Sacrifice the future, but fulfill the plan

Last week was remembered for the resonant statement of the head of the Federation Council, Valentina Matvienko, about the need to impose a moratorium on the operation of the law on public procurement (44-FZ) during the Russian military operation in Ukraine. This should allow the regions to “master” the funds faster without looking back at long and complicated procedures. The idea, however, even at a cursory glance, is hardly feasible without a large-scale restructuring of the procurement system: the mechanisms for distributing and financing state orders are tied to 44-FZ, the budget will simply have no reason to pay for it. Rewriting certain norms of the law so that regional authorities can spend money without regard to budget limits, which was later discussed by Deputy Head of the Federation Council Nikolai Zhuravlev (this, apparently, is a key problem, and caused dreams of abolishing 44-FZ: the Ministry of Finance explained to the regions more than once, that they can pay more for a government order only at the price of refusing other purchases), will require considerable time.

It is obvious that the need to expand and accelerate the financing of the state order is caused by the need of enterprises for investments in the face of growing demand for their products with a reduction in imports. Modernization and wage increases (see p. 2) require funds to increase productivity, and there are few options here: either an influx of private money or an increase in budget injections, which, in fact, the Federation Council insists on.

With the growth of uncertainty, private investors are increasingly demanding coverage of risks and participation in their projects of the state, and the mechanism of agreements created by the White House to protect and encourage investment based on new technological production (it gives new projects a competitive advantage over old ones due to guarantees that working conditions will not worsen) does not yet allow filling gaps in demand.

The increase in budget injections into constructions, proposed by Ms. Matvienko (even if we omit the idea that the pro-competitive and anti-corruption law is proposed to be abolished), will primarily serve to preserve old industries, the exit from the market of which should have been facilitated by new investment projects within the framework of the SZPK. Investment in keeping old factories running to fill momentary shortfalls will lead to increased concentration in markets and close them for a long time to new and efficient enterprises.

At the same time, the focus on supporting the sole suppliers with state orders has been shifting for a long time – and the argument that a new wave of uncontrolled state investments will nevertheless lead to their breakthrough modernization can hardly be accepted. The approach can have an effect on individual industries – and the state order will be executed. However, the cost of such targeted “modernization” of industry to the Russian economy is known from the 1990s: it will have little chance in returning to the market and competition.