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BrownRusPriv - Prikhvatizatziya Andrew Brown Outline Mass...

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Unformatted text preview: Prikhvatizatziya Andrew Brown Outline Mass Privatization Loans-for-Shares Economics Politics Russian Privatization Mass Privatization 1991: First privatization laws passed October 1992: Amended privatization laws December 1992: Start of auctions December 1992: Yeltsin/Gaidar government sacked PM Viktor Chernomyrdin spoke of privatization as a crime June 30, 1994: End of ,,Phase I July 22, 1994: Yeltsin announced ,,Phase II Russian Privatization Privatization and Employment Source: World Bank, Private Sector Development in Europe and Central Asia Number of Enterprises 120000 100000 80000 60000 40000 20000 0 1990 1991 1992 1993 1994 1995 1996 Total Number of Enterprises Privatized Each Year Private Sector Share of Employm Russian Privatization Private Sector Share 140000 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Mass Privatization Rapid, Voucher system Why? Diversification of ownership Popular for the distribution of wealth Price of transaction costs Time constraint Russian Privatization Mass Privatization Difficulties Managerial incentive Public incentive Time Poland privatized smaller firms and moved in a ,,staged privatization 1990: First law, 1995: First sale Russia did not have this luxury Irregularities Russian Privatization Loans-for-Shares 1995: Russian government wanted to raise revenue Lack of Tax Reform Vladimir Potanin (Oneksimbank) Bank would loan Russian government funds and the ,,collateral would be shares to be auctioned off Russian Privatization Loans-for-Shares Example: Yukos Mikhail Khodorkovsky and Menatep Savvy black market business man Bank Menatep financed Chechen war, among other projects $350 million US loan Failing, Yukos (Formed in 1993) sold at auction 1997 market capitalization: $9 billion US Russian Privatization Loans-for-Shares Provisions of program Irrelevant Entrenchment of oligarchs Potanin: Deputy Prime Minister Boris Berezovzky: Deputy Secretary to National Security Council (Sibneft Oil) Roman Abramovic: "cashier" of Yeltsin inner-circle (Sibneft Oil) Russian Privatization Economics of Russian Privatization Ownership of enterprises from Mass Privatization (1995) Insider: 56.3% Outsiders: 23.3% State: 20.4% World Bank This does not account for the ,,type of shares and size of company Today: 75% of firms are privatized (Ernst & Young) Russian Privatization Economics of Russian Privatization Measuring performance of the recently privatized companies is difficult for multiple reasons: Socialist history Bad accounting practices "the good manager will achieve zero profit" Price fluctuation Russian Privatization Russian Privatization Economics of Russian Privatization Labor productivity Firm level National level Labor productivity gain, 1989-1998 Hungary (Gradual): 29% Poland (Gradual): 36% Czech Republic (Rapid): 6% Russia (Rapid): 33% Source: Economic Commission on Europe, Economic Survey of Europe, 1999 Russian Privatization Politics of Russian Privatization John D. Rockefeller, Potanin, Berezovzky, and Khodorkovsky Restructuring and Profitability Tax bill, FY 1999: $1.17 billion US "Large-scale sellout of state property was not always based on common sense and economic reasons, quite often this was being done for political reasons" Vladimir Putin, 2003 Russian Privatization Table 7 : Corruption Perception Index Source: Transparency.org Percentil e 4 2 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 Index Percentile Russian Privatization 0.4 0.2 0 Index Politics of Russian Privatization Former KGB element ,,renationalizing enterprises? Putin vs. Mikhail Khodorkovsky Arrested at gun point Yukos auction: "Today we made the decision to join the Third World," Andrey Illarionov, 2004 Russian Privatization ...
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