In general terms, there should be a clear vision of what purposes should be followed in the course of privatization and the reform of management of the state property on the whole. In the first half of the ‘90s, the key task of privatization was the ensuring of structural transformations and institutional base for the systemic transformation, including some contract sociale of that time (that model could not be implemented without directors of enterprises). In the meantime this systemic task to a significant extent has moved to the area of corporate governance problems. Another task of privatization, the budget one, though with many reservations, has been implemented over the second half of the ‘90s. In the meantime it is as well no longer self- sufficient for the development of the privatization process. Hence, a certain burden should be removed on the public sector, which will be in place for a longer-term period.
The third task is investment one, and its implementation has always been almost at zero level over the whole ‘90s, due to both objective (because of implementation of systemic or budget tasks) or subjective reasons. The latter can be attributed to the fact that the investment tasks in the course of privatization were used most frequently formally – to cut off the rivals, to organize self-redemption, etc.
At present the challenges of the property structure optimization at microlevel and nationwide should be tackled, and it is at this point that there are a number of constraints that will be decisive over a longer time.
First, that is the task of inventory of the government property: the process objectively will be taking place simultaneously with a new possible intensification of the privatization process.
Secondly, there are objective quantitative restrictions with a long-term impact. The new mass privatization program is most unlikely (particularly due to a significant non-homogeneity of the objects), while the envisaged sales of 8,000-9,000 transformed public unitary enterprises would take years. Moreover, the inventory process has already started to reveal ‘non-reported’ PUE (according to some estimates, they already account for 17,000).
Thirdly, the further intensification of the privatization process will be constrained by a rate and the quality of the transformation of the existing PUE into JSC. The mass transformation of this kind may become possible only when there are sound mechanisms of the consequent functioning of such enterprises (a special status or full-fledged JSC within the framework of the current corporate law). The trend characteristic of 2000 to the strengthening of the government participation in such companies also brings about some nuances.
In the fourth place, a favorable price situation: in that case it is both the situation in the markets for minerals and the factors related to the redistribution of property and quotations of companies’ securities that should be considered. The latter process has activated after the 1998 financial crisis, and there should be new stages of that.
In the fifth place, it is an «applied» uncertainty of the government’s stand towards the problem of nationalization. Apparently, this process appears impossible in the political sense (at the level of conceptual approaches), while considering the practical situation, the nationalization processes are already underway: attempts to revise the results of investment tenders, recognition of single privatization deals negligible in the court, growth in the number of unitary enterprises (after their bankruptcy due to their debts to regional budgets), processes of debts restructuring, return of stakes to the government agencies or use those as a collateral, arrest of stocks because of a debt, transfer of stakes to the state holdings, etc4. All the above requires a uniform approach and the civilized legal procedures. The law on nationalization, however, has not been passed in 2000. That is a certain declaration of intent, which should stipulate terms and conditions of compensation and an absolute compensation to bona fide purchasers, and possible fines imposed on former offences. It would be also necessary to regulate the problems related to stale claims with respect to privatization deals.
The key challenge for the further development of the privatization process is a conflict between the existing considerable capacity for the development of privatization in the medium- and long term and the existence of very serious institutional barriers to an efficient privatization. That implies a general institutional environment for launching new methods and enhancement of the existing ones: efficiency of the current law enforcement procedures, problems of protection of property rights, problems of the institutional «construction» of corporations5, corruption, judicial system, etc.
Many of the above problems have not been included in the government program-2000 and still fall under the President’s powers. At the same time it is necessary to be aware that, for instance, the reform of the judicial system will, by its essence, also be an indicator of the authorities’ true intents with respect to the reforming of the national economy as a whole and the area of property, in particular.
The evaluation of the interrelation between the crediting of the real sector and dynamics of production and output over the post-devaluation period
At first sight, the processes in the real sector after the August 1998 crisis had an insignificant impact on the dynamics of indices in the banking sector. As Fig.1 shows, there is a loose correlation between the change in industrial output, on the one hand, and the change in banks’ assets or their in loans to the non-banking sector, on the other, however, the elimination of the impact of depreciation allows drawing another picture.
Dynamics of industrial output, banking assets, loans and clients’ accounts between 1998 through 2000
To do this, let us consider the specifics of the two sectors of the national economy- the export- oriented one and the sector focused on the domestic consumption. The boundary distinguishing them from each other, of course, would be fairly conventional. However, let us consider that the former sector is oriented to credits denominated in foreign exchange, while the latter- to a greater extent to the Rb.- denominated ones (to the extent such the both sectors’ enterprises use banking credits6). It is also importers who are also oriented towards credits denominated in foreign exchange, however, as Fig.2 shows, between mid-1998 through mid 2000 the changes in the volume of loans denominated in foreign exchange have been more closely correlated with the export dynamics rather that the import ones.
The comparison of changes over a half- yearly period in the value volume of export, import, and loans denominated in foreign exchange extended by banks to the national enterprises shows that during 2 years the dynamics of the loans denominated in foreign exchange followed the dynamics of the value export volume, though with a shift ‘downwards’- the fall of the hard currency-deniminated loans between the second half 1998 to the first half 1999 was more intensive than the contraction in the Russian exports, while the their growth between the second half 1999 through first half 2000 was less intensive than the rise in exports.7
Dynamics of export, import, and hard currency denominated loans to enterprises-residents in USD equivalent.
*July to November
A relatively amorphous reaction of banking credits on the growth in exports partly can be attributed to the moderate demand for credits on the part of importers - the import volumes are still far from the pre-crisis level,- while partly that can also be attributed to a low demand for credits on the part of exporters whose receipts tend to grow. To some extent the impact of the latter factor is reflected in the dynamics of banking deposits of legal entities. between early 1999 through the end of the IIIrd Quarter 2000, the legal entities’ deposits grew by 96% in constant prices. However, one should not neglect constraints that face the demand for such resources: we don’t mean that regular argument that our exporters are too large to be credited at the local market for banking services, although that is fair, however, not for all the economic agents - exporters. Th crisis has add new constraints to the traditional ones. First, almost all the former (during the pre-crisis period) leaders in the segment of the market for banking services have left the market: of the five largest banks-creditors to enterprises in the foreign exchange segment, it was only Sberbank that has survived through the crisis (whilst the others- Incombank, SBS-AGRO, UNEXIMbank and Rossiysky Credit) in some form or another discontinued their active operations). Secondly, the survived banks have been deprived of their main sources of resources for this kind of credits, because during the pre-crisis period, the disbursement of credits denominated in foreign exchange to a significant extent was based upon the attraction of non-residents’ funds and, primarily, foreign banks’ syndicated credits. For the majority of banks, the crisis has closed their accession to the international capital markets, while the banks have found it complicated, if not beyond their capacity, to mobilize national resources (see Fig.3). The contraction in non-residents claims to the Russian banks was accompanied by the decline in the absolute amount of credits denominated in foreign exchange that were disbursed by the banks, and this proces had started prior to the groth in exporters’ gains and emergence of the grounds to claim they did not need any. The credits from non-residents cannot be substituted by deposits or transaction accounts denominated in foreign exchange, plus their growth capacity to a significant extent has exhausted by 2000 (see Fig.4). As per cent to assets ratio, the balanes of legal entities’accounts denominated in foreign exchange in 2000 tended to decline, while the growth in the proportion of legal entities’ hard currency-denominated deposits in liailities made up only 0.5% over the period concerned.
Loans issued by Russian banks to enterprises-residents denominated in foreign exchange and their liabilities to non-residents
1-Loans to enterprises-residents
2-Liabilities to non-residents
The proportion of balances denominated in foreign exchange on the accounts and fixed deposits in the operating anks’ liabilities
1- Fixed and saving deposits
2- Transaction accounts
All the above allows to argue that the unregulated problems with foreign creditors are not solely the banking sector’s problems, not they are single banks’ problems. Without restoring confidence in the banking system, it ill be incapable to restore its financial intermediary function between the owners of savings ad the real sector even to the extent characteristic of the pre-crisis period.
So far, the growth in foreign exchange-denominated credits notably lags behind from the growth in assets. In 2000 the latter was ensured, in addition to Sberbank, by those banks that in the beginning of the year were even less that on average were involved in issuing credits to the non-financial sector.
In the course of the financial crisis, the Rb.-denominated loans to the non-banking sector, in turn, showed a high sensitivity to changes in the volume of industrial output. Fig. 5 provides changes in the volume of industrial output and Rb.-denominated loans to the clients from the NBS with a breakdown by half-years, in current prices. As we can see, it was not only the production decline in the IInd half 1998 that was accompanied by the contraction in the volume of credits, but also the growth in the p industrial output index over the first half 1999 was accompanied by a 47% growth (in current prices) in the Rb.-denominated loans disbursed. In the IInd half 1999, the growth in the Rb.-denominated loans to the NBS was ahead of the industrial output growth rate. However, as early as in the Ist half 2000 the former index slowed down (to 25%), thus practically coincided with the latter index, while according to preliminary data on the IInd half 2000, the growth in Rb.-denominated loans was notably ahead of the industrial production growth rate.
Dynamics of industrial output and Rb.-denominated loans disbursed y the banks to the NBS.
Note: the data on the loans for the Ist half 1998 is not fairly comparable with the later one, due to the change in the Accounts Plan in the banks.
The evaluation of changes in the structure of assets of the banks crediting the real sector allows conclusion that the growth in Rb.-denominated credits noted in 2000 just partly can be attributed to the growth in the banking system’s resources. To a significant extent that was taking place at the expense of redistribution of resources within the banks’ credit portfolio and assets previously placed with the banking sector; it was also ensured through the partial return to Russia of some funds earlier placed outside the country.
Hence, the elimination of the Rb. depreciation on the dynamics of loans denominated in foreign exchange and the use of the volume export value index as an indicator of the ongoing processes in the export-oriented sector, as well as the employment of the industrial output volume index for the sector focused on the domestic demand allows conclusion that the dynamics of credits to the real sector shows a high level of sensitivity to processes that have taken place in the national economy since August 1998. This does not fully match the thesis concerning a loose relation between the real and banking sectors in the national economy - to put it more precisely, it appears that the processes in the real sector may have a serious impact on the banking sector, while the banks’ responsive impact on the real sector that is oriented to self-financing has proved to be much weaker.
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