Can the Kremlin be trusted on economic reforms?

The Kremlin has announced plans to unwind around $30 billion worth of its stakes in Russian businesses in order to plug its budget deficit. Good news, you would think, for those who have campaigned against the government’s stranglehold on so-called “strategic industries” in the country. Also good news, potentially, for investors.

Reaction to the news, however, has stopped short of elation. Some are already posing the perennial question, “Should we beware of Russians bearing gifts?”

It is worth noting that the divestment of $30 billion, while a hefty sum in absolute terms, is tiny compared to the total holdings of the state, and even smaller when compared with assets held privately by those in government. After the sale has been completed, the government still intends to retain at least a 51 per cent stake in all of the businesses. This is not a wholesale removal of the Kremlin from the market.

Whoever decides to snap up the goodies will have to reconcile themselves with going into business as the junior partners of Medvedev, Putin et al, irrespective of what it may say on the share contracts. Indeed, as Gazprom demonstrated with its offer of discount gas supplies to Ukraine in April, and as the bizarre decision by Sberbank, Russia’s state-owned bank, to purchase a 50 per cent stake in carmaker Opel last year showed, shareholders are often treated as a nuisance that are best ignored.

Perhaps most worrying is the fact that despite the government’s apparently firm commitment to the sale, we are still none the wiser as to which companies it actually affects. Reuters cites a government source when suggesting the names of 10 likely to be involved, including Sberbank, Transneft, the state’s pipeline monopoly, Rosneft, the country’s largest oil producer, and Russian Railways. Since then, the Kremlin has said it will not reduce its stake in Transneft below 75 per cent and will delay any private investment in Russian Railways for at least two to three years. Perhaps government officials with the lucrative roles of overseeing these so-called “national champion” industries are already working to obstruct the process.

This degree of obfuscation means that the Kremlin can renege on any, or all, of these commitments at any time, while the rest of us are left in the dark. So why should anyone be getting excited about this?

Despite the caution, it is encouraging to see any move in the direction of reducing political intervention in the market, particularly in the natural resources space. The politicisation of Russia’s oil and gas industry has been a major concern for the international community, and the lack of competition proved a major barrier to much-needed modernisation.

This was pretty much acknowledged by Elvira Nabiullina, Russia’s economy minister, at a press conference today in Moscow. “We currently have an excessive state share in the economy and it must gradually decrease,” she said. “The privatization is also a possibility for us to influence the structure of our economy.”

Past experience, however, has taught people to take Kremlin statements on economic reform with a certain scepticism. While the suggested reforms do not go nearly far enough for many commentators, the real question now is whether anything is actually going to be done at all.

In the words of one commentator, “This initiative by the finance ministry suggests that at least something will happen.”