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The bureaucrats in Russia once again threaten economy

Barter is back. So are wage arrears and an ever tighter state grip on business. After nearly three years of reforms under President Vladimir Putin, familiar old symptoms are returning to plague Russia's economy.

From the small business or Western investor point of view, the most disturbing trend is a boom in the numbers of Russian bureaucrats -- notorious for having limited economic vision but a long history in feeding off bribes.

Even Russia's Prime Minister Mikhail Kasyanov, whom few analysts here accuse of moving at break-neck speed in public sector reforms during his decade at top government posts, has recently voiced concerns over growing bureaucracy.

Christof Ruehl of the World Bank in Russia points out that far-flung Russian provinces are hiring new health and education sector employees "to serve as a safety net against poverty."

But since these depressed regions can scarcely pay the rising salaries of public sector workers -- up 40 percent in August compared to the same month a year before -- the burden of state wage arrears, which had once all but disappeared, is on the rise.

The federal and regional government's wage arrears in October stood at 4.7 billion rubles (US$149 million), rising by nine percent compared to September's official estimates, and forcing poor regions to beg for more subsidies from Moscow.

"The state's burden is not going down but up," stumping economic growth, observed Andrei Illarionov, a pro-market Kremlin economic adviser who has waged many a political battle against others in Putin's team.

"It is obvious that the heavier a body [like a government] is, the slower it moves -- this is a law of physics," he told the Kommersant business daily.

The second frequent economic headache is a breakdown in the cash flows between enterprises, which are reverting to barter to settle their accounts.

Barter between state enterprises "is evident for the first time in three years," warned Kasyanov, calling for "urgent measures to address these negative trends."

Worse still, barter is again being practised by companies that account for the largest chunk of the Russian economy.

"The share of barter transactions in the sales of [Russia's number one natural gas producer] Gazprom has greatly increased in this year's third quarter," the World Bank said in a report issued last week.

Private bankers are furrowing their brows.

"A worrying trend has become evident in almost all sectors this year," said Chris Weafer, an analyst with Russia's largest private bank, Alfa.
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