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Clock Ticking on State Corporations

Medvedev entering a Kremlin hall for an RSPP meeting Wednesday. In the foreground is RSPP head Alexander Shokhin, left, and tycoon Mikhail Fridman. Dmitry Astakhov

President Dmitry Medvedev said Wednesday that many state corporations must change their legal status or be shut down, signaling the beginning of the end of the state behemoths.

Medvedev also urged business leaders to help the Kremlin fight graft and called for the imprisonment of court intermediaries, whom he described as “the highest form of corruption.”

State corporations have gotten out of control, and those that work in competitive sectors face two alternatives: being turned into public companies or liquidation, Medvedev said at a meeting of the Russian Union of Industrialists and Entrepreneurs.

The president said state corporations that were created to carry out a specific business activity over a certain period of time should also be closed.

But “state corporations will remain in the sectors where we have not been able to provide normal competition so far,” he said, Interfax reported.

State corporations have come under fire from the likes of Finance Minister Alexei Kudrin and Kremlin aide Arkady Dvorkovich for hampering economic growth since they were created in 2007. Medvedev himself signed an order placing government stakes from more than 400 companies into Russian Technologies last year, but he has shown a change of heart after his legal council advised him in March that state corporations should operate under the same laws as private businesses.

Medvedev on Aug. 7 ordered the Prosecutor General’s Office and the head of the Kremlin’s oversight department to carry out a sweeping investigation into how state corporations function.

The results of the investigation will be presented to the president on Nov. 1, Medvedev’s spokeswoman, Natalya Timakova, said Wednesday.

In addition to Russian Technologies, state corporations include Olympics construction firm Olimpstroi, nanotechnology giant Rusnano, state lender Vneshekonombank, nuclear conglomerate Rosatom, the Housing Maintenance Fund and the Deposit Insurance Agency.

The head of one state corporation cautioned Medvedev against changing his company’s legal status in August. “Any experiments conducted on the Olympics project will only lead to negative consequences,” said Taimuraz Bolloyev, president of Olimpstroi, which was created Oct. 10, 2007, to prepare Sochi to host the 2014 Winter Games.

Medvedev’s call, however, seems to have some support from Prime Minister Vladimir Putin. Amid complaints from government officials that the state corporation model had made it difficult to oversee expenses for Olympics preparations, Putin proposed returning to the previous financing model — a federal targeted program, Vedomosti reported in late August. The Finance Ministry later rejected the idea.

Analysts said the economic crisis meant that the time was not right to overhaul state corporations. “I don’t think it’s a good time to denationalize Russia’s economy,” said Alexander Osin, chief economist at Finam. “The risks of inflation growth in the long term are high, but it’s possible to avoid them through the state regulation of the economy.”

At Wednesday’s meeting, billionaire Oleg Deripaska complained to Medvedev about the difficulty of doing business because of intermediaries used by courts, “without whom it is impossible to receive a fair ruling.”

“Everyone knows that for this you have to pay,” Deripaska said.

Medvedev said businesspeople did not have to pay. “In this situation, a businessman’s duty is to file a complaint to prosecutors, the Interior Ministry, the Federal Security Service,” he said.

As for the intermediaries, “they must be put in prison. This is the highest form of corruption,” he said.

Medvedev, who has made the fight against corruption a hallmark of his presidency, appealed to the businessmen to join him in the battle. “If we don’t start fighting with it ourselves, they will keep taking your money and you will pay because there’s no other option,” he said.

Also Wednesday, Medvedev reiterated that Russia has too many banks. But he added, “We must not emerge from the crisis with only three state banks,” RIA-Novosti reported.

Medvedev also said the state could not abandon its involvement in the economy. “The crisis has shown that all our aspirations to abandon state involvement are without a foundation,” he said.

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