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Presently, the pressure on the part of the {organized}crime has fallen notably, as the passions on property division began to decline, while the moneybags pressure has declined, too, but there exists the notorious telephone right, so harshly criti cized yet in the Soviet time. (9See: Zhukova N. Budet li v Rossii spravedlivy sud (Will there be a just court in Russia) //Rossiyskaya Federatsia segodnya. 2004. No 14. p.3).

Section 1.

The Socio Political Background law. That is why in the course of trials on YUKOS case there appeared previously non existent in the law definitions and notions (dummy legal entity, adequacy of tax bene fits, actual owner, scrupulous taxpayer, etc.), which formed the grounds for a waiver to apply general law procedures and the computation of fines and penalties at an amount that often proved to be greater than the arrears due. The companys capitalization conse quently experienced over the 15 fold downfall over the year, while the amount of the tax arrears proved to be unprecedented both in the domestic and international practice. In 2004, almost all the company management found themselves in the official retrieval, in cluding lawyers that had had no relations with YUKOS.

In December 2004 there took place a notorious action on the sale of YUKOS major oil producing asset Yuganskneftegas (against the law provisions that require to sell first an indebted enterprise s non profile assets). On the eve of the auction its organizers re ceived quite probable, albeit not seemingly evident, ruling of the US bankruptcy court in Texas that forewarned economic agents and Gasprom in particular to refrain from partici pation in such a procedure. As a result, the consortium of Western banks refused to dis burse a nearly USD 9 bln. worth loan to buy Yuganskneftegas, and Gasporms daughter company did not bid. The winner in the auction became an obscure (even the best in formed analysts had no idea of it), albeit known to the President, Baikalfinansgroup that allegedly placed a USD 2 bln. deposit. Immediately in the aftermath of the auction the state owned Rosneft8 bought the winner. It was announced that in early January Rosnfet closed the deal by transferring the remaining a. USD 7 bln. The financial pool for the operation could be either state owned banks (if so, they obviously breached loan dis bursement standards per single company), or billions of US Dollars of budget funds, or, which is most likely, the whole cash turnover around Yuganskneftegas took place just on paper.

An indirect, albeit critical, effect of the YUKOS case became the depreciation of Mr.

Putins obligations to the nation. It should be noted that the above does not mean any un happy lexical constructions. Rather, that was an intentional breach of minimum two pub licly made commitments under rather serious pretexts: that is, to avoid YUKOS bankruptcy and keep governors appointment by elections.

YUKOS case has not been a sole example of arbitrary law enforcement in Russia. In 2004, huge tax claims were likewise laid to Vympelcom, Volgotanker, and other big com panies; the sale of Silovye machiny concer to Siemens was blocked; the outcomes of the tender on development of Sakhalin 3 field (won by ExxonMobil and Chevron Texaco) were canceled), etc.

In the light of the above it is worthwhile to note the role played by the Constitution Court of RF that had long been a firm shield pf both the letter and liberal spirit of the Russian Constitution.

Some recent rulings of the Constitutional Court can be likened to a notorious change in the US Supreme Courts stance in the President F. Roosevelt era. The most notorious example of the Russian Constitutional Court became its ruling No 169 on the right of VAT rebates only for the companies that have paid to their suppliers with their own, rather than borrowed, cash. When in a half year the Court had to change its ruling, it once again dem onstrated the level of its dependence.

Naturally, the collapse of the arbitration legal proceedings could not help being cou pled with an analogous degradation of the criminal proceedings. As a result, the year of Interestingly, one of the deputy heads of the Presidential Administration, Mr. I. Sechin, happened to chair the companys Board.

RUSSIAN ECONOMY in trends and outlooks 2004 saw the rise in the number of political prisoners. The group of the two YUKOS share holders and head of the companys security was complemented by dozens of individuals under official retrieval and arrested ones. Plus, the group of leftist activists of the national Bolshevick Party that seized the RF Health Care Ministers office without any violence in August 2004 was sentenced to the 5 year imprisonment, yet another 50 their party fellows await the verdict for an analogous action by the Presidential Administration; leaders of re gional political organizations, ranging from CPRF to Union of Right Forces were arrested, too; a Chechen woman was sentenced to jail on the basis of mythic fingerprints allegedly left on the explosives that investigators had detonated by themselves, etc.

The justice reached its peak with the jury in Krasnoyarsk unanimously sentencing a physicist named V. Danilov to 15 years of imprisonment on a charge of espionage. In this particular case, as earlier in I. Sutyagins one, the authorities openly applied the technol ogy of cancellation of the jurys earlier verdict of not guilty with a subsequent picking of a new, reliable jury out of the non published, against the law, list.

The law enforcement agencies, accordingly, undergo a similar degradation. Thus, for instance, the general public became aware of a pogrom with hundreds of innocent vic tims the local police made in the town of Blagoveschensk in Bashkiria. While the State Duma declines requests to consider the issue, its organizers still hold their offices.

Thus, it is the state of state power institutions that comes now to the forefront and forms the main bottleneck.

1.1.3. Economic Growth: Discussions and Problems Like in the prior years, the 2004 economic and political discussion centered on is sues of economic growth. President Putin gave an additional impulse, both in the ideologi cal and practical and policy terms, to the debate. The respective statement was made in his 2004 Address to the Federal Assembly, with even some accentuation of the thesis on economic growth by complementing it by the claim to double the average annual per cap ita GDP by 2010 (i.e. for 10 years since his first election) and to secure a prompt taming of inflation and reach a full convertibility of the national currency9.

Russia needs economic growth, but not at any price. First, it should be sustained indeed, the well studied into macroeconomic populism phenomenon, can entail high growth rates, albeit at the expense of creating serious problems to a longer term eco nomic stability.

It is equally necessary to ensure that high growth rate should bridge the gap between a country and the most developed nations. The combination of these two requirements produces a hard challenge to a government. On the one hand, its economic policy should be better than other nations, thus securing higher growth rates, while the transition to nonstandard decisions increases the risk of negative, rather than positive, outcomes.

The 2004 growth in GDP at 7.1% vs. 7.3% reported in 2003 forms a serious issue for the public and political discussion. The question, Is it much or not enough, does not im ply a simple answer and requires a few specifying questions.

What are the causes for the slowdown of growth rates vs. 2003 How does this corre spond to growth rates of the most developed economies What is the correlation between Russias economic growth and that demonstrated by other post communist (and, particu larly, post Soviet) economies Who should one assess Russias growth from the perspec tive of opportunities that a favorable state of affairs for Russian exports provides The Address of the President of the Russian Federation to the Federal Assembly. Verbatim Record of May 26, 2004. M.:

Izvestia. P. 22, Section 1.

The Socio Political Background In terms of comparative prospects, one should note that Russia has enjoyed sub stantially greater growth rates than the most developed economies, which allows to recog nize that its growth rates have been satisfactory to bridge the gap between them. For ref erence: according to the data for the 2nd quarter 2004, the growth rates accounted: in the US 2.5%, in 25 EU countries 3.6%, France 3.6%, Germany 1.9%, UK 2.5%, while the new members of E, the Central and eastern European economies grew at a rate com parable with, or a bit slower than Russia: Czech Republic 4.1%, Slovak Republic 5.4%, Hungary 4%, Estonia 5.9%, Latvia 7.7%, Lithuania 7.3%). T is evident that their growth was not at all fueled by the generally favorable state of affairs in the foreign trade area. It can be argued the opposite: with all positive factors, their accession to EU could not help creating some challenges to them (with account of the rise in competition, as well as social and other obligations associated with the EU membership).

As concerns the CIS countries, it should be noted that they by and large are ahead of Russia by their GDP growth rates, while the impact of a favorable situation in foreign trade area can serve an explanation only for some of them. Russias role as the locomotive of growth, of course, plays a certain role, but they find themselves equally affected by world prices for energy sources. However, Russias role in the Near Abroad economies devel opment should not be overestimated, particularly because, as noted above, most of them have demonstrated higher growth rate than Russias.

Some decline in Russias growth rate in 2004 does not reject the hypothesis of the completion of recovery growth and transition to investment growth. This is proved by the existence of a fairly high investment activity and the rising labor productivity. Naturally, such fluctuations do not form per se a sign of the presence or absence of a growth that is based on new grounds.

Indeed, the economic growth rate results from an interaction between various fac tors, and it would be a mistake to reduce everything to the economic policy in a narrow sense of the word, i.e. to a set of measures that have a direct impact on a national econ omy. At this juncture, political factors, soundness and attractiveness of a government course equally matter. Last year, problems arose in this particular area, with the invest ment climate demonstrating no improvement. Furthermore, there arose a number of fac tors that compel one to question Russias further development prospects.

First, economic agents still have been extremely irritated by a low efficiency of the national judicial system, absence of any notable progress, as well as signs of any future progress, therein. Secondly, the administrative agencies have continued to display a low efficiency, while the administrative reform generated numerous complexities that is mir rored by surveys10. Third, there has been no progress in overcoming the monopolistic trends, which constrained the rise of small and medium size businesses and raised their doubts about the governments willingness to progress on the path towards modern mar ket democracy. The situation with the natural monopolies reform and primarily OAO Gasporm is particularly complex. Fourth, there grow doubts about political prospects, while expectations of amending the Constitution generate uncertainty in the medium and longer run. At this point, the fundamental problem does not lie so much with concerns of an overly drastic strengthening of the vertical of power (for entrepreneurs prefer the or der to political liberties), as the absence of certainty and predictability of the governments According to some assessments, the number of experts that noted the decline in the governments performance reached 62% in autumn 2004, thus practically doubled vs. spring 2004 (See: Konsensus prognoz a 20042005 gody: pros profes sionalnykh prognozistov. 22 oktyabrya 2 noyabrya 2004. M.: Centr razvitiya, 2004) RUSSIAN ECONOMY in trends and outlooks actions and lack of understanding of what the final point of the political evolution and dead lines for reaching it are going to be.

Most likely, it was the deterioration of the noted factors that underlay such negative outcomes as a deceleration in the growth of investment and the renewal of the private capital flight the parameter that had been declining over two years prior to 2004.

Finally, the assessment of the role played by the state of affairs in the foreign trade area poses a special problem. In 2004 the analysts continued to share a popular view that implied that economic growth to a significant extent was fueled by high prices for oil and other Russian exports11. In a nutshell, they believe that Russias GDP growth rates should fall substantially under declining prices for oil, while the most radical experts go as far as to argue that the current growth can be replaced by a slump.

The great role of the mineral (the fuel and energy in particular) sector in Russias, as earlier in the Soviet, economy cannot be questioned. The recognition of this fact also sug gests recognition of a fundamental vulnerability of the countrys economic and political system, as the collapse of the USSR to a significant extent was fueled by a drastic downfall of the price level for oil to which the Soviet economy had adjusted over the 1970s. But there cannot be direct analogues.

It is necessary to take into account two conditions: on the one hand, the collapse of the Soviet system was related not only to fluctuations of oil prices, but as well with an irre sponsible structural policy the Soviet leadership had pursued over the preceding decades (this will be explained in a greater detail below). On the other hand, given an adequate economic policy, the downfall in oil prices forms a serious unfavorable factor just for the oil sector, while the others can even benefit from that, due to a decline in the oil producers demand for some production factors that are designated for the consumption by all the sectors.

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