Russia's Medvedev unveils anti-corruption steps

MOSCOW (Reuters) - Russian president-elect Dmitry Medvedev ordered anti-corruption steps to protect small businesses on Thursday, a first sign he is serious about fighting the endemic graft economists say is hampering growth.

Arbitrary inspections by officials -- from firemen to the police -- are often an excuse to extort bribes from small firms and must halt, Medvedev told a State Council meeting in Tobolsk.

"This proposal might leave some officials from the fire, sanitary services and police ... close to a heart attack, because this is what they make money on -- both officially and illegally," Medvedev told the Kremlin's advisory State Council.

"The proposal sounds as following: controlling bodies should be barred from entering small enterprises," he added.

"They can only enter if there is an appropriate instruction from a court or prosecutor."

Medvedev also ordered the government to review legislation to protect small companies from being forced to enter dubious contracts with officials.

"It is clear this is a legalized bribe, which was formerly passed on in an envelope and now dressed up in a perfectly respectable form," he said.

Medvedev, who will take over from president Vladimir Putin on May 7, has declared corruption a key threat to his country's modernization and social stability.

Firms employing less than 100 people account for 15 percent of Russia's gross domestic product. The government wants to increase that share by at least 50 percent as a way to diversify an economy currently over-dependent on the energy sector.

Kremlin leaders also believe that Russia's future political stability should be supported by a new middle class, formed to a large extent by people running small businesses.

But businessmen complain that the development of small companies is hampered by high taxes, corruption and red tape.

HOPES

It was not immediately clear whether Medvedev's proposals would have any impact on corrupt officials, who have survived periodic campaigns of successive leaders, including Putin.

Putin is credited at home with forging radical economic reforms at the start of his rule which helped achieve eight years of growth after a decade of post-Soviet decline.

Medvedev has said his job is to ensure "decades of economic stability" for Russia. Most analysts expect his presidency to be marked by economic fine-tuning, rather than bold reforms.

Rory MacFarquhar, Executive Director of Goldman Sachs, said Medvedev's announcement confirmed that "on the margin, relative to the current policy framework, (he) is somewhat more liberal.

"But there is no sense that there's going to be some big push ... This is exactly the kind of incremental improvement that it is right to expect."

(Additional reporting by Christian Lowe)