Kremlin to curb graft, red tape for small business

ZVENIGOROD, Russia (Reuters) - Russian leader Dmitry Medvedev Wednesday attacked red tape and official extortion of small businesses, a sector he wants to play a bigger role in the economy and provide more jobs in the economic downturn.

Modernizing the economy and reinforcing the rule of law are priorities for Medvedev, who took over last year from his ally and mentor Vladimir Putin, now his powerful prime minister.

"Experts say money spent by businessmen on overcoming red tape takes up a considerable part of (businesses') annual revenues," Medvedev told a meeting of officials gathered to discuss the issue in the town of Zvenigorod outside Moscow.

"Straightforward extortion of money (by officials) also exists, and that is simply disgusting," he said.

Promoting small and medium-sized businesses is a major part of Medvedev's plans to modernize Russia, whose wealth remains heavily reliant on the export of oil, gas and minerals. Those sectors, along with heavy industry, continue to employ large numbers of people in Russia.

But the collapse of energy prices in the second half of last year and the global economic crisis have hit those sectors hard, triggering a sharp rise in unemployment for the first time in a decade.

The crisis has made the Kremlin sensitive to social unrest in hard-hit industrial centers, which had been kept in check by growing wages and prosperity during 10 years of unbroken growth.

Medvedev hopes a flourishing small business sector will ensure social stability in Russia by providing jobs to employees laid off by struggling big firms, as smaller firms are more flexible and better able to respond to market conditions.

Small businesses currently account for less than 20 percent of Russia's gross domestic product, compared with Medvedev's target of at least 50 percent.

The Russian leader has said that the global downturn only amplified the need to modernize the economy and ease Russia's dependence on energy exports.

"I have met the Prosecutor-General and he gave me good news that the number of arbitrary inspections of small businesses is going down," he told officials in Zvenigorod.

"I decided to check this myself," he said after inspecting a bakery.

Red tape and corruption remain the single biggest headache for small firms. Medvedev earlier ordered the end of arbitrary inspections of small businesses by agencies such as firefighters, hygiene inspectors or police, which are often used as a means of extorting bribes from businessmen.

Medvedev, who is also stepping up a nationwide campaign against bribery, added that fees to officials from businessmen were another target of his efforts in helping small businesses.

"It looks like businessmen will soon have to pay every time a civil servant sneezes," he said.

(Writing by Oleg Shchedrov; Editing by Jon Boyle)