Russian Ministers Clash With Premier Fradkov Over Reform Pace

Russian top government ministers clashed with Prime Minister Mikhail Fradkov at a meeting, saying a slowdown in efforts to improve key industries aggravates the nation's dependence on oil and may stop the economy from doubling in a decade.

Economic growth will slow in the next three years as lack of pipeline capacity caps oil exports, Economy Minister German Gref said. A halt in the restructuring of state-controlled electricity, natural gas and transportation industries, as well as insufficient protection of ownership rights, hampers sustainable growth in other fields, Finance Minister Alexei Kudrin said.

High oil prices have helped six-year economic growth of Russia that has pumped more crude than Saudi Arabia this year. The Economy Ministry forecasts that the expansion continues in the next three years at an average 6.3 percent, less than the annual 7.2 percent needed to meet President Vladimir Putin's goal to double gross domestic product in 10 years.

``The reforms are key to ensure long-term growth of the economy, and we shouldn't invent a bicycle here,'' Kudrin told the government meeting. ``Now we don't have anything to base the growth upon, except for the inertial development.''

Putin, who was elected in 2000, cut taxes and reduced bureaucracy in his first three years in the office, helping the economy to grow. Reforms slowed last year before Putin's re- election in March, economists such as the World bank's Christof Ruehl said.

UES Breakup

Fradkov, appointed prime minister in March, has delayed plans to break up national power utility RAO Unified Energy System into generation, transmission and distribution companies. A restructuring plan for state-controlled gas producer OAO Gazprom has yet to be drafted.

Putin has called to reduce poverty in the country, where average monthly salary is $240, by expanding the size of the economy and catching up with the European Union's Portugal.

``Why can't we put 7.5 percent of annual growth into the forecast?'' Fradkov said at the meeting. ``It's not just someone, it's the president who called for doubling the GDP. There's no doubling GDP in the forecast, just some touches. I want to see a spark.''

Deputy Prime Minister Alexander Zhukov said the Economy Ministry's forecast, envisaging growth at average 6.3 percent, is ``credible.'' Kudrin said raising the forecast is ``impossible.'' Gref said Russia continues relying on natural resources and ``underuses'' its intellectual potential.

Yukos Affair

Concerns over security of ownership in Russia grew and capital flight resumed amid the government's attack on Russia's biggest oil exporter, OAO Yukos Oil Co. Russia's first-half net outflow of capital was $5.5 billion, compared with a net inflow of $3.9 billion in the same period of last year, according to the central bank.

The government's probe has saddled Yukos with a $3.4 billion tax bill and put Yukos's biggest owner Mikhail Khodorkovsky in jail and under trial on fraud charges that the businessman denies as politically motivated. The Organization for Economic Cooperation and Development has called the Yukos probe ``an example of selective justice.''

``A factor of protection of property rights does not sufficiently provide for the development of our economy,'' Kudrin told the government meeting. ``Everyone would tell you that law enforcement practices aren't in order.''

Yukos shares have plunged 73 percent since Khodorkovsky's arrest on Oct. 25, knocking some $30 billion off the company's market value. The country's benchmark Russian Trading System Index has dropped 25 percent in the past four months.

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