Tatyana Chaplygina

Enough time to secure a stable development of the Russian economy has passed since the crisis of 1998. But something is still hampering it. Of course, it might seem that planned reforms are being carried out. Western observers are satisfied with results predicting a good future for Russia. But president of the Russian Federation Vladimir Putin is not content with the government’s mid-term plans. He thinks that its script of economic developments in 2003 and in the period till 2005 does not contribute to solving the strategic problem, that is to reduce the gap between Russia and leaders of the world economy. According to the pessimistic scenario, the Russian GDP will increase by 3.2% in 2002, by 3.8% in 2003 and by 4% in 2004. Under the optimistic one the GDP increments will amount to 3.7%, 4% and 4.6% accordingly. The president is advising the Cabinet "to work out more ambitious plans". Does Russia have any grounds for ambitions?

    The consistency of the government’s economic policy is becoming clearer now. The private capital has consolidated its positions in the real and financial sectors. In the coming years it will become state authorities’ stronghold in the economy. The time has come to support small and medium-sized businesses; exactly these enterprises will help reduce unemployment. Russia’s strategic aim is to start participating in the international division of labor, to get its own niche on international markets and become an integral part of the world economy. The priorities of the state’s industrial policy are: to redirect enterprises so as to make them produce commodities, which would replace the imported ones, and "export products with high value added", i.e. not raw materials.
Last year the hottest topic was negotiations on Russia’s entry into the World Trade Organization (WTO). Many businessmen and independent experts were discussing possibilities of multibillion-dollar losses, crash of the financial market and crises of the processing industry. The arguments did not convince the government. It still intends to finish the job. As prime minister and minister of finance Alexei Kudrin said, Russia would join the WTO in 1.5-2 years. Basic agreements could be reached by the end of 2002 or by the beginning of 2003. For the time being negotiators keep promising "to find the proper balance between the need to protect our interests and a possibility of entering the world market".
Basically the West is welcoming Russia’s desire to join the WTO. In the opinion of former first deputy administrative director of the IMF Stanley Fisher, "when a country joins the WTO, it makes its trade system more disciplined and, besides, agreement to liberalize trade are very helpful for the economy as a whole". What is more, "terms of the WTO entry will become a very important legal agreement, which will provide guarantees to any investor in Russia, both foreign and domestic". Fisher believes that Russia will be admitted to this organization even sooner than China.
For Russian companies the prospect of becoming an equal participant in the international trade depends not only on the country’s membership in the WTO. As adviser to the RF president Andrei Illarionov explains, some countries have legal provisions, under which Russia’s economy is not recognized as the market one. The U.S. is among them. Currently the U.S. commerce department is holding hearings on this question. The procedure is expected to take 9 months.
Eugeny Yasin, a well-known economist, commenting on U.S. decision to impose quotas on imported steel and Russia’s threat to ban imports of U.S. chicken drumsticks, said: "The United States needs to restrict imports of Russian steel and, therefore, they will be trying to prove that we have a nonmarket economy. But they will provide us with the market economy status because we let their chickens back". The RF government also hopes for this positive outcome, which will remove some complications from the foreign trade. As Russian deputy minister of economic development and trade Maxim Medvedkov puts it, the market economy status will allow Russian commodity producers to reconsider a number of antidumping procedures on metals, fertilizers and other commodities.
Let’s assume that Russia has settled problems connected to getting the market status and the WTO entry. What is next? The economy should be modernized. Only renewing basic production assets, providing new commodities and services will allow the country to "win new markets", Yasin says. Unfortunately, signs of this process are now visible only in the oil, metallurgical and food industries. Others are lagging behind. There is no doubt that reforms precede modernization, the economist points out. And thanks to reforms appropriate institutions are established and conditions for private initiatives are formed, he adds.
So, what reforms are being carried out in Russia at present?
Completing the reform of the banking system and financial markets remains the main task. In the opinion of Russian minister of economics Herman Gref, "this sphere does not require any revolutionary standard-setting actions". In the coming years reform in the area of expenditures on public account should be undertaken because the share of the state sector is still too large. As far as the fate of natural monopolies are concerned, "all basic decisions and plans of actions to reform them have already been approved by the government", which is about to begin implementing them.
The tax reform will go on covering small businesses as well since, as minister Herman Gref says, "the existing system of taxation suits no one". In April the government approved draft laws designed to introduce the simplified taxation system for small businesses. By its estimates, innovations will allow to reduce taxes for small businesses by 2 to 4 times.
The current state of the economy is a barometer of the government’s achievements. Judging by the Cabinet’s estimates, things are going well. In the first quarter of 2002 the budget has been fully implemented. The GDP growth amounted to over 3% against the same period last year, the federal budget’s revenues exceeded expenditures by 2.8% of the GDP. By the yearend the GDP increment is expected to amount to 3.5-4.2%, there is a chance that inflation rates will remain at the forecasted level of 12 to14%. In the opinion of deputy chairman of the Central bank Tatyana Paramonova, the ruble, Russia’s national currency, will get stronger in real terms regardless of its nominal devaluation.
However, the government’s critics regard rates of the economic growth as insufficient. The president’s adviser Andrei Illarionov reminds that rates of the economic growth were planned to double. Stanley Fisher thinks that as far as the standard of living is concerned, Russia can catch up with countries of Western Europe only if it secures the GDP annual growth of no less than 6% to 8% and maintains these high rates in the future. "Rates of economic growth predicted by the government are sufficient for preserving Russia’s share of the world economy but a higher growth is needed for increasing this share", says Alexander Shokhin, the former vice prime minister and currently the parliament’s deputy and president of the High school of economics.
Listing problems, which negatively affect the current state of the Russian economy, the World Bank points to its dependence on extractive industries, unfavorable climate for creating new enterprises and especially the small business ones, narrow scope of capital application and weakness of the financial system, which result in insufficient capital inflows. In the World Bank’s opinion, the main reason for the economic growth being limited is low productivity and competitiveness of industrial enterprises. Russia’s Central bank bosses agree with this point of view. As Tatyana Paramonova sees it, the government should take appropriate measures to strengthen the national currency on the basis of macroeconomic factors, such as raising labor productivity and growth of GDP, but not on the basis of the opportunistic ones connected to world prices of oil. Some observers believe that the economy’s participants are just biding their time in anticipation of further actions on the part of state authorities.