Russia: Commentary Views 'Pseudoliberal' Currency Reform
CEP20021120000369 Moscow Vedomosti in Russian 20 Nov 02
[Commentary by Andrey Cherepanov, council chairman of the Moscow International Currency Association: "Currency: Pseudoliberalization"--taken from html version of source provided by ISP.]
[FBIS Translated Text]
In the Summer of 2000, in his annual message to the Federal Assembly, the Russian president announced the need to draw lessons from experience and to admit that the key role of the state in the economy is to protect economic freedom. "Our strategic line is such: Less administration, more entrepreneurial freedom," [he said]. He expressed a similar idea also in April of the following year: "I am convinced that we will create an acceptable business climate in the country, and that capital will stop 'fleeing' from it. Capital cannot be kept 'under guard.' It must have lawful freedom of movement--to wherever it is profitable and effective... It is time to review the very principles of currency regulation, bringing them closer to those generally accepted in world practice. I believe that the currently existing limitations... discriminate against citizens of Russia as compared to citizens of other states, limit their freedom, and undermine the competitiveness of Russian enterprise."
Thus, the supreme state official defined an entirely clear vector toward liberalization of the effective currency legislation. However, in the considerable interval of time which has elapsed since then, only one notable step has been taken in this direction: The standard for mandatory sale of export revenue has been reduced by 1.5 times. Evidently, they were expecting negative consequences of such an action, and were hoping that the president would have a change of heart. That did not happen. But after several additional firm directives, public officials finally began to move. As a result of discussions which were unprecedented in their fervor, the concept of a new law on currency regulation was developed and on the whole approved at the last meeting of government. And it was presented to the "broad public" as a liberal breakthrough. Supposedly, in case of adoption of the prepared draft law, the state would retain only two instruments for regulating the market: Establishing the account regimen, and the requirement of interest-free deposit of funds on a number of operations. And even then, it could resort to [these instruments] only in crisis situations in order to resolve problems associated with the transfusion of "hot" money. And as of 1 January 2007 or a few years sooner, even these "modest measures" would be rejected. In general, everything is as had been requested. In confirmation of the purity of their ideas, they did not even object to the publication of the draft in one of the central newspapers. We can only hope that they gave the press the wrong version: The published text proved to be extremely far from liberalism.
Judge for yourselves: Although the draft law speaks of the implementation of currency operations in movement of capital without limitations, it provides a broad list of exceptions to this general rule. Moreover, it includes such operations as, for example, receiving and granting financial credits for a term of no more than half a year, which are freely performed in accordance with the currently effective legislation. But now, it is proposed that they would be performed in accordance with a special procedure. It may provide for establishing a monetary reserve in interest-free accounts in the Bank of Russia and for establishing an account regimen. In other words, the private entrepreneur may be forced to incur considerable financial losses. Or it may stipulate such an account regimen which would take away one's desire to honestly manage his own funds at his own discretion. Then again, judging by the fact that the draft law does not cite the rejection of the practice of granting individual permits among the main principles of currency regulation, we need not doubt that such permits will all too often be issued by means of establishing individual account regimens. The only positive change is the fact that part of the powers and authorities on administrating the movement of currency is being handed over from the Bank of Russia to the government. In all probability, this decision is dictated by the fact that, with very rare exceptions, in the entire post-crisis period the country's main bank has not adopted a single useful normative statute in the sphere of currency regulation.
Furthermore, the draft law makes no mention of the powers and authorities of the Bank of Russia in establishing the purposes for purchase of foreign currency, which it possesses today. But it speaks of its rights to demand the reservation of funds and to establish an account regimen on operations of purchase and sale of foreign currency by residents and non-residents. And this means an expansion of the possibilities of strict administrative regulation. Up until recent times, the Bank of Russia could lawfully only limit the purposes for purchase of currency (payment for import and repayment of currency debts), but its normative statutes on establishing rules for further use of the purchased currency did not correspond to the legislation. But now, it is proposed that the Bank of Russia's ambitions on determining the order of performing all types of conversion operations on the domestic currency market, and on the subsequent use of the purchased funds in foreign and national currency, be legitimized. After all, "establishing an account regimen" includes an entire extensive list of conditions for crediting funds to an account, and determining the period for which the money is to remain there, and making the withdrawals from it. This diffident wording conceals the Bank of Russia's powers and authorities to introduce limitations at any moment, for any period of time and any degree of severity. General, as well as individual, limitations.
The institution of mandatory sale of export revenue is being retained. However, the standard of sale is being reduced from 50 to 30 percent. Which makes it already not even absurd, but, if you will pardon the expression, stupid. Is it not clear that 30 percent of export comprises only slightly over $30 billion a year, and if we consider the various benefits--even less. This hardly covers even a third of today's needs in import and state payments on the foreign debt, and consequently, resolves exactly nothing. At the same time, exporters, proceeding from their own economic interests, are selling from 80 to 100 percent of their revenues. After all, they need to perform expenditures in rubles for product production, payment of taxes, etc. So why should the state force a private owner to do what he is already doing voluntarily? Just to realize a "crooked" scheme, forcing exporters to bear "public guilt" in an arbitrarily established regimen? In this plane, we might add, the draft law makes the existing legislation even more stringent. It establishes the rule of mandatory sale only at currency exchanges and to the Bank of Russia, and only in separately specified cases--to authorized banks. Thus, the requirement of the analogous sub-legal statute adopted by the Bank of Russia would presumably be elevated to the level of a law. And at the same time, the potential for development of a civilized term market would be forgotten: Currency revenue may be sold after it is received, at the exchange rate formulated on the day of sale.
We can spend a long time listing the numerous "pearls" of the draft law which violate both the constitutional rights of owners and common sense in areas far removed from the problems of hot money. This leads to the following conclusion: The new currency concept proclaims additional freedoms--not for the economy, but for officials from the government and the Bank of Russia. However, something is also left over for Russian entrepreneurs. They are allowed to lawfully perform a number of operations on export of capital, which they previously performed quite successfully with the aid of "gray" [semi-legal] schemes. But, tell us if you will, was it really worth coming to blows merely for the sake of legitimizing the long-established practice of usurpation of powers and authorities and outflow of private capital? Or does the entire matter lie in the fact that they really did publish the wrong document, and there is still a chance that a civilized currency law might be adopted?
[Description of Source: Moscow Vedomosti in Russian -- Business paper published jointly with The Wall Street Journal and Financial Times; reportedly friendly with Kremlin.]
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