A more important criterion than this draft law for estimating the balance of forces between the President and the Prime Minister will be the appointments to be made in May in the government and in the President’s Administration. Thus, in 2000, after becoming only an acting. President, V. Putin dismissed from his post First Vice Prime Minister N. Aksenenko, who was considered to be his rival, and appointed several of “his team’s members” as deputies to the old Head of the Administration A. Voloshin – D. Medvedev, D. Kozak, I. Sechin, and V. Ivanov. This time, on the contrary, it will be in Putin’s interests to minimize the forthcoming changes – with the exception, on should add, of an equivalent transfer of trusted persons from the President’s Administration into the government. It will be particularly important for him to keep his former appointees as heads of the power structures and the political block within the Administration. And from Medvedev’s point of view it will be of especial importance, given the general desirability of the cabinet’s maximum renewal, to establish control over the President’s Administration as the administrative lever habitually applied by nomenclature. Besides, there are also other posts that are important both politically and symbolically, such as those in the RF Ministry of Finance and the RF Ministry of Economic Development and Trade, whose leaderships in recent months have begun an open confrontation, and the balance of forces between them had for a long time been maintained by V. Putin.
April also saw several big shifts in personnel. Prime Minister V. Zubkov signed an order dismissing head of the State Corporation “Olimpstroi” S. Vainshtok from his post, and appointing instead Mayor of the City of Sochi V. Kolodiazhnyi, who is close to Governor of Kuban N. Tkachiov and the well-known entrepreneur O. Deripaska. As is known, a year ago Russia has won in the contest for hosting the 2014 Winter Olympic Games, the base for which will be the City of Sochi. However, the broad spectrum of the necessary infrastructure was totally missing but for a single mountain ski complex. Despite his solid reputation as an efficient manager, despite a quickly adopted federal law which actually provided him with freedom of action, and despite substantial funding allocated to these purposes, S. Vainshtok failed to launch the new construction project, and from this point of view a whole year had been lost. However, the local situation plagued by some long-standing conflicts (having to do with compensations to the residents being evicted and with the project’s experts’ estimation in terms of its environmental hazards) was further aggravated by an open confrontation in regard of the tenders being held by the corporation: they were criticized both by Vneshtorgbank’s leadership and by Head of the Ministry for Regional Development D. Kozak.
Two governors left their posts – A. Chernogorov (Stavropol Krai) and A. Tishanin (Irkutsk Oblast). While the former one had long been regarded as a doomed figure after last year’s failure of United Russia at the elections to the legislature, Tishanin’s position was seemingly safer, despite the presence of opposition in the region. No new governors have as yet been appointed: in Irkutsk Oblast the functions of acting governor were assigned to a former employee of “Rosoboroneksport” I. Yesipovsky, but it appears that the new candidate will be appointed by Russia’s new President.
The new President will, most probably, have to make a new decision in respect of the situation in Chechnya, as well. In addition to the habitual war with the Islamist underground, the situation there in mid-April became dramatically explosive: in Gudermes, an armed conflict took place between the detachments of the Ministry of Internal Affairs of Chechnya subordinated to R. Kadyrov and the “Vostok” battalion of the RF Ministry of Defense controlled by the Yamadaev family. R. Kadyrov, who had been consistently implementing the policy of eliminating his rivals, in recent years was forced to retreat: S. Yamadaev remains in charge of “Vostok”, while in response to being accused of banditries the Yamadaevs voiced similar accusations against R. Kadyrov himself. As for Kadyrov, he denied the fact of his resignation, which caused even more interest on the part of observers. The difference between the two sides involved in the conflict, no doubt, is only slight, and this is yet another proof of Chechnya’s separation from Russia’s “legal field”.
In April, the first big transaction (after the March election) was carried out: “Rossiiskii aliumimii” [“Russian Aluminum”] (”Rusal”), whose largest shareholders are the structures belonging to O. Deripaska, V.
Vekselberg and Glencore, announced the completion of the deal involving the acquisition of 25 % plus one share in the company “Norilskii nikel” [“Norilsk Nickel”] from one of its biggest co-owners M. Prokhorov.
According to the terms of the deal, his structures will receive 14 % of shares in ”Rusal”, as well as monies.
However, this is by far not the end to the process of metallurgy’s consolidation - M. Prokhorov and V. Potanin have not yet completed dividing between themselves “Norilskii nikel”’s share capital, and a symmetri cal deal is also possible, by way of a countermove, between V. Potanin and A. Usmanov’s – A. Skoch’s – V.
Anisimiv’s holding company “Metalloinvest”. In 2000 the emergence of new authority figures almost immediately triggered renewed “aluminum wars” with active participation of state-owned structures. If the current transactions in metallurgy will prove to be stable and remain within a civilized framework, this will become an important factor in terms estimating the new authority’s value.
Also in April the Russian authorities managed to score some points on the international arena – NATO’s summit delayed its decision concerning the participation of Georgia and Ukraine in “The Membership Action Plan” (MAP). This issue of an immediate participation in the Plan (although it is only one step on the way toward entry into NATO) represented for the Ukrainian and Georgian authorities (just as for Russia – their failure to join) a very important symbolic factor. Their participation was opposed not only by France and Germany, which often express understanding of Russia’s initiatives, but also by Italy, Spain, and Belgium, while the UK chose to wait and see. Russia succeeded in linking the issue of Georgia to that of unrecognized republics, and the issue of Ukraine - to the forthcoming referendum there on the participation in NATO’s Plan, the outcome of which is far from clear. At the same time, the struggle at the NATO summit and the worsening situation along the border between Georgia and Abkhazia toughened Georgia’s attitude to Russia’s entry into the WTO (previously, prior to the decision concerning the renewal of transport traffic between the two countries, where were some hopes for a compromise), which can further delay the completion of this process.
Real Sector: Trends and Factors O. Izryadnova In concordance with the work schedule, the Federal State Statistics Service made the first estimation of the GDP by quarters of 2007 in coordination with the yearly figures. The volume of GDP in Russia in was equal to RUR 32987.4 bln in current prices and increased by 8.1%, deflation index being at the level of 113.5% as compared with the average yearly prices of 2006.
According to the preliminary estimation of the Ministry for Economic Development and Trade GDP growth in the first quarter 2008 was equal to 8.0% as compared with 7.4% over the corresponding period of 2007 and 6.3% - in 2006. Macroeconomic situation at the beginning of 2008 was formed under the influence of internal market dynamic expansion, which was accounted for by cumulative effect of domestic business activity factors and growth of population’s incomes. Increase in investments in fixed assets reached 20.2% over January-March 2008, in retail trade turnover – 16.7%, in real population’s incomes – 10.0%. According to the IET forecast growth of investments in the fixed assets will by the end of the year be equal to 19.4% and retail trade turnover – to 13.9%.
It should be noted that macroeconomic situation in 1 quarter 2008, in contrast to the previous year, was characterized by the increase of external demand influence on GDP dynamics. The export dynamics was considerably affected by the situation at the world markets of fuels and raw materials, on the one hand, and reserved growth of the internal market of hydrocarbons and material and technical resources, on the other.
Against the background of high world prices the total value of Russian export in terms of value, according to the preliminary results of 1 quarter 2008, increased by 55.2% as compared with 6.9% in the corresponding period of the previous year.
Analyzing dynamics and structure of internal demand the trend for import growth should be mentioned.
High import elasticity towards internal demand demonstrates that economy’s revenues and population’s incomes growing and competitive ability of domestic goods decreasing the shift of consumers’ preferences towards import goods are strengthening. Increase of import was equal to 41.6% in 1 quarter.
Specific features of economic growth dynamics in the current year were defined by slowdown of industrial development. Increase in production in industry over January-March was equal to 6.2% and was 1 p.p.
below the level of the previous year. In processing industry increase in production was equal to 0.7% against 4.1% in 1 quarter 2007. Slowdown of growth intensity concerned fossil fuels, minerals extraction for production of construction materials against the background of overcoming of the drop in metal ores extraction.
In processing production increase in output was equal to 8.7% and was 1.4 p.p. below the figure for 1 quarter 2007.Slowdown of growth rates is observed in nearly all kinds of economic activities, except transportation vehicles production, rubber and plastic goods production, wood processing and wooden goods production.
Under conditions of intensive expansion of workload in construction (128,9%) the housing construction continued actively. The total square of housing put into commission in 1 Quarter was equal to 10.2 mln of square meters against 9.5 mln of square meters over the corresponding period of 2007. However from the point of view of the short-term prospect slowdown of machine-building production down to 16.4% against 26.4% in January-March 2007 is worrying, of construction materials production – down to 8.6% against 25.8%, as well as provision of construction organizations’ orders.
28,17,16,14,12,11,10,8,8 8,5,9 5,5,34,4,5 4,4,4,3,5 3,5 3,3,3,2,1,1,1,1,1,0,0,, --6,-2005 2006 2007 Fig.1 Changes in Production Rates of Goods and Services by Basic Kinds of Economic Activity in 1 Quarter 2005-2008, as percentage to the previous year 18, Transport vehicles production 12, 3,2 -6,Electric equipment production, 23, 7,16, Machinery and equipment - production 12,8,Metallurgy production 8,8,8,Non-metal mineral goods production 25, 2,30, Rubber and plastic goods production 24, 18, 3, Chemical production 10, Coke and oil products production 5,7,Pulp and -paper production 10, 3,15, Wood processing -0,6,Leather goods, and footwear 18, 11, production 2,6 Textile and sewing production 10, 9,6,Foodstuffs production 13, 8,Processing industries 12, 2,-15 -10 -5 0 5 10 15 20 25 30 200 200 6 7 Fig.2 Changes in Goods and Services Production by Kinds of Economic Activities and Activity of Processing Industries in 1 Quarter of 2005-2008, as percentage to the previous year turnover Transport Construction and communication Retail trade Minerals Processing Agriculture extraction industries Water, gas and electricitty distribution production and by basic kinds of economic activities Production increase It should be remembered that in 2007 and 2008 an uncharacteristic for Russian climatic conditions increase of workload in construction in winter period was observed, which led to tension at the market of construction materials. Possibilities for the increase in volumes of production of the main kinds of construction materials were quite strictly limited by the condition of the fixed assets and maximum facilities load. As a result of 2007 the growth rates of construction materials output are two times below the growth rates of investments in fixed assets. Domestic producers reacted to this situation by the increase in prices for the main kinds of construction materials by more than one third.
In 1 quarter 2008 against the background of output rates slowdown acceleration of prices growth for the main kinds of construction materials was observed once again. Analysis of prices for construction materials, construction production and investments in fixed assets dynamics require intent attention, taking into account changes in inflation background of the contemporary stage of Russian economy development.
It was the change in prices dynamics and structure that had a considerable influence on the nature of the economic growth at the beginning of 2008. Over January-March 2008 inflation was equal to 4.8% against 3.4% over the corresponding period of the previous year. It was the anticipating growth of prices for foodstuffs that had negative influence on inflation rates acceleration. Over 1 quarter 2008 prices for foodstuffs went up by 5.7 % against 2.6% in 2007. At the market of non-food goods the dynamics of supply and competition is considerably higher. Growth rates for non-food goods remained considerably below the general inflation rates and have increased by 2.0% since the beginning of the year. The market of paid services was formed against the background prices and tariffs dynamics increase.
In 1 quarter 2008 the prices of industrial goods producers increased by 3.0% including in processing industries – by 4.0%, the prices of extractive industries decreasing by 0.2% as compared with December 2007.
In March 2008 fossil fuels production became cheaper because of decrease in prices for crude oil and associated gas by 7.7%. Among the processing industries in March increase in oil products production prices by 9.0% was observed, whereas on the whole over the quarter producers’ prices decrease in this field of activity was equal to 2.6%.