Russia's Accounts Chamber Head Alexei Kudrin: Economic Growth Is Impossible Without Investing In People

In an interview with TASS, the head of the Accounts Chamber of the Russian Federation, Alexei Kudrin, spoke about the difficulties that regions face when implementing national projects, whether it is possible to redistribute budget expenditures to reduce the percentage of poor people, how to provide support for those in need, and also what social issues the Accounts Chamber intends to address in 2020.

While careful not to directly attack the national projects concept beloved of Putin, Kudrin essentially predicts their failure due to arbitrary demands on the regions and unwillingness by the center to delegate power. The regions lack power but bear responsibility for success or failure. Kudrin also bemoans the failure to improve the quality of the state administration including the law enforcement bodies and the courts and the constantly changing legislation that creates uncertainty and impedes small and medium sized enterprises.

Below is the interview with Kudrin:[1]

Alexei Kudrin (Source: Silaedinstva.ru)

'When The Target Indicators Of National Projects For The Regions Were Formed, Local Specifics Were Not Always Taken Into Account'

Q: "At the Forum of Strategists [that took place on October 28-29 in St. Petersburg][2], you once again pointed out problems with the implementation of national projects. The bulk of the work to achieve these indicators falls on the regions. During the discussion, you drew attention to the high level of bureaucracy in the actors, and their [position of] dependency in decision-making. How, in your opinion, can the problem be solved and are the regions ready for this?"

Kudrin: "I think it would be more correct to revise the indicators grid for the regions and give them additional resources that they can use at their discretion. When the target indicators of national projects for the regions were formed, local specifics were not always taken into account. For example, is there still so much housing needed in certain area and who can buy it?

"According to the results of our interim analysis, we see that some regions will be unable to fulfill all the national projects obligations without additional support that has not yet been promised. For example, every year, regions must increase the proportion of roads that meet all regulatory requirements for safety and quality.

"As we see about 20 regions may not reach these targets. And here a management question arises: indicators of national projects - are they planned or indicative? If planned, then, it seems that they need to be achieved at all costs. If the governor does not have enough resources - it is necessary to collect from other directions, but to fulfill. If we consider them, rather as guidelines, then their achievement should not lead to imbalances within the region if there are not enough resources. This is a subtle question.

"The government believes that if the mandatory fulfillment of indicators is removed, the regions will cease to fulfill them at all. As a result, we almost approach a 'planning directorate. The agreements on transfers from the federal budget stipulate: if you do not fulfill the indicators, you will not receive money or you will even get fined.

"This mechanism was used previously, but on such a scale it works for the first time. Officially, co-financing of national projects by the federal budget should be approximately 96–98%. The government really said: we will finance national projects, and the regions should participate, but rather symbolically. In fact, due to the construction of related infrastructure, maintenance of constructed facilities, equipment and so on, the actual co-financing in some regions reaches almost the proportion of 50/50.

"That is, the regional authorities themselves must find about the same amount of subsidies for national projects in order to actually implement the projects. Some regions may face a choice: where to withdraw money from and transfer to national projects? Redistribution of limited funds takes place already, even without the influence of national projects, as there are quite a lot of other obligations.

"For example, in 2011, 1.6% of GDP from all the budget items was spent on the investment, today - only 0.8% (half as much). I believe that it would be right to change the concept of national projects for the regions: to limit ourselves to only the most important indicators, as an option, to complex ones, but let the regions decide how to achieve them. We will have to review the support that is allocated to the entities.

"The three year budget includes a total amount of support of approximately 2.5 trillion rubles annually, of which only about 950 billion rubles are subsidies for budget equalization. There are ways to find additional money in the regions. If we move the contributions to the compulsory medical insurance for non-working citizens from the regions to the federal level (without transferring other obligations to the regions), this will free up annually about 660 billion rubles for the regional budgets. The regions are ready to work more independently, but is the center ready that is the question."

'If You Do Not Improve The Quality Of Public Administration, Its Negative Factors Will Interfere With The Implementation Of National Projects'

Q: "Some regional leaders believe that national projects are the only strategic planning document that is being implemented. Do you agree with that?"

Kudrin: "National goals are what people are paying the most attention to right now. But in the highly structured system, they are not in the media focus. Their benchmarks are bureaucratic in nature. National projects are implemented through federal projects, which are, in turn, included in state programs. State programs are even broader projects, where there are even more indicators, and indicators of national projects are getting lost among them.

"It seems to me that such a control system blurs the focus on the main thing. The key barrier to national projects (we have been talking about this for more than a year) is the quality of public administration institutions, law enforcement practice, the work of law enforcement institutions and courts. If you do not improve the quality of public administration, its negative factors will interfere with the implementation of national projects. And the fact that the reforms of institutions necessary for the achievement of national goals has not yet started, also says that the focus is shifted."

'There Are Problems In The National Project Management Scheme'

Q: "Based on the results of 2018 audit, the Accounts Chamber concluded that the authorities' measures to support small and medium-sized businesses are not fully effective. Now it is almost the end of 2019. According to your data, has the situation changed somewhat?"

Kudrin: "So far, despite the increase in support, the number of small and medium-sized enterprises and the number of their employees are not growing. In the course of monitoring the national project to support SMEs [small to mid-size enterprises], we see that as of August 10, 2019, 450,000 fewer people are employed at small and medium enterprises than in July 2018.

"We recently conducted an audit in several regions of the Far East, where in recent years the level of support for SMEs has grown significantly. Unfortunately, the number of small and medium enterprises even decreased. Small business lacks sufficient conditions for progress. Maybe it is insufficient competence that prevents creation of SMEs. Often these are young fellows, and they also face common business problems: many bureaucratic barriers, administrative barriers, much uncertainty, constantly changing legislation.

"There are problems in the national project management scheme. Subsidies under the national project are received by certain people, while others are responsible for achieving the national project goals. So, 260.5 billion rubles, or 62.9% of the federal budget funds intended for the implementation of the national project in 2019–2024 will be received by the SME Corporation, SME Bank, credit organizations, etc.

"In the national project they are not responsible for the growth in the number of people employed in the SME sector, an increase in the share of SMEs in GDP and in non-resource exports - these are all target indicators. The highest officials of the regions are responsible for their achievement, but they do not affect the distribution of resources and the activities of those who receive them. Next year we will complete a large comprehensive audit for the SME support, the inspection results will be available in December 2020."

'I Have Repeatedly Said That For Such A Country Like Ours, To Have So Many Poor People Is A Disgrace'

Q: "The authorities and experts have repeatedly expressed ideas about citizens' targeted social support. How much do you think is practical and feasible? Maybe some payments should be reviewed?"

Kudrin: "You've raised the most sensitive topic. We have nearly 20 million people below the poverty line. In our state model the life of many is very primitive or targeted at preserving one's existence. People must at all times battle for survival. I have repeatedly said that for such a country like ours, to have so many poor people is a disgrace. With our per capita GDP, with such serious resources, we should not allow this.

"According to the estimates of the Center for Social Development, in order to reduce the number of poor by at least 40%, it was necessary to spend an additional 200 billion rubles a year. We spend almost 11% of GDP on social support, including transfers to the Pension Fund and all kinds of other social forms of support, from motherhood and childhood to the disabled and other categories of citizens. At current prices, it's about 11 trillion nationwide.

"According to last year's World Bank estimate, in only 20% of cases social assistance reaches the poor. Of course, we need to support honorable people, help people with disabilities, Chernobyl victims, families with children. But in general, we have a resource for maneuver in order to find these 200 billion or even more and significantly reduce poverty at the expense of other budget expenditures.

"This is the task of social targeted support addressed specifically to the poor. But we must honestly point out a difficult and sensitive point. If we redistribute resources in order to address poverty, it means that these monies will not go to someone who previously received them by category. It's not easy to reduce support for someone, even in order to give it to someone who needs it most."

Q: "Today there are payments that once were significant, but now they are hardly significant amounts: about 100 rubles a month. Perhaps these resources could be redistributed?"

Kudrin: "Of course, for those who are really in need, these payments have long been of no help. For example, this applies to child benefits that were once introduced in the regions. In some regions they still amount to 200-300 rubles for a family per month. Of course, these forms of support also need to be reviewed."

'We Will Study What Makes Children Successful Or Unsuccessful In School'

Q: "One of the acute problems that the Accounts Chamber has paid attention to recently is the provision of housing for orphans. What social problems requiring an operational solution do you see besides this?"

Kudrin: "The Accounts Chamber has set itself the problem of providing housing for orphans as one of its prioritities. We not only revealed the problem, but also are trying to solve it together with the government, the State Duma, and the presidential administration. By the end of this year we will be able to work out a solution.

"According to our preliminary assessment, the problem itself can be solved in two to three years. Of course, you cannot do it without additional resources. We hope that the second reading of the budget, an amendment will appear to supplement the expenses for these purposes. Today, 175 thousand orphans over 18 do not have apartments. Some wait ten years or longer. The [program] operators spend about 35 billion rubles a year, and they need about twice as much so that at least the waiting list does not grow. To pay off the debt, it would take 200 billion only to issue apartments. But it's hard to allocate 200 billion even in two or three years, I'm not speaking about just a year.

"Then, active construction is not taking place everywhere in the regions. Therefore, even if we give money, this apartment needs to be built somewhere; and I repeat, sometimes it is not so simple. Once we even built whole apartment buildings for orphans. But this practice did not justify itself, because it turned out to be a special house, and the favorable atmosphere was not always present there. It is not always necessary to solve the problem by purchasing an apartment.

"In our country, most orphans have parents deprived of parental rights. And when they got to orphanages, they already had rights to housing - they need to be restored and secured. We also need to see if it is necessary to transfer the allocated housing under the property title. The apartments are being taken from orphans by deception, they are being sold, rented and so on. We need to once again look at the whole chain and all the rules for providing housing for children. The Prime Minister ordered the organization of a decision-making meeting. And we are expecting this meeting literally within a month."

Q: "What is the next social problem that the Accounts Chamber will pay attention to?"

Kudrin: "We will study the question of what makes children successful or unsuccessful in school, what can be done to ensure that more children will absorb the materials and that their individual capabilities, abilities, psychological characteristics will not interfere with their being successful and passing exams together with everybody...

"We practically do not have such individualized teaching programs. Only in the specialized schools or in schools that can allow themselves more specialists and psychologists.

"For example, it is necessary to detect dyslexia, autism, and other problems. We do not have this practice. The child is taught how everyone is being taught, and he becomes poor. It is now accepted in many countries in schools that if a child has such special needs, he is given half an hour more for the exams. He still has to solve it, but since he just solves it more slowly, his particularities are taken into account."

Q: "As far as I know, in some countries, for example, in Israel, these children have a mentor, or a curator, or a social worker."

Kudrin: "You are absolutely right. Individual coaching at school is a critical feature today. There is someone to approach, with whom to consult, someone who is constantly watching your progress. The whole is fighting for man. His fate and his abilities, which ultimately work for the economy, have become even more expensive. Suppose, if we continue to use common approaches, as before, 25% of children will not have functional literacy and will be unsuccessful. And later they may be below the poverty line. And if we do this, it will not be 25%, but, say, 13-15%. A significant number of children we can engage in an active successful life."

Q: "This will require retraining of the teaching staff, attracting new personnel ..."

Kudrin: "Sure. This is a major restructuring of school work. In Western countries private foundations are involved in this. There are even associations, people invest their money in these funds, so that in their country many children are treated more carefully. This can be done at the state level. To do this, we need to open positions for psychologists, mentors; this work should be paid accordingly and taught. And more time should be devoted to children for dealing with their problems. It is clear that additional funding will be required. That's we, as the Accounts Chamber, decided to pay attention to this, study this problem in our country, assemble a wide working group, as in the case of orphans, from school directors to senior officials - and come up with joint proposals."