Under Fire, Kudrin Wins Over Minds of Majority

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Deputy Prime Minister and Finance Minister Alexei Kudrin is regarded as one of the few highly placed officials President Vladimir Putin will talk to on virtually any occasion in respect to any question.

Nonetheless, times have been tough for Kudrin lately, with the president publicly criticizing him and oil companies and the military virtually declaring a vendetta against him.

But it seems Kudrin has mastered the situation. The oil majors are now more upset with Deputy Prime Minister Viktor Khristenkos proposals to hold auctions for export pipeline access than Kudrins struggle against corporate prices and increased export duties. And Kudrin says he will win over the military this week.

Q:
There has probably never been a government official in such a key position as yours with so much happening around him. The oil majors are up in arms over transfer prices and the increasing of export duties. The State Duma lashed out at the governments revenue forecast for next year and at its proposed mechanism of distributing any extra income. Negotiations have fallen through with the International Monetary Fund and, consequently, with the Paris Club. You have been given responsibility for the export of nonferrous metals and scrap. On top of all this, you have been answering questions regarding your work in the mayors office in St. Petersburg. What is going on?
A:
Well, as I see it, nothing is going on. In addition to the deserved criticism leveled at the government and I say deserved because only those who do nothing never make mistakes there has been a certain amount of debate in the media stirred up primarily out of a desire to see some kind of sensation. On the other hand, the situation could have been cooked up by one of our opponents, the opposition. But there are completely different explanations for each of the issues you have mentioned. As far as the oil companies are concerned, I can say none of them is up in arms against me, rather it is the other way around.

Q:
How are your proposals being resolved with Khristenkos suggestion of auctioning export access to pipelines?
A:
As far as concerns increasing export duties and payments made at auctions for access to pipelines, both positions will work. On this, Khristenko and I have no argument. We have reached an agreement and are working according to plan.

In addition, though, I believe that we, from the point of view of the state, have insufficient control over income from what is Russias sole, budget-forming sector.

Q:
The left, the Communists, have suggested nationalizing this branch to control income.
A:
In our opinion, this is not required, it is enough to abide by the laws controlling income. It is sufficient to use the authority of the government for defining export duties if world prices have risen. This has nothing to do with a particular companys success. Given that all deposits are distinguished according to their size and productivity, then there also exists a corresponding mechanism for determining excise and differentiating other taxes. The government has the authority it must use it. The sector should service the budget, the social sphere and the state as well as reduce the general tax burden. After all, if we dont collect enough in this area, we will have to collect more elsewhere. So there may be those who oppose collecting taxes from oil companies we have to tread on some peoples interests. Today this is what is happening, but I must say, I am supported both by our president and by law enforcement bodies. I believe that we, as the authorities, will perform our obligations for establishing control over income from this sector.

Q:
Government negotiations with the IMF have been called unsuccessful by many. The Duma-approved budget has been called excessively compromising. Would you agree with this assessment?
A:
As far as the budget is concerned, we feel that in the first and the second readings, its concept its principal elements were approved. It was adopted, though it was not so easy for the Duma to assimilate, shall we say. In the first reading, you will recall that before voting, there were all kinds of forecasts: everything was terrible, incomes had been reduced, it didnt even satisfy the leading factions. But in the first reading, they voted it through. We convinced them. Now, there will be a third reading that will consider amendments for the individual sections and the distribution of additional receipts. The government has requested 70 percent of the additional income go to servicing the debt. The first 70 billion rubles ($2.5 billion) of additional income will be distributed 50:50 [between servicing state debt and financing other cost categories]. I hope this proposal will be voted through Tuesday.

As far as negotiations with the IMF are concerned, they say we didnt manage to agree with them and didnt manage to get credits from them. Whats going on a liberal government was unable to negotiate credits, they say. I should say that all elements of this kind of criticism are somewhat inaccurate. Lets set out our tasks and goals. Firstly, we dont want to take credits and we held negotiations without any intention of getting credits. Secondly, with regard to macroeconomic policy indicators, we believe there is no exact forecast price for oil. If we set ourselves a plan for income, costs and paying off debts to the Paris Club right this instant immediately today then wed take on, as it were, additional obligations. I believe that in the interests of the state, the budget and the social sphere I cant take on increased obligations. This would mean if oil prices dropped lower than the optimistic forecasts predict, wed have to reduce our expenses in the social sphere and pay debts.

This is an unacceptable position for us. Ive said before, the previous government and the previous finance minister put their signatures to two unrealistic programs, one of them two weeks prior to the default and the second last year. The latter was over-fulfilled in terms of the macroeconomic indicators but under-fulfilled in terms of structural measures. This year, we want to make a realistic program. We dont have such a burning need to agree on proposals we know to be unacceptable for the Russian side. As far as the Paris Club is concerned, there is a corresponding procedure. I believe there is no need to hurry into an agreement with proposals that are not sensible. We must work further and convince our opponents.

Q:
Do you consider the fact that you were required to answer questions at the Prosecutor Generals Office regarding your work in St. Petersburg as pressure?
A:
The case was not brought personally against me. Rather, it was to do with the use of funds. After I gave my explanations, all questions were cleared against me. Therefore, I feel no unusual pressure on me.

Q:
What provoked the president to criticize your actions regarding compensation benefits for the military?
A:
We embarked on an important and necessary reform. The local municipal economies have yet to receive compensation from the federal authorities for these benefits, the burden of which they bear.

Q:
You are to speak about this at the Security Council this week, on canceling benefits in their natural form.
A:
Yes, Ill talk about that as well. Today, a mechanism was being created to protect the rights of servicemen, and moreover, we have even come up with a way to improve junior officers positions. Even those who dont have apartments will receive compensation. Such reforms have, therefore, been hotly supported by the military after our initial discussions at the beginning of last week.