A way with a future

LOCOMOTIVES OF REGIONAL POLITICS

Vladimir Yakovlev,
St. Petersburg Governor
and President of the Northwest Association,
answers our questions

        "Prime Minister Primakov and other government officials took part in the work of the Coordinating Council for the Association of Economic Cooperation in Russia's North-west. How would you evaluate this event?"
        "Indeed, the very fact that the Prime Minister personally took part in considering problems of food supply and perspectives of development in agriculture and industry, was a very important event for us. At present there are eight associations in Russia. They are not authorities but a kind of think tank for elaborating and implementing strategies of economic and social development in the regions. For that reason, it is very valuable that during the meeting of the Coordinating Council the methodological principles of work carried out by inter-regional associations were discussed. It was stressed that it is necessary to increase the efficiency of their work and improve their relationship with the center."
        "So the associations do not want to solve problems just for the benefit of one or another republic, city or region?"
        "Naturally, governors meet local needs, and many larger guestions can and must be decided by the Association itself. This was emphasized at the meeting with the Prime Minister. But it is often necessary for either federal authorities or other regions and associations to participate as well."
        "Nearly a year ago, at a meeting of the heads of regional associations with President Yeltsin, I reminded them of some proposals that were made to the government. For instance, our North-west Association and the Big Urals Association asked to sponsor the construction of an Archangel-Syktyvkar-Perm railway, in which over 20 regions of Russia and some CIS countries are interested."
        "The Northwest Association has developed a program called "The Health of Northern People" in which it proposed to establish centers of highly specialized medical care on the basis of existing hospitals and institutes.
        Also, there are a lot of large investment projects of inter-regional value. Take, for instance, the project of the Northern Sea Route development or the use of the mineral and raw materials base. They require large investments and, therefore, collateral. Federation subjects cannot on their own realize these projects, therefore we think more active support is required from the center."
        "One has to understand that in the present difficult financial and economic situation, when production is dropping and budget revenues are low, many recommendations, projects, and ideas concerning regional development simply can not be realized due to lack of funds."
        "It is no accident that measures for preventing organized crime in the economy were discussed at the Coordinating Council's meeting, as well as the enforcement of state regulations in various sectors of production and trade (including that of alcohol). Enforcement of administrative influence by legislative and executive authorities will help increase revenues to both local and federal budgets."
"The problem of the region's ship-repair and shipbuilding complex was also discussed. The decisions proposed by the Association will allow a growth in the number of jobs and budget revenues via increase in marine cargo transportation and production of fish and shellfish."
         "Many documents about inter-regional cooperation put a premium on large projects and even a national program to lead the country out of the crisis. Aren't such colossal problems having the effect of relegating the real problems of the people and the interests of St. Petersburg to the back burner?"
         "When large projects are discussed, the Association's members look to the interests in economic and social development and cooperation of all the regions they represent. The interests of Petersburgers are often the same as those of people living in the republics of Karelia and Komi, in Kaliningrad Region, Kirov Region, in Novgorod, Pskov, and rural areas. If such problems as energy or transport development are solved, all people in the Northwest benefit equally."
         "On the other hand, the decisions made by a federal subject that may concern another region are usually considered by the Association's Coordinating Council. That is why no member of the Association has undertaken any steps that may hurt its neighbors. Rather, some local decisions have been recommended to other Association members as interesting and useful experience.
         "Associations are currently fulfilling the intentions and plans of their founders. They are thus becoming the executive link in the management system. They are helping to restore old relationships and create new ones between the center and local authorities."

A way with a future

"THERE ARE STILL A LOT OF PROBLEMS..."

Anatoly Yefimov, General Director
of the Northwest Association

        The seven years of the Northwest Association's work have been a time of structural improvement and one when new approaches to handling social and economic processes in the country were established. The most important methods are not just ways of exchanging experience but solutions to new problems in new conditions, including the establishment and realization of large target programs."
         "A certain reevaluation of the regions' abilities and their role in running the country is taking place. Meanwhile it is clear that in market conditions all Northwest regions should cooperate in developing the leading areas of the economy. Just imagine this vast part of Russia, from the Western Baltics to the Urals, from the Arctic Ocean to Moscow! There are now 12 subjects in our Association: Archangelsk, Vologda, Kaliningrad, Leningrad, Murmansk, Kirov, Novgorod and Pskov regions, the republics of Karelia and Komi, the Nenetsk national district,and the city of St. Petersburg. Each subject has its own problems and its own experience, yet all share much more than merely geographic location.
         "Besides, we are all part of Russia, and we cannot exist without Russia as a whole, just as it cannot exist without us".
         "The Association's present structure reflects this role in many ways. The Coordinating Council of the Association, which sits every quarter, is headed by the President, and is a meeting of the people who founded the Association. Volunteer committees and inter-regional councils were established for all the important economic sectors, including industrial policy and conversion, mineral resources, transport, agriculture and footstuffs, power engineering and others. Various organizations and enterprises are also part of the Association as associate members. The executive board, which is rather small in number, handles all current work".

A way with a future

THE CENTER AND THE REGIONS FORM AN INTEGRAL ENTITY - TOGETHER THEY MAKE RUSSIA

Egor Stroev,,
Chairman of the Federation Council

        The necessity to develop and consolidate cross-sectional inter-regional links in Russia is self-evident. The eight inter-regional associations for economic interaction that were formed in the 90's fulfil this function. These associations consolidate all Russian regions and reflect the historically - developed regional structure of the Russian economy.
         The associations settle many of the problems that none of the regions are able to solve on their own. Very few differences arise, and when they do, they are settled in the process of work. The latter are usually reactions to the unfair budgeting of the regions. The fact that the center supports some of the regions while ignoring the needs of others results in social and political discrimination. This is the main concern of the federal subjects.
         Therefore, one of the main issues the regions are now facing is that of federal budgeting and the apparent unequal initial positioning of the regions.
         I am all for the two-channel system, where funds, say, for teachers and doctors, are first accumulated in the federal center and then forwarded to pay the salaries of only these categories of workers. This is how federal budgeting developed in Germany, and this is how it works in Spain and France.
         I am quite positive that the only way to improve the current situation is to closely monitor and control the flow of capital and to support the home producer in every possible way. Under free market conditions the state can not be a detached observer of the country's economic development. Neither can it take upon itself the responsibilities of a regional administration. It should co-ordinate and regulate the process, forming uniform rules for everybody. It should also create support for the home producer taking into consideration the economic situation in the country.
         We should not be apprehensive about the growing independence of the regions. This must, however, go hand-in-hand with the increase in self-reliability of the regions in matters of economic development, social welfare and self-administration. This will consolidate Russia and make it stronger.
         In order to equalize the regions' relationship with the center and to make them more self-sufficient, property relations must be further developed in the regions. I am referring in particular to granting federal subjects and municipal organizations the right to participate in the management of state enterprises. The center could also hand over some of the privatized companies' stock, which is now in federal ownership, for the regions to manage themselves.
         Relieved of these burdens, the center could target its efforts at more constructive activities. It could, for instance, solve strategic problems of the state's development, which would be very helpful, especially if it coordinated all the controversial issues with the regions. The authority of the center would not become weaker if it managed to settle all the disputes with the regions. The center and the regions form an integral entity. Together they make Russia.
         At the moment, no laws exist that are able to meet current demands. This has been holding back the development of normal federal relations. The structure of power is poorly defined. The vertical axis providing links between the centre and the regions has not been formed yet. The fact that this process has taken so long has resulted in lack of cooperation between the center and the regions.
         After declaring as our goal the development of the state along the lines of a federal model five years ago, we have so far made only the first step in that direction. We must now define, within the framework of the Constitution, the responsibilities and rights of the regions and those of the center.
         Whether Russia will take the next step or not depends on how soon a clear line can be drawn between the rights and responsibilities of the federal and the regional authorities.

A way with a future

THREE ANSWERS TO THE THREE QUESTIONS

Leonid Gorbenko,
the Governor of Kaliningrad Region

1. WHAT ROLE CAN THE PARTNERSHIP OF THE NORTHWESTERN REGIONS PLAY IN INCREASING THE COMPETITIVENESS OF YOUR PRODUCT IN DISTANT MARKETS?
2. WHICH INVESTMENT PROJECTS CAN BE REALIZED BY UNITING THE EFFORTS OF PARTICULAR REGIONS OF THE NORTHWEST, INCLUDING YOUR REGION?
3. WHICH PRODUCTS OF ST. PETERSBURG ENTERPRISES IS YOUR REGION MOST INTERESTED IN?

1. "WE ARE READY TO FURTHER DEVELOP BUSINESS LINKS WITH St. PETERSBURG"

         Our region is interested in the development of multiform cross-sectional inter-regional links more than any other subject of the Russian federation. The geopolitical position of the Russian enclave on the Baltic Sea dictates the need for its close full-scale cooperation with the Northwest regions as well as with other regions, territories and republics of the country. The potential and opportunities of the Special Economic Zone (SEZ),guaranteed by an appropriate federal law, give special advantages in this situation.
         This law allows to import the latest equipment to the Special Economic Zone without paying duties, and we have the opportunity of developing production of more competitive and higher quality goods. I would like to mention, for instance, an enterprise that produces pasta was recently set up in Kaliningrad. The latest western technologies are being used and as a result the products of this company are second to none, not even to Italian spaghetti. There is great demand for this product not only in our region, but also in other Russian regions including St. Petersburg and Moscow, as well as in the Baltic States. We are also re-equipping and modernizing the production of specialized railway dump-cars with a carrying capacity of 180 -220 tons. The annual demand for such cars in Russia is 15,000. The Kaliningrad manufacturer is the only one in Russia producing such dump-cars. We intend before long to attain our previous level of output of 2000 cars a month.
         The main obstacle is the difficulty of obtaining credits.
         We consider the development of full-scale cross-sectional inter-regional links to be strategically important. We are ready to cooperate with St. Petersburg business circles in producing and marketing foodstuffs. The agricultural sector has considerably recovered in the region, our motto here being "state-of-the-art technologies bring high profits". This sector relies heavily on the region's industry for financial backup, as it is there that such support can be found.
         For the last few months we have been working on the realization of the project of a ferry link between Kaliningrad and St. Petersburg. We have, on our part, done everything required from us. Now we expect our partners to carry out all the preparatory work. We hope they will ensure the fulfilment of legal procedures in the port. All this provided, freight and passenger transportation between our ports will become a reality. This is vital for our region because it is separated from the Russian mainland by three state borders.
        

2. "WE MUST LOOK FOR AN UNORTHODOX WAY OUT".

         We must look for an unorthodox way out. I envision this is the "amnesty", so to speak, of Russian capital abroad. In my opinion, President Yeltsin, the government and the Duma will have to make this step, since they allowed an unlimited flight of national capital from the country. This seriously hurt the economy. Common sense prompts us to create appropriate conditions so as to make that runaway capital work for Russia. Meanwhile, as this can not be provided, I suggest we find some intermediate variant of the amnesty that would enable us to use the opportunities and potential of the SEZ. Let Russian money come back from abroad via Kaliningrad.

3. "I AM REFERRING TO THE CULTURAL COOPERATION".

        In terms of the economic aspect of the question, what interests us most of all in the output of St. Petersburg industries is electric power. So far we have been getting it from three power plants, one of which is the Leningrad Nuclear Power Station. I recently had some very fruitful meetings with the heads of this station and MINATOM(Ministry of Atomic Power).
         Another strategically important product for us is fuel, especially boiler fuel. Kirishi plants have been supplying it to us at a reasonable standard price for many years.
         Another aspect to our interest in St. Petersburg is cultural cooperation. Our region, being an enclave and isolated as it is from the rest of Russia, experiences certain cultural and spiritual difficulties. Unlike many other places in Russia our region has not, for a number of reasons, developed strong cultural roots that could support and "feed" new generations with folk traditions and art. St. Petersburg, rightfully regarded as a treasure house not only of Russian, but of world art and culture, is quite a different story. The same applies to Vologda, Pskov, Novgorod and other regions of the Northwest. Many Kaliningraders, especially the older generation, feel nostalgic because they cannot afford to visit Russia. Our young people are in an even more disadvantageous position. Most of them have never been to their parents' native land, that is, to other parts of Russia, which, of course, affects the formation of their world outlook. Therefore, we are interested in enriching the lives of the people of Kaliningrad not only through economic, but also through cultural cooperation with St. Petersburg.

A way with a future

NEITHER DEPENDING ON THE CENTER, NOR IGNORING IT

M. Prusak,,
Governor of Novgorod region

        1998 was the hardest of my seven years in office as governor. The events of that year and its consequences convinced everybody once more that there must not be any experiments in reforming a vast country. During the first half of 1998 we made definite headway, the economy became stronger and the region managed to survive almost without any subsidies. The main point was that we understood what we needed to do, and we were able to envisage our future prospects, we began to be spoken about in Russia and we even received world recognition. Then suddenly we were thrown back on August 17. To be sure, we will get back up on our feet again. Investors have not refused to work in our region. 27 out of 29 major projects have been retained. I would like to remind you that our region is very attractive for a number of reasons. Taking into consideration that the federal subjects have their own rights to allow tax privileges, we have exempted all investment projects of all kinds of regional and local taxes for the period up until they are able to cover expenses, but not longer than the projected term. After that we managed to come to an agreement with customs authorities concerning equipment brought in by foreign investors. Now we can boldly speak about our own system that attracts home and foreign investments, which we presented to the participants of the Novgorod session of the Russian government.
         The logic of our conclusions is extremely simple: we do not demand taxes or other payments from enterprises that are struggling to survive. Taking into account that the optimum policy for taxation is realised when a greater part of taxes is provided by individuals rather than companies, we allow favorable conditions to employers who are interested in creating employment opportunities for Novgorodians. This is nothing new, people everywhere strive to earn money to support their families properly, to have a nice home, to receive a good education, medical service, and public utilities in exchange for the taxes they pay.
         We started from these points 6-7 years ago without any ideal federal tax code or tax policy.
         During the implementation of our reforms we understood that different districts had varying potentials. Four of them (namely agricultural districts) found themselves in the most difficult situation.
         In January 1997 we created certain zones of favorable economic conditions. These districts are subsidized by up to 60 per cent. That is why we decided to exempt all the commercial structures with the exception of trading firms from all taxes, for the regional Duma has the right to determine certain tax privileges.
         The first step was the most difficult. A joint Russian-Finnish company in our region became one of the first in the country. A joint stock company, Novgorod Timber Merchants was its co-founder. The resulting company, Chudovo-RWS, is a plant producing large-size laminated plywood. Then the Marco Polo company built a hotel, the Beresta Palace, in Novgorod. A large chocolate factory was soon thereafter opened by the well-known English firm, Cadbury's. It's example was followed by German, Japanese, Austrian and Danish firms. Foreign investments into the region's economy now total about $100 million annually. Local investments are also worth mentioning. For instance, the largest meat- processing factory in the country was built by a joint stock company, Novgorod Miasnoy Dvor, owned by the Cherkizov agricultural and industrial business concern. Small businesses have also been set up. There are about fifteen hundred in the region at the moment. Dairy factories in Parfinsky and Malovishersky districts have recently begun production. This year we are buying some equipment for other dairy and meat factories and trying to unite the sites of agricultural production and processing. Some enterprises can find resources and continue to work successfully. Among them is the Parfinsky plywood works, where they are soon installing new equipment for producing large-size plywood. Others are the industrial company Quant, producing Sadko TV sets, considered to be the best in Russia, the Starorussky aviation plant, a chemicals machinery factory, and a cheese- making plant. The Novgorod joint stock Company Splav, producing fittings for nuclear power stations, is trying to overcome its difficulties.
         The events of August 17 have affected the total output of the region. Instead of the expected 5 per cent increase in production we only saw a 1 per cent increase last year. I don't want to sound pompous, but this daily tedious work may be a demonstration of love for their motherland through reorganization of their firms, creation of new jobs in an extremely hard economic situation, in a time of political uncertainty.
        

A way with a future

A TESTING AREA FOR NEW IDEAS AND DECISIONS

Yan Strugach,,
Economic Observer

        The inter-regional associations for economic cooperation that sprang to life several years ago are quite appropriate. The very structure and activities of these associations bear seeds from which the links and connections of the country's new administrative mechanism will grow.
         On reading the articles published in this issue the readers will see all the multiformity and extent of the Northwest Association's work. The readers will realize that to a great extent the Association is relying upon administrative experience already accumulated in Russia. It applies branch management principles along with some of the features of "sovnarkhozy" and those of large agricuitural complexes. These are accompanied by typical interaction mechanisms of the present federal subjects,the principles of their cooperation with other associations and the center, longterm planning, forecasts of the territories' development, and nation-wide projects.
         Inter-regional associations should not however be regarded as the prototype for the country's economic management system. Rather, they are a testing ground for the ideas that arise and the decisions that are made in the today's crisis situation, one where the effectiveness of legislative and executive powers of the center and of federation subjects are tested. Today's problems are those of a transition to a free market economy. However, social issues and those relating to the further political and administrative restructuring of Russia, have been cropping up lately with increased frequency. These issues require thorough work, which the Northwest Association has already started.