Putin pledged a new social contract with Russia’s citizens and vowed to overthrow the dictatorship of the shadow economy that has plagued the country for years. Restoring strong central power was key to rebuilding Russia as a great power, said Putin, who defended his plans to grab back power from Russia’s often fractious regions. He accused regional bosses of favoritism and failure to follow fair business practices. "The President of Russia must have the right to establish order and be able to interfere should regional leaders break federal laws," Putin said, in reference to his efforts to win the right to fire the heads of Russia’s 89 regions.

After years of corruption and crony capitalism, Putin is attempting to regain control of the Russian economy by imposing the rule of law. As of mid-July, the government had launched investigations or filed charges—ranging from fraud to tax evasion—against 13 major business leaders (oligarchs), whose companies include Media-MOST, LUKOil, and Gazprom.

On July 12 investigators from the Russian Federal Tax Police Service announced the launch of a criminal case against auto giant AvtoVAZ. The company had concealed hundreds of millions of dollars from taxation by producing multiple vehicles with the same serial number and then reporting the manufacture of a single automobile. The Media-MOST empire, which owns banking, broadcasting, satellite communications, and banking interests, has been raided repeatedly. Its head, Vladimir Gusinsky, accused of defrauding the government during a privatization deal, was jailed for four days in June. Gazprom, the country’s natural gas giant, and its director, Rem Vyakhirev, are under investigation for granting questionable loans to Media-MOST. Vagit Alekperov, the director of LUKOil, the country’s largest oil concern, has been charged with tax fraud.

The new program, outlined by Gref at the end of June, consists of a list of priority measures to be implemented in the first 18 months. The plan, which has been approved by the government, is based on free market principles and calls for equal opportunities for all economic actors, guaranteed property rights, and the elimination of bureaucratic constraints hindering business activity. Specific features of the new program include the following:

Import liberalization. Import duties will be cut to a minimum. Either a single rate or four separate rates applicable to large groups of commodities will be imposed. The reform will end the high tariff wall protecting domestic producers that, according to Deputy Prime Minister Aleksei Kudrin, "violates the rights of consumers and does not stimulate technological progress." The new openness will accelerate the demise of loss-generating production facilities and improve the investment climate by channeling resources into competitive plants and projects, according to Kudrin.

Budgetary and tax reform. Tax revenues are to be centralized, as announced in the Duma when the the 2001 budget proposal was introduced. Dividing tax revenues between the federal government and the provinces on a 50-50 basis will no longer be acceptable. Currently, 12 rich provinces provide 66 percent of all tax revenues collected in the Russian Federation’s 89 regions. Previously, those provinces could claim at least a third of all taxes collected nationally. With the centralization of budgetary revenues—including 100 percent of VAT—those 12 regions stand to lose.

Social reform. The state will cut back on a wide range of social benefits that it cannot finance from the budget. Having consolidated the employment fund into the budget, the central government will no longer extend credits to enterprises to stimulate job creation. Direct and indirect state subsidies, including those on utility rates paid by companies, will be eliminated, the pension system modernized, housing reform carried out, and a long-term mortgage system developed.

Deregulation. The procedure for registering companies will be simplified. A single agency will be responsible for registration, and the list of activities subject to licensing will be cut significantly.

Breakup of electricity, natural gas, and railway monopolies. The transport and distribution divisions of Gazprom, the natural gas monopoly, will become financially independent. Electricity producers will be encouraged to join a wholesale electricity market. Nonpaying consumers will be cut off. Foreign companies will be able to compete in the railways, and passenger rail fares will be increased.

Other items on the agenda. The government also plans to create markets for land and buildings; improve bankruptcy procedures; increase the efficiency of state regulations; lift administrative curbs on the movement of goods, capital, and labor; introduce international accounting standards; and require companies to provide information about their business activities.