Newsletter. №14 2004

Publication date
Tuesday, 28.12.2004

Press center IET

Newsletter IET





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   On September 13-14, 2004, the IET held an international conference entitled “Transition in the CIS: Achievements and New Challenges (see also

   It frequently happens that issues pertaining to the post-socialist transformation of Russia are discussed in such a way as if the Russian Federation were the only post-socialist state, and as if another thirty or so other states confronting similar problems simply did not exist in the world.

   With the collapse of the old institutional system, which cannot be replaced quickly, the post-socialist countries are forced to solve similar problems, such as the following ones:

  - a considerable monetary stock uncovered by an existing amount of goods;
  - a high rate of inflation;

  - the necessity to ensure macroeconomic stabilization;

  - a transformation of property relations;

  - the necessity to establish the basic institutes of market economy.

  When analyzing the processes dealing with the conduct of economic reforms in Poland, Czechia, Slovakia and the Baltic states, everybody acknowledges that these countries have taken different ways, but the problems which they have been trying to solve are similar. Unfortunately, the researches concerning the current problems of Russia are frequently carried out outside the context of the experience accumulated by other post-socialist countries.

  Proceeding fr om the results of studies dealing with the functioning of the economy in post-socialist countries, one could come to the following two important conclusions;

  1. The starting conditions of the transformation (the length of the communist period, the structural disproportions in the economy, the burden of military spending shouldered by the economy, the proximity to Western Europe, etc.) exert a decisive influence during the early stages of post-socialist transition.

   2. In the course of time, the quality of economic policy and the efficiency of basic institutes are becoming increasingly important.

   In the last few years, all the post-socialist world has been recovering fr om the process called by J. Kornai the transformational regression. The economic growth that reappeared everywhere had been lasting for no less than 5 or 6 years. At the first stage of recovery fr om recession, the processes of reconstruction were uniformly dominant, and the growth dealt with the creation of market institutes which made it possible to use the previously established potential. The role of the investment component was limited. At present, the key problem for all the post-socialist countries is the transition from the reconstruction growth to a stable economic growth which envisages an increase in the volume of capital investment. Such a situation makes it necessary to enhance the quality of economic policy and to pay more attention to the guarantees of property rights and other basic institutes.

   At the present time, the post-socialist space in general and the post-Soviet space in particular need to transit to a new phase of institutional transformation. The problems dealing with this transformation were exactly the theme of the international conference Transition in the CIS; Achievements and New Challenges. The conference was co-chaired by IET Director Ye. T. Gaidar and Rector of the ANE under the RF Government V. A. Mau. Among its participants were a number of prominent international experts including Mrs. A. Kruger, Deputy Executive Director of the IMF, as well as representatives of both the governments and the academic circles of the CIS countries and the Baltic states, and some leading Russian scientists.

   At its opening, the conference was addressed by the introductory words of Yegor Gaidar and Vladimir Mau. The speakers emphasized the importance of the forum for the achievement of a better understanding of the processes of socio-economic transformation taking place throughout the post-Soviet space.

   Then the participants of the forum were greeted by Deputy Chairman of the RF Government Alexander Zhukov. In his address, he emphasized that it was for the first time in the whole 12-years-long history of the CIS that such a comprehensive conference as this was taking place in order to consider all the diversity of issues pertaining to the socio-economic development of the countries so closely interrelated with one another in every aspect of life, including the economy, during the last few centuries.

   He also noted that during the years of independent development the CIS countries had accumulated a considerable experience of socio-economic transformation. In certain aspects, this experience was successful, while in some other aspects it was extremely traumatic. The problems to be solved by all of us “are quite similar” because we all “have descended from one and the same great country with enormous problems accumulated in course of quite a number of years”. Taken as a whole, this experience represents a picture rich in colours, wh ere it is possible to trace various nuances and various elements of socio-economic policy - and the experience of using these elements proves to be very useful for our Commonwealth. And naturally, an analysis of this experience is a major precondition for the development of an efficient strategy and tactics of our mutual development in the future.

   At the same time, this accumulated rich experience is, as a rule, underestimated. One can learn very little about the experience of Ukraine, Kazakhstan, and other countries belonging to the post-Soviet space. It is still very difficult and sometimes even impossible to find any serious scientific research especially devoted to comparative analysis of the reforms carried out in the states which in the past were parts of the USSR and now constitute the Commonwealth of Independent States. That is why the Government of the Russian Federation has been so pleased with the initiative of the organizers of the conference and has expressed its hope for the success of the forum.

   Then the Vice-Prime-Minister focused on the main areas of the socio-economic policy conducted by the present Government of the RF. He especially mentioned

   • the administrative reform;

   • the reform pertaining to the delimitation of powers between the federal, regional and local levels of state authority;

   • the support for regional strategies of socio-economic development;

   • the reform pertaining to the abolition of various benefits in kind or to their replacement with monetary compensations;

   • the reform of the budget system per se (that is, not only the reform of the budgetary process and budgetary planning, but the achievement of budgeting oriented towards the results);

   • the reform of the social sphere (education and health care);

   • the state support for the growth of competitiveness of Russian companies, and first of all, small- and medium-sized businesses;

   • the integration of Russia in the world economy.

   While mentioning all the successes and achievements of the Russian economy, A. Zhukov has also noted a number of serious shortcomings and limitations curbing both the rate of growth and the successful social development of the country. One of such drawbacks is the continuing strong dependence of the Russian economy on the fuel-and-power sector and the continuing very strong social stratification of the population,

   “We are approaching a new phase of the implementation of socio-economic transformations, said the Deputy Chairman of the RF Government. The essence of the new phase is in securing the competitiveness of the country, which means not only the competitiveness of our businesses and our economy, but also, and even, perhaps, primarily, the competitive personality. Therefore, at present the highest priority for the government is the development of spheres which are directly linked with the vital activity of man. They include the spheres of education, health care and housing, as well as the infrastructure and the stability of political democracy.”

   As regards the integration of the Russian economy into the global economy, A. Zhukov emphasized the extreme importance of converging and integrating the economies of the post-Soviet space. “We are sure that it would be beneficial to form a single economic space, to form a common market of goods, services and labor force for all our countries. We are striving to eliminate the barrier existing in the mutual trade within the CIS, and to create an efficient system of payments and settlements. As of now, the dominant form of integration is a single economic space.”

   In conclusion, the Deputy Chairman of the RF Government wished that the participants of the conference achieve success in their work.

   In the course of the international conference, there was a ceremony of conferring the rank of Professor Emeritus of the Academy of the National Economy on the Deputy Executive Director of the IMF Anna Kruger and the President of the City Group Stanley Fisher. When handing in the honorary diplomas, Vladimir Mau pointed out that Anna Kruger was a prominent scholar in the field of political economy, one of the founders of modern political economy and the virtual author of the theory of political rent. In respect to Stanley Fisher, it was said that he was a renowned macroeconomist and the author of numerous works on the problems of macroeconomics in general and post-communist transformation in particular. “He is well known around the globe. Many economists get their first knowledge of actual economic theory from the classical manuals on economic theory and macroeconomics written by him in co-authorship with Rudiger Dornbush.”

   The participants of the conference paid much attention to the report of Marek Dombrowski (CASE - The Center for Socio-economic Research, Warsaw). In the report entitled “The Future Challenges for the CIS Countries”, the author, among other things, acknowledges that it is not an easy task to summarize the results of post-communist transformation. Although fifteen years have already passed since the beginning of this process in Central Europe, the attempts to fundamentally dispute the validity of the course towards rapid market reforms and to claim that there does exist some less painful strategy of transformation are still going on.

   The author is sure that in order to answer the question as to how stable the current growth in the CIS countries is, it is necessary to deeply analyze the microeconomic, institutional and structural characteristics of the economic systems created in the process of transformation. M. Dombrowski considers the situation in these areas to be less optimistic than in the sphere of macroeconomic indices.

   The Polish economist assesses the business climate in the CIS countries as generally bad. Among the determining factors he quotes the still existing barriers blocking the entry to the market; the weakness of the tax system and tax administering; the weakness of the customs system and customs administering; the legal system which does not correspond to the principles of an open-market economy and a free democratic society; the inadequate implementation of laws because of the poor quality of the state service and judicial system; the poor quality of the financial sector and financial services; and the underdevelopment and monopolization of the infrastructure.

   As a result of the bad business climate, the economies of the CIS countries experience a structural insufficiency of the two categories of subjects very important for the prospects of economic development: small and medium-size enterprises, and large transnational companies. As regards foreign direct investments, the situation is even worse than in the sphere of small- and medium-size businesses.

   According to the author of the report, the source of many of the above-listed problems is the weak non-reformed state inherited from the Soviet past. And he thinks that the weakness of the state does not mean that it lacks the authority in respect to the citizens and economic subjects, as it is believed by many “statists”. On the contrary, it has this authority in excess.

   M. Dombrowski is sure that the authoritarian tendencies in the CIS countries are encouraged by the following components of the political and constitutional system:

   • the excessively strong constitutional position of the president;

   • the absence of an adequate system of checks and balances between the legislative, executive and judicial branches of power;

   • the majoritarian system of elections to the organs of popular representation (in one-mandate districts);

   • the absence of an efficient system to ensure the honesty of elections;

   • the relative weakness or a complete absence of the democratic movement;

   • the weakness of the system of political parties;

   • the absence or weakness of the independent mass media.

   In respect to the future of the CIS, the author of the report points it out that up till now the definition “CIS countries” has been implying a sufficient set of general political and economic characteristics and general problems, thus making it possible to speak of these countries in terms of a more or less homogeneous group. In reality, it is not completely correct. Despite the common Soviet heritage, the slow rate of market reforms, the visible anti-democratic tendencies and the risk of getting stranded at the periphery of the European and global integrational processes, the individual countries still differ from each other.

   M. Dombrowski is sure that in the future the divergence in the trajectories of development of individual countries will become inevitable. The divergence will be caused by both the difference in the rate and direction of economic and political reforms, and by the influence of external factors. According to the Polish scholar, the very term “CIS countries” has already lost its historical justification. Even in the international diplomatic vocabulary it is being replaced by the definition “New Independent States” (NIS).

   In the course of his presentation, Anatoliy Chubais, Chairman of the Board of the Board of the RJSK “UES of Russia” and Chairman of the Electric-Power Council of the CIS, touched upon such important aspects of Russian economic life as the industrial and structural policies.

   As regards the importance of electric-power engineering for the economies of the CIS countries, he emphasized that this sector secured between 5 and 6-7% of their GDP. “Moreover, it is the only sector which, as a final link of the fuel-and-energy complex, ensures the supplies of products of 100% of physical and juridical persons. It should also be mentioned that the parameters of electric-power consumption are one of the sufficiently representative indices of the standard of living. As well as of the level of the development of the economy in general.”

   When dwelling on the processes taking place in electric-power engineering of Russia and the CIS countries during the past 10-15 years, A. Chubais pointed out both the monetization of this sector and its positive structural transformation. According to him, these two processes were interrelated in a rather complex way. In different countries, it happened differently, and the consequences were also different.

   In respect to the level of monetization, the reporter subdivided the CIS countries into three groups. Group 1 included the countries with the 100% volume of monetary payments (Russia and Kazakhstan). The second group comprised Ukraine, Belorussia, Moldova and Armenia wh ere these parameters were slightly lower, though some positive dynamics could be detected. Group 3 included Tajikistan, Kyrgyzstan and Uzbekistan with a substantially lower level of monetary payments (within the range between 35 and 65%).

   In Russia, the transition to complete monetization had preceded the structural transformation of the sector. The sequence was as follows: Stage 1 - resumption of payments, Stage 2 - structural transformations. According to the reporter, such a sequence is extremely important and absolutely a matter of principle. Unfortunately, in the case of some of our neighbors these two phases are sometimes combined into one. Such a situation was characterized by A. Chubais as extremely dangerous and destructive.

   When describing the essence of structural changes in all the countries of the CIS, the head of the RJSK UES emphasized that the vector of changes was in every case directed towards separating the monopolistic part of the sector from the competitive one. To prove his point, A. Chubais listed the tendencies indicative of such a phenomenon: the attempts at creating the elements of competition within the sector, a more or less decisive departure into deregulation, the rejection of the practice when tariffs were imposed by the state. All these tendencies could be spotted in each of the CIS countries, though with a certain difference in intensity.

   According to Chubais, the criterion of success in the sphere of transformation, including that in electric-power engineering is the emergence of real competition. The result of this competition is the real tendency towards a decrease in prices and tariffs. The result is the complete absence of investments in new construction. In fact, in the majority of European countries no-new capacities were put into operation during the past five to seven years, and in some countries even during the past ten years, so as to produce at least one additional megawatt of energy. Thus, a paradoxical situation is being created: a success in reforming - a successful liberalization - a discontinuation of investment.

   For Russia, this grave problem is potentially much more acute than, e.g., for Scandinavia. On the one hand, it is so because of the deficiencies of the market (there is no doubt that any substantial and reliable price-signals, and especially the investment ones, could be sent only by a developed market, a market with some history), and on the other hand, because of the desperate condition of the fixed assets which are extremely worn out. The head of the RJSK UES has acknowledged that in fact, we are creating a system which, if it succeeds, will confront us with the problems much more acute than those which exist in the European countries at the present time.

   In order to prevent or overcome these problems, some additional solutions are necessary. We are intensity working in this direction, and it is already clear to us that it is important to create not only a market of electric energy, but also a market of capacities as a separate market place wh ere electric power as such, the capacities of the power plants, will be the object of purchase and sale with a special payment system, preferably, the most liberal one.

   The farther we advance, the more clearly we understand that, apparently, the case in point is the creation of a whole system of markets, including not only the market of electric energy and the market of capacities, but also the market of transport services, the market of dispatch or systemic services.

   Then the speaker emphasized that “so far as the course of liberalization and transformation of the company is concerned, the procedure known as “reorganization” is the most basic. Reorganization as a legal procedure, described in the Law “On Joint-Stock Companies”, absolutely does not fit in with the basic segments of prevailing Russian legislation. In this respect, the management of the RJSC “UES of Russia” has prepared some appropriate amendments to the Law “On Joint-Stock Companies” and the Tax Code, and is going to launch this initiative concerning the chance of license legislation, the Labor Code, etc.”

   Another speaker at the conference, the Vice-Prime-Minister of the Republic of Kyrgyzstan Dzhoomart Otorbaev, devoted much attention to the prospects for economic development of his country. He informed the audience that the Government of the Republic of Kyrgyzstan had already been working for several months, together with the Institute for the Economy in Transition, among other things, on the concept of reforming its tax policy.

   After the disintegration of the USSR, the economy of Kyrgyzstan experienced approximately the same phenomena as every other country of the CIS. But there was a number of specific features resulting from the fact that the rate of growth had started to fall there earlier than in the USSR as a whole. This decline was especially pronounced in the late 1960s and the early 1970s. It should also be added that the republic was a region totally subsidized from the budget. The circumstances accompanying the disintegration of command economies were aggravated there by an intensive migration of labor resources and by the removal of fixed assets. The only way for further development was to conduct radical economic reforms. It was, in fact, a pure “shock therapy” as such.

   Mass privatization in Kyrgyzstan was very active from the onset. At present, more than 90% of all enterprises are in private ownership. In the next several years, privatization will be extended to natural monopolies. The Republic of Kyrghyzstan was the first CIS country to introduce its own national currency which happened in 1995. As early as 1998, the problem of private ownership of land was constitutionally solved. Also in 1998, Kyrgyzstan was the first CIS country to join the World Trade Organization.

   Nowadays, there is a lot of criticism concerning the republic’s policy of external borrowing. It is true that the country has accumulated a very large state debt amounting to approximately 90-95% of its GDP. Nevertheless, when analyzing the events of the 1990s, it could be said that this policy was the only correct option. According to the reporter, both the credits taken from the international financial institutions and invested in the infrastructure, and the virtually free-of-charge electric energy have actually saved the country from dangerous political and social shocks. The country has been launched on the trajectory of stable economic growth. But nevertheless, the 1990s were a hard time.

   Among the priorities of the current economic policy of the government, Dz. Otorbaev listed the decline in the level of poverty, the reduction in the state’s share in the economy and the complete deregulation of the latter, the improvement of the business and investment climate, the decrease in the number of state-imposed administrative barriers, and the active and even aggressive marketing of the country abroad.


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   Deputy Minister of Finance of Georgia Lasha Gotseridze presented a report entitled “Georgia: the Strategic Vision and the Most Important Priorities of Financial Reform for the Period Between 2004 and 2006”. According to him, the priority of the macroeconomic policy of the present government is financial and monetary regulation. The implementation of the Program of Reforming for the years 2004-2009 is expected to result in the growth of the GDP by 8.5% in 2004 and by 6% in 2005-2008. The possibility is not excluded that the growth can reach even 10%. Due to the preservation of a reasonable monetary policy, the rate of inflation is expected to be kept at the level of 5%.

   As it is stressed in L. Gotseridze’s paper, the key issue of budgetary policy is to improve the collectability of taxes. The stated ambition for the year 2004 was to increase the total tax revenues by 25% (by 2% of the GDP, or to 16.5% of the GDP). According to the results of the first eight months of the year 2004, the total tax revenues were larger than those of the previous year by 40.6%, and turned out to be by 4.4% higher that it had been planned for the whole current year.

   The collectability of taxes is favourably influenced by the following factors: the economic growth, the changes in financial policy (prior to the adoption of the new Tax Code,which will apparently come into force in early 2005, certain changes in financial policy have already been taken into account in the Budget-2004); the improvement of fiscal and customs administering, the reforms of state governance and anti-corruption measures (resulting in a sharp decline in smuggling, especially in the contraband of tobacco products and petroleum products); the normalization of the political situation in Adzharia; and the active policy of privatization.

   The Budget-2004 envisages the increase of state expenditures by 59%. The aim of these increased expenditures is to finance the program for social security and poverty-reduction, as well as to finance the rehabilitation of the power industry.

   According to the opinion of L. Gotseridze, the Ministry of Finance is playing a decisive role in the process of Georgia’s development. In this respect, there were defined the six following major areas of structural reforms: the Treasury; the budgetary system; the financial policy; the Customs Department; the Tax Department; and the Financial Police. Since the beginning of the year, the Ministry of Finance of Georgia has been paying special attention to these reforms, and the first results have already been achieved.

   The author of the paper considers the introduction of the new Tax Code to be a key element in reforming the financial policy of the country. In order to secure the interests of taxpayers, the said document envisages the creation of the following new structures: the Tax Arbitrage and the Tax Ombudsman.

   The new Code envisages the reduction in the number of the existing taxes from 21 to 9. Certain changes will also be introduced concerning the rates of taxation: the rate -of the income tax will be 12% (instead of 18%); the rate of the social tax will be 20% (instead of 33%); the rate of the VAT will be 18% (instead of 20%); and the rate of the personal property tax will be 1%. Concurrent with the introduction of these changes, there will be introduced differentiated tax rates for the use of natural resources and the gambling-businesses tax, while the property tax and the land tax will be combined in one single tax.

   The former Prime Minister of Armenia (in 1991 and in 1995-96) Grant Bagratjan made a report entitled “Armenia in the Period of Transition: the Adaptation to New Economic Values” devoted to the specific features and the problems of his country’s post-socialist development. Among other things, it was stated that Armenia should not be an area of conflict, but a mediator between civilizations and an economic cross-roads for contacts between the North and the South, as well as between the West and the East. It must also become a place for dialogue between different cultures and religions, and a regional financial center, convenient geographically, economically and ethnically.

   According to the reporter, one common tax should be introduced throughout the territory of the CIS: the VAT, plus the profits tax, plus the income tax. There must be one flat tax. Sooner or later all the states will turn away from diversification which leads to disintegration of the tax system, and will chose the unification of the latter.

   Shahin Sadygov, the head of one of the departments of the Ministry of Economic Development of the Republic of Azerbaijan, began his presentation with an analysis of the pre-reform socio-economic situation in Azerbaijan. At that time, high rates of inflation were, believed to be the main obstacle to economic growth. It was considered that the major precondition for ending the slump and starting the period of growth was to curb inflation and to achieve financial stabilization. As a result, the government introduced a set of measures aimed at deepening the process of price liberalization and at switching to a rigid budgetary and monetary policy. Owing to these measures, there were achieved a positive behavior of the consumer price index and the onset of the process of economic growth, still continuing today.

   During the years which followed, the government continued to pursue its agenda of harmonizing the parameters of tax-and-budgetary and monetary policies, which brought about not only a closer coordination between the dynamics of the monetary stock and the level of consumer prices, but also the improvement of the balance between the budget’s revenues and expenditures. The strengthening of the achieved stabilization was helped by the choice of a correct strategy in respect to oil, and also by the all-embracing stimulation of the petroleum sector of the economy.

   Concurrent with the conduct of structural reforms were the government’s efforts at creating the institutional bases of the market economy. According to Sh. Sadygov, within the framework of the legal reform a number of accomplishments have taken place; for example, there were significant changes in the functions of the state administration, and there was formed a normal base for the new financial sector and all economic agents, irrespective of the forms of their organization or of their property, or the type of activity. The tax system was drastically changed. Through the implementation of reforms in the legislative sphere, there was defined the legal space, which ensured the formation of the market infrastructure and the development of market institutes. The implemented measures have resulted in the formation of an investment environment attractive to both the internal and foreign investors. The country has been very successful in carrying out its land reform. Azerbaijan has also achieved some significant successes in reducing the level of poverty (as proudly noted by the reporter).

   At the same time, the speaker acknowledged that he was well aware of the fact that all the problems influencing the stability of economic development had already been solved in Azerbaijan. By the beginning of the new millennium the Azerbaijani economy had risen to a new quantitative level which poses a number of new problems concerning the definition of additional liabilities. At this stage, the major aim is to secure a long-term economic growth, and to further improve the standard of living on the basis of the afore-said growth.

   The next speaker at the conference was Abdurashid Kadyrov, Director of the Institute of Economics of Uzbekistan’s Academy of Sciences, whose presentation was entitled “The Strategies and Priorities of Enhancing the Competitiveness of the National Economy of Uzbekistan”. According to the reporter, under the conditions of a progressing intensification of market reforms, the issues regarding the competitiveness of the national economy and the stability of its development inevitably hold the priority place both in the theory and the practice of economic management on the national level.

   The development of economic modernization taking place in the republic demonstrates the further advance of society towards economic pluralism which is expressed in the transformation of production relations and economic interrelations, the formation of the national market as a component of the world market, and the structural reconstruction of Uzbekistan’s economy. Nevertheless, judging from A. Kadyrov’s acknowledgement, the process of economic modernization faces a lot of obstacles, which makes it extremely necessary to find the ways of integrating the country into the global economy and at the same time to ensure the competitiveness of the national economy. A certain specificity is also introduced by the typical features of Uzbekistan’s modernization, as the case in point is the creation of a new statehood and an efficient economy capable of safeguarding its economic security.

   According to the speaker, an analysis concerning the process of market development in Uzbekistan and its macroeconomic development makes it possible to single out three major phases in the development of the national economy during the years of the period-in-transition:

   I. Creation of the market’s foundations and the step-by-step transformation of the economy (between 1991 and the end of 1996). The specific features of this period differing Uzbekistan from the majority of other CIS countries and Eastern Europe were the evolutionary character of economic reforms and the preservation of socio-political stability. During the first years of reforms, the government aimed its activity at creating the institutional foundations of the market economy; the functions of the bodies of state administration were significantly changed, and there were created conditions for the development of small business and private entrepreneurship;

   II. Formation of the organizational and legal base, active participation of the state in the conduct of structural investment policy, the step-by-step nature of market transformation (the years 1996-2000). Uzbekistan was to concurrently solve these three important and complex problems, to ensure macroeconomic and financial stabilization, and to effect institutional and structural changes in the economy;

   III. Refining of market reforms and liberalization of the economy (from the year 2001 onwards). This stage is characterized by a number of concrete steps on the road toward liberalizing the currency market and to reducing the tax burden. On the macroeconomic level this agenda is embodied in the stable growth of the GDP and export, and also in the activization of the investment activity.

   The issue of compatibility of the economy has long become a major problem in the macro-level economic policy of industrial nations. A. Kadyrov acknowledges that in Uzbekistan this problem has not been clearly realized as being important for the development of the country’s strategic priorities. At the same time, the most important thing is not only to develop a correct strategy of the country’s development, but also to ensure the conversion of this strategy into a coordinated and based on public debate program of the activities on the part of the state, economic entities and social institutes.

   Valerii Kapsyzu, head of the Chair of General Economics and International Economic Relations of the State University of Moldova and President of the Scientific and Production Association “The Center for Socio-Economic and Political Studies”, presented a report entitled “The Problems of Economic Transformations in the Republic of Moldova”. According to him, in contrast to the most developed post-communist countries, the Republic of Moldova faced a number of extremely complex political, economic and social problems. These problems predetermined a very long economic crisis which lasted for 10 years - from 1990 to 1999.

   In general, the history of evolution of Moldova’s economy in the period between 1990 and the present time can be subdivided into the following three phases:

   I. The period of an acute economic crisis (1990-1994), in the course of which the GDP decreased by 60%;

   II. The depressive slump (1995-1999), in the course of which the GDP decreased by another 6% and by the year 2000 had amounted to 34% of the level achieved in 1990;

   III. From the year 2000 onwards - a period of economic stabilization and moderate economic growth. This phase is characterized by a permanent growth of the GDP (in the year 2000 it grew by 2.1%, in the year 2001 - by 6.1%, in the year 2002 - by 7.8%, and in the year 2003 - by 6.3%).

   The direct causes of the deep and long crisis were the huge structural disproportions, including those produced by the Soviet system and typical of all post-Soviet republics, and those characteristic of Moldova alone (for example, the disproportions predetermined by the war and the subsequent internal disintegration of the territory, which resulted in the disruption of links between the economic agents operating on the Dniestr’s left and right banks).

   According to V. Kapsyzu, the main areas of economic transformation are as follows:

   1. The transition to a new policy of macroeconomic stabilization;

   2. The creation of a private sector and an efficient market mechanism;

   3. The reformation of the public sector;

   4. The creation of a modern system of social security;

   5. The promotion of effective integration of the national economy in the world economy.

   This agenda has required the introduction of appropriate legislation to regulate the functioning of the new society.

   The press-conference organized on the first day of the forum was attended by more than forty journalists. They used this opportunity to put a number of questions regarding the urgent problems faced by the economies of the CIS countries. The respondents were Direetor of the IET Ye. Gaidar, Rector of the ANE V. Mau, the Deputy Executive Director of the IMF A. Kruger, Vice-Chairman of the City Group International and President of the City Group S. Fisher, the former Prime Minister of Armenia (in 1991 and in 1995-96) G., Bagratjan, Vice-Prime Minister of the Republic of Kyrgyastan D. Otorbaev, Deputy Minister of Finance of Georgia L. Gotseridze, and Research Superviser of the SU-HSE Ye. Iasin.

   The second day of the conference was devoted to the work of “round tables”. The themes discussed at the sessions were as follows:

   • the financial and fiscal aspects of the period of transition; fiscal federalism;

   • privatization and property rights in the economies in transition;

   • political economy of the period of transition;

   • the post-communist slump and the dynamics of the volume of production;

   • the development of the markets of agricultural-production factors in Russia;

   • the state of affairs and the conclusions to be taken into account for the sake of agrarian policy;

   • the monetary aspects of the period of transition;

   • social policy during the period of transition;

   • the realization of MBA programs in Russia and the CIS countries; their conditions, problems, and prospects of cooperation;

   • the presentation of the international project “Armenia 2020”.

   On July 23-25, 2004 in Svetlogorsk (Kaliningrad Oblast) an international conference was held within the framework of the Russian-Canadian CEPRA Project “Regional Reforms in Russia: New Frontiers”.

   At the conference, some important issues of the development and further improvement of the Russian regional reform, as well as international experience in this field were discussed.

   The conference was attended by representatives of the RF Government, leading Russian and foreign experts, representatives of Kaliningrad Oblast headed by Governor V. Yegorov, and specialists from the World Bank, the USAID, and foreign research centers.

   In their communications, the representatives of Kaliningrad Oblast informed the participants concerning the specificity and prospects of the Oblast’s social and economic development.

   The reports delivered by RF Deputy Minister of Finance S. Shatalov and Deputy Chairman of the RF Goskomstat A. Surinov reflected the prospective plans of the RF Government concerning regional reform and interbudget relations.

   The experts from the IET introduced the audience to some results of the scientific research conducted within the framework of the CEPRA project.

   Head of the Institute’s Laboratory for the Problems of Fiscal Federalism and Subnational Finances I. Trunin presented a paper on the issues of developing the system of interbudget relations; Head of the Laboratory for Monetary Policy S. Drobyshevsky – a paper on the factors of economic growth in the Russian regions; the report of Head of the Law Department A. Zolotariova dealt with the issue of improving the system of state expenditures; lawyer I. Mezheraups raised the issues associated with the gaps in the existing law on bankruptcy and the collision of the norms it contains with those in other normative legal acts of the Russian Federation, in particular with the norms of the Code of the Arbitration Procedure, the Civil Code, the Law “On Executive Proceeding”, as well as the difficulties arising (or having a potential for arising) in connection with its application; the researcher of the area of research “Political Economy” S. Zhavoronkov addressed the issue of improving the performance of the judicial system in the RF.




   On May 6-7, 2004, in Washington, DC a workshop of the World Bank was held, dealing with the issues of fiscal federalism in Russia. The workshop was attended by representatives of the IET (S. Sinelnikov-Murylev, S. Drobyshevsky, P. Kadochnikov, O. Lugovoi, S. Prikhodko, I. Trunin, S. Chetverikov, R. Entov), as well as of the bodies of executive and legislative power of the RF, of the IBRD and the IMF, and colleagues from Western universities.

   On May 28, 2004 the workshop “Local Self-Government Today. The Experience of Five Regions” took place. At the workshop, preliminary results of the study being conducted by the IET’s Laboratory for the Problems of Municipal Development in Novgorod, Kaluga, Tiumen, Leningrad and Astrakhan Oblasts within the framework of the project “The Problems of Local Self-Government Reforming: Structural and Financial Aspects” were presented.

   The goal of the large-scale reform, which is presently under way, is to create a two-tier system of local self-government throughout the country’s territory. However, the currently existing models of organizing the local bodies of authority have considerable merits, as well as faults, whose analysis can help in avoiding serious errors when actually implementing the reform, and in developing a more efficient system of local self-government.

   On July 15-16, 2004 the IET’s delegation, headed by Dr. Ye. T. Gaidar and represented by I.V. Trunin and P.A. Kadochnikov, took part in the IV Investment Summit in Cholpon-Ata (Kyrgyz Republic), the goal being to develop a short-term annual program of the investment policy in Kyrgyz Republic. Ye. T. Gaidar presented a paper entitled “The Strategy of Tax Reform in Kyrgyz Republic.

   The Paper presented by the Director of the Institute for the Economy in Transition, Ye. T. Gaidar, dealt with tax policy and tax administration.

   It was noted in respect to reforming the tax system that first priority should be given to those taxes which, when their marginal rates were lowered, would not be associated with any substantial reduction in budget revenues. As known from experience, such taxes do exist, mostly in the CIS member countries and, certainly, in Kyrgyzstan. Ye. T. Gaidar placed the income tax in this category. Russia had introduced the regressive type of the income tax for the very reason that nobody was paying taxes in accordance with a progressive scale.

   In the opinion of the Institute’s Director, the common problem of both Russia and Kyrgyzstan is the existence of very inefficient taxes which are an impediment to attracting investments; however, they do provide high revenues to the state treasury. This issue should be approached with great care.

   Besides, Ye. T. Gaidar believes that there exists a very confused system of taxes on natural resources. In Russia, within the framework of tax reforming, it was replaced by a simple and well-understandable system, and revenues have grown as a result.

   In conclusion, it was noted that Kyrgyzstan is indeed in need of a tax system, and here everything would depend on the efficiency of steps taken by the country’s leadership which are expected to result in a significant economic growth.

   On 17 November 2004, at the IET, there was held a scientific workshop chaired by Deputy Director S.G. Sinelnikov-Murylev and devoted to a discussion of the projects carried out by the Institute’s experts by order of the Foundation “The Agency for Economic Analysis” (also see The themes of the projects submitted to consideration were as follows: “A comparative analysis of the results of tax reforms in the countries with economies in transition, and the development of proposals concerning certain issues of tax policy in the Russian Federation”, and “The assessment and analysis of budgetary consequences of structural reforms”.

   Within the framework of the first project, a group of experts headed by S.G. Sinelnikov-Murylev conducted an analysis of the evolution of tax reforms and the development of tax legislation in the countries with economies in transition, analyzed the problem of assessing and taking into account reliefs and exemptions (including international experience), and performed a quantitative assessment of the losses incurred by Russia’s budgetary system due to the granting of various reliefs and exemptions, and also developed a forecast of tax expenses in Russia under a number of scenarios of the tax-legislation reform. Based on the results of the research, a number of proposals regarding the introduction of alterations in the Tax and Budget Codes and some draft normative documents for the RF Ministry of Finance were prepared.

   Within the framework of the second project, a group of experts headed by A.D. Radygin carried out an analysis of budgetary consequences of such crucial reforms as the reform of the system of housing and communal facilities, the reform of electric power engineering, and also the reform of budget-funded enterprises. Special attention was paid to the assessment of the consequences of reforming the enterprises financed from the budget in the sphere of education, medical care, social protection and science in respect to budgets of various levels. Based on the results of the research, a number of recommendations concerning economic policy were developed.




   On May 20-21, 2004, a group of the IET’s experts headed by Deputy Director S.G. Sinelnikov-Murylev visited the Republic of Azerbaijan’s capital, the city of Baku. The purpose of the visit was to hold meetings with representatives of the bodies of state power and some research centers of Azerbaijan, to discuss the issues concerning the conduction of research and implementation of economic policy, as well as the development of the potential of Azerbaijan research centers. Within the framework of the visit, a number of discussions took place on the issues of macroeconomics and budgetary and tax policy with representatives of the Center for Economic Reforms under the Ministry for Economic Development of Azerbaijan (CER).

   During the meetings, an agreement was achieved concerning long-term cooperation, joint research, and scientific and consulting activity. Among the most serious problems, the inadequately developed mutual exchange of work and information between the research centers of countries with economies in transition was noted, and particularly, within the CIS.

   Besides, a number of meetings were held with representatives of the Azerbaijan Ministry for Economic Development, as well as with those of international financial organizations.

   Among the main areas for possible further activity of the IET’s staff in Azerbaijan, the following were singled out:

   concerning tax policy

   – tax administration, arrears of tax payments and non-payments among enterprises;

   – taxation of natural resources;

   – the influence of the situation with prices on the world markets on the economy and the state budget;

   concerning budget policy and fiscal federalism

   – improving the efficiency of budget expenditures;


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