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