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Russia Should Decentralize Power to Lure Investors, Kudrin Says

April 18 (Bloomberg) -- Russia’s political system is “flawed” and the government needs to decentralize power and regulate more efficiently to lure greater numbers of investors, said Alexei Kudrin, the former finance minister.

“The vertical of power that’s built today is flawed,” Kudrin said at a conference run by Russian lender VTB Group today in New York. “From the issuance of permissions for construction to the issuance of licenses, tax reviews, customs control. The effectiveness of state governance is very low.”

The power to regulate currently held by federal ministries should be passed to municipal governments, Kudrin said. “There was never enough willpower to complete” past efforts to decentralize the government, he said.

Should the government boost social spending to fulfill promises made during Prime Minister Vladimir Putin’s successful campaign for president, taxes will “inevitably” increase, Kudrin said.

Putin, who won his third term as president on March 4, vowed to boost pensions and salaries for state workers and the military, pledges that will contribute to a 4.8 trillion-ruble ($162.6 billion) increase in spending through 2018, according to estimates by Capital Economics Ltd. Russia saw $35.1 billion of net capital outflows in the first quarter, the most since the last three months of 2008, as the European debt crisis and anti-government protests deterred investors.

Kudrin was the longest-serving finance minister in the Group of Eight major economies until he was forced out by current President Dmitry Medvedev after publicly opposing increases in military spending. During his tenure, Russia cut state debt to less than 10 percent of gross domestic product and oversaw budget surpluses from 2000 to 2008.

Not in New Government

“I decided I won’t be part of the new government,” Kudrin said today.

Putin said in September that he and Medvedev would swap jobs. A former KGB officer, Putin served as president for eight years until 2008 when he had to relinquish the job because of limits on serving more than two consecutive terms.

Kudrin told reporters in New York that he didn’t have a forecast for how long Medvedev will remain as prime minister. Igor Yurgens, who heads a research group created by Medvedev, said in February that Kudrin would do a better job as premier than Medvedev.

Putin delayed increases in utility prices due in January until July during the run-up to the March 4 presidential poll.

“The tariff policy shouldn’t be dictated by political trends, it needs to be clear,” Kudrin said.

To contact the reporter on this story: Ksenia Galouchko in New York at kgalouchko1@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net

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