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. Last Updated: 07/27/2016

Election Fever Draws Purse Strings Tight

In Soviet Russia, elections were like dull national holidays. On the appointed day every citizen had to perform his or her national duty and visit an election station to tick the correct box. The population would get drunk to the tunes of uplifting patriotic songs while government engineered a 99 percent voter turnout (or so it claimed). The whole process was short and meaningless.


Now the situation could not be more different. Elections to the State Duma, the lower house of parliament, last December and the presidential elections this June are no formality. Whatever conspiracy theorists may say, a lot of people with a stake in this country's future are not confident about the outcome of the upcoming presidential polls. A highly cynical Russian electorate, sick from a diet of lies from their leaders, is still taking this process very seriously.


So seriously, in fact, that these twin elections have had a noticeable effect on business. A major part of the Russian computer market is composed of big state or government-funded projects. But since mid-1995, no ministry, enterprise or bank seems willing to risk any major investment prior to the elections. Many of the large systems integration firms which grew rich on a boom market in 1994 are now finding it much tougher to win contracts.


Much of this behavior is due to instinct rather than strategy. The head of a large computer group here told me that he asked many of these cautious customers why they would not place orders before the Duma elections. They told me they were waiting to see the result of the elections, but none of them really knew what they were looking for. Now they have the results they are no wiser, he says.


In the public sector, bureaucrats probably fear that a new order may sweep in this year and so they prefer to keep a low profile and a tight purse. Should there be a change of government it is possible that there will be a major purge of the bureaucracy.


Even for less cautious spenders this year there is much less state money available for infrastructure projects. The regime's main priority is winning the June elections. As part of this, President Boris Yeltsin is making an election crusade out of paying back wages to thousands of industrial workers who have not been paid for months. All government organs are being aggressively shaken to squeeze out more money to pay wages. The issue is highly political; no one is keen to be visibly spending large amount of public money while autoworkers, teachers and miners await wages.


For the private sector, being cautious means keeping a percentage of your capital liquid and abroad (or transportable). Companies fear not only what a communist victory might mean for business: Another cause of concern is that the Yeltsin election campaign has put the Federal Tax Inspectorate into overdrive. From what companies say, tax authorities appear to be under instructions to extract the maximum amount of revenue from businesses in the shortest possible time. And since taxes on businesses are so high in Russia that virtually no one pays them all, the tax police have the power to close down almost anyone they visit.


After the election period is over, business life will settle down. Government projects will once again start to flow, stimulating the computer business. Sacked career bureaucrats will be replaced by other career bureaucrats and the tax police will ease off the pressure. Everyone will realize that in Russia nothing changes overnight. In the meantime, however, election fever continues to have its effect on business.





Robert Farish is the editor of Computer Business Russia. Internet e-mail: farish@sovam.com, fax: 198-6207.