Preventive measure or veiled confiscation?

On April 25, Russian President Vladimir Putin published a decree on the introduction of temporary asset management for companies and individuals from unfriendly countries in response to the seizure or restriction of rights to Russian property abroad.

What is it – just a preventive measure or a veiled confiscation? During a press conference at the DOS, the former Minister of Labor and Social Development of the Russian Federation, Honored Economist of Russia Sergey Kalashnikov, economist Denis Raksha and Deputy Chairman of the State Duma Committee on Economic Policy Artem Kiryanov tried to answer this question.

Thus, Sergei Kalashnikov believes that such a euphemism as “external management” may hide the confiscation of Western assets with their subsequent privatization:

“The West has found and can freeze our reserves for only $100 billion. The remaining 200 he did not find. On the other hand, the total property of Western companies in Russia is about $500 billion. This is something that Russia can lay its hands on. Agree that on the one hand – 100 billion, and on the other – 500 billion, this is a fairly good business. Now about what we are losing. If we are talking about external management, then this, of course, is a utopia. The fact is that simply taking control of a company does not mean anything. This is the loss of efficiency of this company, and this is, in fact, the absence of losses on the part of the company itself. The company’s losses may result from the freezing or appropriation of Western capital invested in Russia. I think that confiscation is hidden behind such a euphemism as “external management”. It is clear that this will not add a favorable climate for future investments, but this is the current situation.”

Artem Kiryanov categorically disagreed with this interpretation of the meaning of the presidential decree:

“We do not need this confiscation. Well, think about why the Russian state needs to take away some production buildings, factories, machine tools, etc., in order to do what with them? There is no one to sell them, they are of some value only on paper: if at some point they are turned off from the production cycle, then they are, in fact, worth nothing. Therefore, I think that it is pointless to talk about some kind of privatization here, since no one needs it, no one will buy it. External management in this configuration is just a continuation of the business that is (at the same pace, in the same order, without any layoffs and cuts), but these companies will not be profitable. That is, the money that used to go to the parent company or somehow counted (even if it remained here) in some kind of capitalization. Now this will not happen. This money will be frozen.

However, as Sergey Kalashnikov reasonably objected to the deputy, not a single business will work under such conditions:

“Do you think why on earth a Western company will continue to work, including the supply of components, new technologies, etc., if it does not make a profit? The business runs for profit. And if you tell them: “Work, but you won’t get anything for it,” then this is simply ridiculous. If we introduce external management, this manager will be responsible for everything, including the collapse. Therefore, I believe that in this case we are talking, ultimately, after all, about confiscation. It’s another matter that some return conditions are possible later.”

In his opinion, the confiscation of Western companies in the future may lead to a new wave of privatization:

“It is still very difficult to say how it will go. But I would like it to go differently than last time. In addition to the next wave of privatization, the confiscation of Western assets may entail the loss of certain businesses from the harmonious unified system of supply chains of the Russian economy. Therefore, the question is not just about taking Western property, but also about replacing it in the normal sense of import substitution.”

Speaking about the text of the decree itself, Sergei Kalashnikov lamented its vagueness, possibly deliberate:

“The decree is, in fact, very vague, and I really don’t like it. I do not like it because there are no clear definitions and clear orders. Under these conditions, muddy water appears again, in which it will be possible to catch “big fish” for those who have the opportunity to catch it. To date, there is no clear understanding of what external management of unknown Western assets is. As a result of this uncertainty, which is not explained by the decree, a chain of very arbitrary decisions may arise. In this situation, it is more political in nature than really economic. Although, I repeat once again, this decree creates the conditions for another big “hapka”.

This conclusion of Sergey Kalashnikov was quite reasonably disputed by economist Denis Raksha:

“The decree is written absolutely clearly. In its text there is a direct indication that the external manager appointed by the Federal Property Management Agency has the authority only to manage this property and does not have the authority to dispose of it (its alienation).

That is, in his opinion, theoretically, there can be no talk of any confiscation on the basis of this decree, although, as old Goethe wisely reminded, “the theory is dry, my friend, but the tree of life is lush green” and sometimes presents unexpected surprises. So let’s wait and see.

Sergei Ishkov.

Freepik photo