[War] Russia: "Seeds of a New Prosperity"

[Michael Downey]

"Seeds of a New Prosperity"
President Leonid Nemerenko
Russian Federation
23 July 2007
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Security was very tight at the convention center, with both the MVD
and the FSO protection service having had the entire building under
tight control two days before Nemerenko was even supposed to give his
speech. Even though it had been four years since President Severov was
almost assassinated, ironically by an agent of the MVD, a great deal
of paranoia surrounded trips by Russia's new leader.

The Ministry of Economic Development had gone to great lengths to
invite some of the most important businesspeople in the entire
Federation to this special speech by the President. Oil tycoons,
oligarchs, media barons, the works. There were also quite a few
foreign delegates, including representatives from the WTO, World Bank,
European Central Bank and even an observer from the US Federal
Reserve.

What was curious was over three dozen attendees whose security
profiles would list them as small investors, small business owners and
entrepreneurs. The full range of the Russian economy was present for
the President's special speech on economic development.

The delegates all stood as two FSO agents pushed the double doors to
the grand hallway of the convention center open and the President
strode down the central isle. He made it a point to shake every hand
offered to him and make polite nods to those he could not reach. Image
was very important, especially with the domestic and foreign media
filming his every movement in an unprecedented level of access the
media had been granted by typical Russian standards.

"Good afternoon," began Nemerenko once he came to the podium at the
front of the hall and all the delegates had seated themselves. "Today,
Russia stands as one of the top economic powers of the world. Over the
past six years our GDP has grown to over 1,86 trillion US dollars, we
are the largest exporter of energy in the world, the per capita income
of the average Russian has grown by a thousand dollars, and tight
fiscal management has left the Federal government with a
seventy-billion dollar surplus.

"But for all that we have to be proud of, there are still several
challenges the Russian economy must face in order to grow to our
fullest potential. Institutional inefficiency is the key issue that
has hindered what has otherwise been a successful record of growth in
the post-Soviet era.

"Russia has a critical lack of small and medium-sized enterprises, or
SME's as the European Central Bank refers to them. Outdated business
laws, lack of access to investment capital and a struggling banking
sector are the leading causes for this problem.

"To that end, my government intends to implement and vigorously pursue
a serious of important reforms aimed at throwing off the last remnant
of the Soviet-style command economy and create a fully free-market
economy for Russia that is free of the macroeconomic issues we face
now.

"First, we must begin an aggressive reform of the banking sector in
Russia. Improper development, corruption and mismanagement has led to
the Russian banking system being distrusted by a large portion of the
Russian population. Also, our banking system is simply not as
effective as that of the European Union and United States.

"The plan of the Federal government and the Ministry of Economic
Development is an aggressive restructuring of the Russian banking
community. The Central Bank of the Russian Federation will begin
setting out new mandatory practices and regulations for all banks,
private and public. These regulations will reflect the suggestions
made by the World Trade Organization and the European Bank for
Reconstruction of Development.

"Second, the Central Bank of Russia is to begin the process of fully
privatizing the last few banking firms under its control, namely
Sberbank, and VYB. The Russian government plans to sell all 61% and
51% of its shares in these institutions on the market, with the
proceeds of the share sales being reinvested bank into Sberbank and
VYB as future loan and investment capital.

"Next is the topic of small and medium-sized enterprises. As I have
mentioned, SMEs are critical to the future of Russia. These companies,
not massive corporations, account for most of the economic activity in
much of the West. We must promote their creating and sustainable
success in Russia.

"The Kremlin will be introducing a new bill to the Federal Assembly
called the Small and Medium Enterprise Support and Development Act.
One, this act will reform Russian business laws to make the process of
creating new companies faster, less cumbersome and chop away the
bureaucratic red tape that makes company creation such a slow and
difficult process.

"Two, the SMESD Act will provide for a tax cut of ten billion US
dollars for all companies with less than 500 employees over the next
three years.

"Finally, the Federal government intends to continue a practice of
responsible fiscal policy, tight accounting practices, strict spending
regulations and a guarantee of good business practice on the part of
the government when carrying out national monetary policy and the
privatization of state institutions. This will ensure fair sale of all
shares to investors and not a domination of former state companies by
a few individuals."

A few of the oligarchs in the seats looked a bit uncomfortable, and
Nemerenko suppressed a smile.

"It is my firm belief that these macroeconomic reforms will allow the
Russian economy to meet the standards expected by our trading partners
and provide for not only a better climate of banking and investment,
but boost consumer and investor confidence. Thank you."
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Actions:
1) Begin a reform of the Russian banking system. The Central Bank will
introduce new regulations, based upon WTO and World Bank guidelines
that will bring Russian banking laws into line with that of the West.
2) Fully privatize Sberbank and VYB, sell off all government shares.
Revenue will be used by the national government as investment capital
for those banks. Tight oversight will ensure that share trading is
fair and even and not dominated by oligarchs and would-be oligarchs.
3) Introduce the SMESD Act to the Federal Assembly to cut away the
bureaucratic red tape that makes it so difficult to start up new
companies in Russia and discourage investors.
4) Provide for ten billion USD to all Russian companies with less than
500 employees over the next three years.
5) Promise responsible fiscal policy, tight accounting practices,
strict spending regulations, etc, on the part of the Federal
government to promote consumer and investor confidence and prevent
business malpractice and fraud.