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1.1.2. Key Challenges of the Current Stage of Reforms General Characteristics of Russian Reforms One should not exaggerate the 2004 successes and failures. Rather, one should pay attention to long term trends in the public policy area that proceed from the logic of post communist transformation. It is the success or failure on these particular avenues that ul timately determines transformation outcomes. The current, third, stage of the reform ap pears to the greatest extent associated with development of political and legal institutions.

At the first stage, that took most of the 1990s, there emerged basic institutions of a market democracy and the macroeconomic and political stability was re established. Es tablishment of economic and political order had been basically over to 1999 and resulted in the start of economic growth.

By late 1991 Russia practically completely had fallen short of the institutions whose mission was to secure a stable functioning and even existence of a country. While eco nomic institutions had collapsed, which was evidenced particularly by large scale goods imbalances (economic slump, shortages of goods, a clear danger of hunger and cold), yet the greater threat was that with the actual and, later, formal breakup of the USSR Russia found itself with no government institutions in place. That is why the country faced an im mediate challenge of re establishment of elementary institutions without which no country can survive: those were public institutions, at least, elementary economic mechanisms, and property relations.

The following tasks had been solved by the late 1990s:

the establishment and solidification of fundamental political institutions, particularly, the Constitution and regulation of federative relationship;

accomplishment of the macroeconomic stabilization which resulted, particularly, in a stable currency and balanced budget in place;

accomplishment of the mass privatization that laid foundation for the transition of the national economy towards market.

The second stage chiefly falls within the 1999 2003 period (the dates are, of course, conditional). In a nutshell, its mission was, basing on the achieved stability, to start shaping political institutions characteristic of the contemporary society and more country specific, as far as Russias path of development is concerned. At that juncture, the focus of attention was put on creation of such fundamental institutions of market economy as the RUSSIAN ECONOMY in trends and outlooks Civil, Tax, Budget, Labor and Land Codes, and pension law. The government also launched deregulation processes (lifting administrative barriers to the entrepreneurial ac tivity), was improving interbudgetary relations (the relationship between the federal, re gional and local budgets), and approached the natural monopolists reform. As well, Russia progressed in terms of joining the WTO and re galvanized integration processes with its immediate neighbors in the CIS. The rating agencies recognized the countrys progress in the socio economic development area by awarding it with higher credit ratings, while the EU and US granted the country with the market economy status. The implementation of the noted reforms propelled Russias progress in the economic reform area and secured its economic growth. The CBRs foreign reserves were growing rapidly, while inflation rates were declining.

At this particular stage the countrys economic growth appeared chiefly recovery, back upped by a vigorous introduction to output of production capacities that had been idle in the crisis period, while the other specific feature of recovery growth is its gradual fading, which takes place once available and suitable for usage capacities are exhausted3.

In 2003, the exhaustion of the potential of the second stage of the transformation be came notable. While on the one hand, there manifested themselves the signs of the transi tion to a new model of economic growth from recovery growth to investment one4, on the other hand, the time has come to identify a strategy and tactics of a socio economic breakthrough and to identify instruments that would ensure a drastic reduction in the gap between Russia and the most developed nations.

Presently, it can be argued that the country finds itself halfway towards the third stage of economic reforms and, accordingly economic policy. Today, discussions should focus on developing a strategy of the socio economic breakthrough in the conditions of the modern post industrial society. This mission is extremely complex, and the mere fact of the transition to this particular stage of reforms by itself does not guarantee the strategic objectives that the nation faces will be successfully solved. The success or failure of the further development depends primarily on the government policy.

The specificity of the third stage of reforms lies in a practically complete exhaustion of the possibility to enhance economic efficiency and consolidate growth efforts exclu sively by means of improving the economic sphere and economic law. The country has ap proached the phase when its further economic development to a significant extent will be pre determined by the state of its political and legal institutions.

To have a sound labor and land law, acts in the banking area, tax and budget law is not enough to accomplish the ambitious mission of economic spurt. All these rules and statutes should be enforced effectively, and this requires an efficient state machinery, just court of law, decent law enforcement system, and coherent legal system. No law will be effective unless al the government agencies ensure its enforcement and the court of law protects the citizen whose rights have been offended.

The national political and business elites have been increasingly in recognition of the importance of the noted challenges. The year of 2004 saw a heated debate on the administrative and judicial reforms, but the success record in these areas has been modest as yet.

On recovery growth see in a greater detail: Russian Economy in 2002. Trends and Outlooks. Issue 24. M., IET, 2003.

See: Russian Economy in 2002. Trends and Outlooks. Issue 25. M., IET, 2004.

Section 1.

The Socio Political Background The Administrative Reform Challenges This particular reform was much discussed in 2004 and found itself in the govern ments focus of attention.

The decisions proposed in its frame basically meet the contemporary challenges: a specification (most often contraction) of the executive branchs functions, lowering pos sibilities for interdepartmental conflicts of interests, creation of an administrative justice system, anti corruption campaign. It is quite another mater that these measures will not be sufficient to tackle a number of problems, while some of them can be adopted only provid ing they are substantially specified.

It should first be noted that the administrative reform has not been coupled with a due conceptual frame an identification of the concept for the public legal building.

Hence, the proposed steps appear too abstract, as the government cannot be turned into an equally efficient means to solve any problems.

Besides, it should be recognized that the government has different spheres of opera tion that, so to say, fall under the purview of the legal and social state, in terms of the Constitution of RF5. Proceeding from these concepts, the legal state has no objectives, ex cept for principles of law and the compulsory exercising of the respective positive obliga tions by civil servants. By contrast, the social state focuses on certain goals, which sug gests that it is free in selecting appropriate means. Employed by such a state, civil servants do not honor their obligations, but enjoy the rights they have been granted with. These dif ferences demonstrate that an introduction of administrative regulations and result oriented budgeting (ROB) do not form just two reform avenues, but to a significant extent represent competing management technologies, each having its own application area.

Finally, it is worthwhile to note that the society and experts alike still are not in a full appreciation of the conflict between democratic traditions and the ROB ideology that sug gests th replacement of political (arbitraty) decisions with objective, academic ones.

The implementation of the administrative reform was launched in February 2004, when M. Kasyanovs Cabinet was dismissed.

The forecasts of the rise of the United Russias, the party that enjoyed an absolute majority in the Parliament, influence in the Government were vain. The party has failed to present both ideological and staffing requirements to the countrys leadership. Thus, de spite the fact that the sole Deputy Chairman of the RF Government became the UR MP from Moscow A. Zhukov, the party has managed to delegate yet just another fellow to a second echelon position of Head of the Federal Agency for Construction and Hosuing. A.

Kudrin, G. Gref and V. Khristenko who are associated with liberal economic reforms re ceived key ministries of Finance, Economic Development and Trade and Industry and En ergy, respectively. The power block of the Government remained practically unchanged.

On 9 March 2004 President Putin signed Decree No 314 On the system and struc ture of the federal executive power. Conceptually, it can be reduced to a uniform profile of agencies: while the Ministries identify the policy, the Services gain supervisory functions, and Agencies deliver services on behalf of the state, manage property and conduct regis ters. It is intended thus to eliminate the conflict of interests, when the same agency com The fundamental principle underlying the legal state is the formal (legal) equality, which implies no pre set results proceed ing from this, including particularly material results of individuals use of their formal rights. The social state is based upon the refusal (at least, a partial one) of the legal state and adjustment of results of the realization of the principle of formal equality.

On contradictions between the two approaches to the state, see: Mamut L. S. Sotsialnoye gosudarstvo s tochki zrenia prava//Gosudarstvo i pravo, 2001. No 7 p. 5 14; Alexeev S.S. Pravo. Opyt komplexnogo issledovania. M.: Statut, 1999, p.

520 RUSSIAN ECONOMY in trends and outlooks bines legislative, enforcement and supervisory functions, i.e. designs procedures, de liver services on their basis and supervises the respective performance. The number of ministries was bound to be reduced, while the prerogative of appointment heads of Ser vices and Agencies now falls within the purview of the Chairman of the Government, rather than the ministry head. However, the number of federal agencies has grown 1.5 times from 54 (including the Government staff) up to 73. Though the number of ministries is cut down from 23 to 14, instead of yet another 30 agencies there emerge 58 ones 29 Ser vices and 29 Agencies. Their independence is illusory, for the federal ministers can ap prove their annual plans and performance indicators, develop statutes on Services and Agencies, set the volume of their financing, and propose to the government candidates to the positions of their heads. It was also announced that the ministers (except for the power agencies) were going to have only two deputies. As expected, the design of the respective documents on ministries and agencies has been delayed and caused numerous conflicts, as well as the declared drastic cuts in the number of government agencies did.

So, it can be argued that in 2004 the administrative reform remained incomplete and needs adjustments in its implementation.

The Judicial Reform Challenges The judicial reform can hardly boast better outcomes. The overwhelming majority of the economic elite and a considerable part of the political one are in full recognition of the fact that maintaining the current level of corruption in the judicial system forms a major im pediment to the entrepreneurial activity. President Putin more than once calls for need to overcome the efficacy of the legal proceeding and judges corruption, followed by a very strong statement by the Hon. V. Zorkin, Chairman of the Constitutional Court6.

International experts likewise stress the gravity of the problem. While, for instance evaluating the level of Russias competitiveness, the World Economic Forum analysts as sessed the state of Russias judicial and law enforcement systems lower than the countrys average rating (the 88th and 85th positions vs. the 70th one, accordingly) and far lower than the state of macroeconomic environment (the 56th place in the world).

The solidification of the power vertical and the judicial reform underway have entailed some shifts in the judicial powers performance, albeit not unequivocally positive ones.

Rather, there happens replacement of some complex problems in the system with other, not a bit less vicious ones. According to some well informed observers, with the mitigation of the pressure the crime and private structures used to exercise on the courts of law, there rises a traditional, Soviet style, influence the government institutions have on their verdicts7.

The best illustration of the noted trends can serve the YUKOS case. More specifically, that is a suddenly arose colossal arrears for the period 20002003. The mechanics of the process was very simple and involved a selective implementation in the country of the op portunity for judges own law creation, which is so characteristic of the system of general It is not a surprise that it was the Chairman of the Constitutional Court who raised the issue of corruption in the judicial sys tem. The Constitutional Court is a unique judicial institution that is directly associated with the supreme power and has no countrywide network. Hence, it appears really free for corruption in its vulgar sense (as a judge receiving money for a certain verdict). It is equally naturally that Mr. Zorkin was harshly reprimanded by the Chairman of the Supreme Court of RF the Hon.

V Lebedev who represents the system of the most disconcentrated (in terms of territory and the number of problems being solved) legal proceedings..

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