov given the job full-time in December, he came out on February 1 to criticize the level of state ownership in the economy and the creation of state corporations in many sectors. Whilst the lines he draws look remarkably similar to those of Kudrin, they also reflect the musings of Prime Minister Vladimir Putin since the rise of the liberal protest movement in December. "Our position is to reduce the level of state ownership in the economy and help the economy grow on the basis of private initiative," Siluanov says. "The state should not dominate the market and if a company is not regarded as having strategic significance we should not cling on to it."

Regarding budget expenditure, the issue over which his predecessor resigned, Siluanov acknowledges that pressure to increase funding has grown over the period of the parliamentary and presidential election campaigns, but that Putin supports him in knocking back expensive policy initiatives from other ministries.

Siluanov also insists that he will pursue Kudrin's line in rejecting proposals from the Ministry of Economy to increase state investment in infrastructure, calling instead for the state to support private initiative. "State investment is only 15% of overall investment in Russia," said Siluanov. "Therefore, it is important to create the conditions for entrepreneurs to be comfortable about investing their resources in our economy. For there to be predictable macroeconomic conditions, a stable tax system, institutions for protecting private property that work etc. These are the basic conditions for preventing capital flight from Russia. A balanced budget is the basis of macroeconomic sustainability."

Siluanov's only new initiative outlined in the interview is to restrict the high level of cash payments in Russia, in a bid to reduce the shadow economy, which he estimates at 30% of current GDP. "It is essential to reduce the level of cash payment in the economy which currently comprises 25% of all turnover, over 100% more than in developed markets, and even 50% more than in other developing markets."

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