Russia gears up for decade of reform

President Putin has finally declared his hand on the economy

By BBC News Online's Stephen Mulvey

Russia's new President, Vladimir Putin, has ended speculation about his economic policies by winning government approval for a radical programme of reform.

Tax cuts, free markets, private ownership of land and banking liberalisation are among key elements of a 10-year plan, whose first stage was passed by the cabinet on Wednesday.

The aim is to achieve a high-growth low-inflation economy within five years, and to restore public trust in government.

Prime Minister Mikhail Kasyanov said legislation based on the programme would be introduced to parliament in the autumn.

No deficits

The ambitious plan was developed by a team under the leadership of the youthful new Minister for Economic Development, German Gref.

German Gref: Reform architect

It envisages a new "social contract" as well as reform of the government bureaucracy and far-reaching modernisation of the economy.

Deputy Prime Minister Alexei Kudrin told the Izvestia newspaper this week that the Russian economy had been stimulated by high oil prices and the 1998 devaluation of the rouble - but that a tough programme of reform was essential to sustain economic growth.

Ministers are aware that they must move quickly to take potentially unpopular measures while they still enjoy the trust of voters who resoundingly elected President Putin in March.

The authors of the plan say that the government must from now on avoid the mistake of promising more social payments than it can afford.

Budget deficits, they say, cannot be allowed.

Investment

Planned tax reforms include the introduction of a flat 13% income tax, replacing the existing sliding scale which starts at 12% and ends at 30%.

Mikhail Kasyanov: "Illegal" privatisation under threat

The programme promises reform of natural monopolies, and simplified procedures for starting new businesses.

A major goal is to join the World Trade Organization, and to get more Russian goods onto world markets.

Over the next 18 months the government is to ensure that more Russian companies adopt international accounting rules, promoting transparency and improving conditions for foreign investment.

Protection for minority investors will also be strengthened.

The 10-year programme proposes a law to guarantee that the results of privatisation will not be reversed - however, Mr Kasyanov has said that this would not apply to "illegal" privatisation.

Corruption

This reform plan has some advantages over its predecessors.

It is being launched at a time when the Russian economy has already begun to recover, after years of decline, and it apparently enjoys the support of a united government under strong presidential leadership.

It is also likely that the parliament - now that it is closer to the centre than the left of national politics - will place fewer obstacles in the government's path.

However, stifling bureaucracy and rampant corruption remain formidable enemies for any reforming government in Russia.

The Putin government also seems likely to find itself on a collision course with Russia's powerful "oligarchs" - the leading bankers and industrialists who acquired huge stakes in Russian industries in shady privatisation deals during the late 1990s.

They have the ability to cause major difficulties for any reforms that would threaten their vested interests.