By ALEX NICHOLSON, Associated Press Writer
Mon Jun 20,11:53 AM ET
MOSCOW - Russia must forge ahead with significant administrative,
judicial and economic reforms if it is to make a clean break with
its business-stifling Soviet legacy, the Organization for Economic
Cooperation and Development said Monday in a toughly worded
report.
The Paris-based OECD, which represents a group of industrialized
nations, said Russia deserved praise for the reforms it had already
undertaken, but much needs to be done to get rid of rampant
corruption and heavy-handed state intervention in the
economy.
"The patronage dispensed by individual officials particularly
those charged with managing state property or large financial flows
can be enormous," the report said, "while the weakness of the
administrative machinery makes it easy for officials to use that
power to pursue narrow or political ends."
The nearly 200-page report, called "Russia: building rules for the
market," said the state's commitment to the rule of law was weak,
and pointed to the high-profile campaign against the oil company
Yukos.
The politically charged assault on Russia's one-time biggest oil
producer and its founder Mikhail Khodorkovsky has battered
investors' confidence. A giant bill for unpaid taxes triggered the
transfer of Yukos' main production unit to a state-owned oil
company in December, while Khodorkovsky who sponsored opposition
parties in the run-up to 2003 elections was in May sentenced to
nine years in prison on fraud charges.
"The state cannot easily make a commitment to rule-governed
behavior. The weakness of that commitment has been evident in the
political and legal campaign against the oil company Yukos since
July 2003," the report said.
While Yukos was the most prominent example, prosecutors and police
have "frequently been deployed against businessmen who were in
conflict with federal or regional authorities," the report said. It
called the state's behavior "more interventionist, less
rule-governed and sometimes predatory."
Despite soaring prices for oil, Russia's main export commodity, the
nation's economic growth is slowing. The Ministry for Trade and
Economic Development lowered its forecast for gross domestic
product growth to 5.8 percent for this year, after growth of 7.1
percent in 2004. Statistics released Monday by the Federal
Statistics Service showed that GDP was up only by 5.2 percent on
the year in the first quarter, down sharply from 7.6 percent for
the equivalent period in 2004.
Analysts have blamed slowing growth in Russia's crucial oil sector
on the Yukos clampdown, as well as a tough tax regime that sucks up
windfall profits removing companies' incentive to invest in
developing their business.
Speaking at a separate investment conference in Moscow on Monday,
Finance Minister Alexei Kudrin cited a number of issues
corruption, administrative barriers and unclear tax policy that
coincided with the OECD report as deterring business executives
from working in Russia.
There are a "row of factors which obstruct the economy," he said.
Commenting on Khodorkovsky's sentencing, Kudrin said: "Assessments
of the sentence and of its independence I think these factors
have also had an influence."
On Monday, the Federal Statistics Service said that growth in the
natural resources extraction sectors including oil, gas and
metals was up only 3 percent in the first quarter compared to 7.2
percent the year before, Dow Jones Newswires reported.
At the same time, the government has come under harsh criticism for
hiking budget spending at a time when it seems unlikely to keep
inflation within an 8 percent to 10 percent corridor.
The report cited the need for key sector reforms. Chief among them
are reforms of the gas sector "one of the government's major
policy failures," according to the OECD which is dominated by the
opaque and inefficient natural gas behemoth Gazprom.
Ultimately, the report said an overhaul of Russia's corrupt and
"personalized" bureaucracy, inherited from the Soviet era, as well
as judicial reforms would determine whether the nation's economy
would grow over the long term.
"There is an enormous amount to do and it would be both unrealistic
and unfair to believe that any government could do it all at once,"
the report said. - Yahoo News