Part 3 (1/2)
Having failed thrice, Putin is lately leaning in favor of restoring and even increasing the Federation Council's erstwhile powers at the expense of the (incensed) Duma. Governors have sensed the changing winds and have acted to trample over democratic inst.i.tutions in their regions. Thus, the Governor of Orenburg has abolished the direct elections of mayors in his oblast. Russia's big business is moving in as well in an attempt to elect its own mayors (for instance, in Irkutsk).
Regional finances are in bad shape. Only 40 out 89 regions managed, by February, to pay their civil servants their December 2001 salaries (raised 89% - or 1.5% of GDP - by the benevolent president). Many regions had to go deeper into deficit to do so. Salaries make three quarters of regional budgets.
The East-West Inst.i.tute reports that arrears have increased 10% in January alone - to 33 billion rubles (c. $1 billion). The Finance Ministry is considering to declare seven regions bankrupt. Yet another committee, headed by Deputy Head of the Presidential Administration, Dimitri Kozak, is on the verge of establis.h.i.+ng an external administration for insolvent regions. The recent housing reform - which would force Russians to pay market prices for their apartments and would subsidize the poor directly (rather than through the regional and munic.i.p.al authorities) - is likely to further weaken regional balance sheets.
Luckily for Russia, the regions are less cantankerous and restive now.
The emphasis has s.h.i.+fted from narcissistic posturing to economic survival and prosperity. The Moscow region still attracts the bulk of Russian domestic and foreign investments, leaving the regions to make do with leftovers.
Sergei Kirienko, a former short lived Prime Minister, and, currently the president's envoy to the politically mighty Volga okrug, attributes this gap, in a comment to Radio Free Europe, to non-harmonized business legislation (between center and regions). Boris Nemtsov, a member of the Duma (and former Deputy Prime Minister) thinks that the problem is a ”lack of democratic structures” - press freedom, civil society, and democratic government. Others attribute the deficient interest to a dearth of safety and safe inst.i.tutions, propagated by entrenched interest groups.
Small business is back in fas.h.i.+on after years of investments in behemoths such as Gazprom and Lukoil. Politicians make small to medium enterprises a staple of their speeches. The EBRD has revived its moribund small business funds (and grants up to $125,000 loans to eligible enterprises). Bank lending is still absent (together with a banking system) - but foreign investment banks and retail banks are making hesitant inroads into the regional markets. Small businessmen are more a.s.sertive and often demonstrate against adverse tax laws, high prices, and poor governance.
Russia is at a crossroad. It must choose which of the many models of federalism to adopt. It can either strengthen the center at the expense of the regions, transforming the latter into mere tax collectors and law enforcement agents - or devolve more powers to tax and spend to the regions. The pendulum swings. Putin appears sometimes to be an avowed centralist - and at other times a liberal. Contrary to reports in the Western media, Putin failed to subdue the regions. The donors and exporters among them are as powerful as ever. But he did succeed to establish a modus vivendi and is working hard on a modus operandi. He also weeded out the zanier governors. Russia seems to be converging on an equilibrium of sorts - though, as usual, it is a precarious one.
Russian Agriculture
In Soviet times, Kremlinologists used to pore over grain harvest figures to divine the fortunes of political inc.u.mbents behind the Kremlin's inscrutable walls. Many a career have ended due to a meager yield. Judging by official press releases and interviews, things haven't changed that much. The beleaguered Vice-Premier and Minister of Agriculture of the Russian Federation admitted openly last October that what remains of Russia's agriculture is ”in a critical situation”
(though he has since hastily reversed himself). With debts of $9 billion, he may well be right. Russian decision makers recently celebrated the reversal of a decade-old trend: meat production went up 1% and milk production - by double that.
But the truth is, surprisingly, a lot rosier. Agricultural output has been growing for four years now (last year by more than 5%). Even much maligned sectors, such as food processing, show impressive results (up 9%). As the private sector takes over (government procurement ceased long ago, though not so regional procurement), agriculture throughout Russia (especially in its western parts) is being industrialized. Even state and collective farms are reviving, though haltingly so. In a recently announced deal, Interros will invest $100 million in cultivating a whopping million acres. Additionally, Russia is much less dependent on food imports than common myths have it - it imports only 20% of its total food consumption.
Despite this astounding turnaround - foreign investors are still shy.
The complex tariff and customs regulations, the erratic tax administration, the poor storage and transport infrastructure, the vast distances to markets, the endemic lawlessness, the venal bureaucracy, and, above all, the questionable legal status of the owners.h.i.+p of agricultural land - all serve to keep them at bay.
Moreover, the agricultural sector is puny and disastrously inefficient.
Having fallen by close to half since 1991 (as state subsidies dropped), it contributes only c. 8% to GDP and employs c. 11% of the active labour force (compared to 30% in industry and 59% in services).
Agricultural exports (c. $3 billion annually) are one fourth Russia's agricultural imports - despite a fall of 40% in the latter after the 1998 meltdown. The average private farm is less than 50 hectares large.
Though in control of 6% of farmland - private farms account for only 2% of agricultural output.
Much of the land (equal to c. 1.8 times the contiguous US) lacks in soil, or in climate, or in both. Thus, only 8% of the land is arable and less than 40,000 sq. km. are irrigated. Pastures make up another 4%. The soil is contaminated by what the CIA calls ”improper application of agricultural chemicals”. It is often eroded. Ground water is absolutely toxic.
The new law permitting private quasi-owners.h.i.+p of agricultural land may reduce the high rents which (together with a ruble over-valued until 1998) rendered Russian farmers non-compet.i.tive - but this is still a long way off. In the meantime, general demand for foodstuffs has declined together with disposable incomes and increasing unemployment.
The main problem nowadays is not lack of knowledge, management, or new capital - it is an unsustainable mountain of debts. Even with a lenient ”Law on the Financial Recovery of Agricultural Enterprises” currently being pa.s.sed through the Duma - only 30% of farms are expected to survive. The law calls for rescheduling current debt payments over ten years.
The sad irony is that Russian agriculture is now much more viable than it ever was. Well over half the active enterprises are profitable (compared to 12% in 1998). The grain harvest exceeded 90 million tons, far more than the 75 million tons predicted by the government (though Russia still imports $8 billion worth of grains a year). The average crop for 1993-7 was 80 million tones (with 88 million in 1997). But grain output was decimated in 1998 (48 million tons) and 1999 (55 million tons).
Luckily, grain is used mostly for livestock feed - Russians consume only c. 20 million tons annually. But by mid 1999, Russian grain reserves declined to a paltry 2 million tons, according to USDA figures. The problem is that the regions of Russia's grain belt restrict imports of this ”agricultural gold” and h.o.a.rd it. Corrupt officials turn a quick profit on the resulting shortage-induced price hikes.
The geographical location of an agricultural enterprise often determines its fate. In a study (”The Russian Food System's Transformation at Close Range”) of two Russian regions (oblasts) conducted by Grigori Ioffe (of Radford University) and Tatyana Nefedova (Inst.i.tute of Geography of the Russian Academy of Sciences) in August 2001, the authors found that:
”... farms in Moscow Province are more productive than farms in equivalent locations in Ryazan Provinces, while farms closer to the central city of either province do better than farms near the borders of that province.”
It seems that well-located farms enjoy advantages in attracting both investments and skilled labour. They are also closer to their markets.
But the vicissitudes of Russia's agriculture are of geopolitical consequence. A hungry Russia is often an angry Russia. Hence the food aid provided by the USA in 1998-9 (worth more than $500 million and coupled with soft PL-480 trade credits). The EU also donated a comparable value in food. Russia asked for additional aid in the form of animal feed in the years 2000-2001 - and the USA complied.
Russia's imports are an important prop to the economies of its immediate and far neighbors. Russia is also a major importer of American agricultural products, such as poultry (it consumes up to 40% of all US exports of this commodity). It is a world cla.s.s importer of meat products (especially from the EU), its livestock inventory having been halved by the transition. If it accedes to the WTO (negotiations have been dragging on since 1995), it may become even more appealing commercially.