Vladimir Potapov

Russia’s president is addressing the Federal Assembly of the Russian Federation with the annual message

R

ussia has actually entered the regular election campaign: new members of the country’s Parliament will be elected in December 2003 and in March 2004 there will be an election of the next President. As the media unanimously notes, Vladimir Putin with his ratings steadily high is an obvious leader of the presidential races. "Stability is the major trump card of his election campaign", France’s Le Figaro noted recently. However, when delivering his annual message to the Federal Assembly, Russia’s President made significant corrections to this prediction.
"The President switched over from stabilization to the idea of making a big jump", commented many prominent political scientists after listening to his speech. The President defined doubling the country’s GDP in 10 years as one of the major goals of developing the national economy. In his words, "this is the system and large-scale task and it will require a thorough analysis as well as updating of existing approaches to the economic policy". And, in his opinion, this task "is quite realistic, though extremely difficult".
The guiding lines of the long-term economic strategy were set for the first time in Russia’s current history. The time limits of this strategy are extending beyond the term of one presidency. Vladimir Putin "is obviously unable to implement" himself the program that he announced in his message, thinks Gleb Pavlovsky, the head of the Effective Policy Foundation. It could be fulfilled only by Russia’s system of authorities and political community. So, the President gave start to debates on many questions and these debates are to involve not only members of the Parliament and political elite but the majority of the country’s population as well.
Thus, there is a question now of creating a Russian "economic miracle". In its more-than-a-thousand-year long history Russia experienced such miracles quite a few times. Suffice it to say that in 1913, the last year before World War 1, Russia’s Gross Domestic Product amounted to 10 % of the GDP of the U.S. But by 1920 after the Civil War was over, it equaled just 1 % of the American one. Some time later a sharp growth started.
At present, the U.S. GDP per capita exceeds $30,000, it is about $12,000 in Portugal and $7,000 in the Czech Republic. In the nearest 10 years these countries will raise their indicators by 20 % to 30 %. As for Russia, statistically speaking, the GDP share per capita so far amounts to just about $2,500. So, it will be very hard to catch up with others. But nothing is impossible in this life.
In the past 50 years "economic miracles" did happen in Germany and Italy, Japan and South Korea, Brazil and Mexico. This list also includes China and Taiwan. And everywhere the economic growth was stimulated not by high prices of oil. It was rather a result of competent economic policy.
In his message Russia’s President put forward his perception of the "competent economic policy": not to stir up inflation; to regulate control on tariffs and services of the so-called "infrastructural" monopolies, otherwise called "natural" in Russia; to liberalize foreign currency laws; to finally implement the administrative reform.
Being imbued by the complexity of the task that Putin set, vice president of the investment group "Russian Funds" Alexander Baranov thinks that in order to successfully accomplish this task it is also necessary to pay off Russian debts in advance: "It makes no sense to talk about an economic growth while having debts on your hands. However, it is also necessary to take care of raising the domestic purchasing power of the population".
Chairman of the State Duma’s budget committee Alexander Zhukov called the task of doubling the GDP in 10 years "quite feasible" and not even requiring "super-fast rates of economic growth": it would be sufficient to maintain rates of the GDP’s growth at 6 % to 7 % annually. The chairman of the budget committee reminded that in the first half of this year those rates amounted to 6 %.
Officials in the government circles, on the contrary, regard reaching the ambitious goal put forward by the President as a difficult matter. Deputy Minister of Economic Development and Trade Arkady Dvorkovich said that to this end the Russian economy should "grow by over 8 % a year... It is clear that in 2004 there will be no chance to increase rates of its growth that much because it means to raise them up to 9 % to 10 % before the year-end".
The forthcoming three years should just lay the foundation for accelerating the economic growth at the end of the decade. According to estimates by the Ministry of Economic Development and Trade, the average annual rates of the Russian economy’s growth between 2004 and 2006 will amount to 5.6 %. When the Ministry was making up its plans, it took into account the impact of the coming decisions on the tax reform, the reform of natural monopolies and development of individual economic sectors. Experts are putting their main hopes on the chemical and petrochemical industries, machine-building, food industry and production of construction materials. In their opinion, precisely these industries are to attract the needed volume of investments, which will allow to achieve a qualitatively new level of the economic growth.
The ever growing number of independent analysts are coming to a conclusion that the investment boom is not far off. They are referring to two arguments in support of such an opinion. As the latest data show, between January and April this year fixed capital investments increased 10.9 % and their growth continues. Besides, no longer do the domestic investors have any profitable sectors to put their moneys in, except the real one. Forecasters from the Ministry of Economic Development and Trade hold the same opinion: "There are practically no spheres left where Russian investors traditionally have made effective investments of their free financial funds (particularly, because of the decrease in profitability of ruble financial instruments). This creates the necessary prerequisites for investing in the real production as the only alternative". Experts believe that in the nearest three years rates of the investment growth will become "quite ambitious", in the order of 9 % annually, and precisely this will ensure the spurt of the GDP at the end of the decade.
The investment growth is actively pushed by the strengthening of ruble. This lets investors plan and secure their stable revenue. It has become more profitable to attract credits. However, the ruble strengthening is a double-edged weapon. While attracting investments, a strong currency is suppressing exports and promoting imports as the competitiveness of domestic goods in the home market is being weakened. As a result, the growth is slowing down.
In the first quarter of this year imports’ cost volume exceeded the last year level by 23.6 %. At the same time, imports’ physical volume grew up just by 6 %. This points to the increase in purchasing high-quality products that the domestic industry usually does not make.
So far the currency exchange rates are subject to the strict control by the Government and Central Bank. They will not let them grow by more than 3 % to 4 % a year. What is more, due to the rapid upsurge of euro with respect to the U.S. dollar, the growth of ruble before May 1 averaged just 2.7 %, although as regards the U.S. dollar its rate jumped up by as much as 8 %. By the way, Russian import shipments are mainly paid for in euros, not in dollars.
All plans to raise rates of the economic growth up to those, which the President set for the end of the decade, might fail, if foreign economic conditions sharply worsen. By estimates of the Ministry of Economic Development and Trade, currently, the quarter of the Russian economy depends on world oil prices. Calculations of the same experts show that with the oil price equaling $18.5 a barrel rates of the GDP’s growth are significantly lower than in case, when the price of oil amounts to $22 to $23.
Officials from the Ministry believe that the processing industries will be developing by priority rates due to the re-distribution and general reduction of the tax burden. In three years the timber, light and steel industries as well as such individual sectors of the engineering industry as the automotive and energy-equipment producing ones will become leaders. The Ministry does not mention the fuel-and-energy complex (FEC), which is usually assumed to be the basis of all the Russian economy. Experts explain it by the fact that the dynamics of its development depend not on the domestic but on the external consumption, which is growing rather slowly. The only possibility for the complex’ rise is to enter new sales markets, such as the Far East and Southeast Asia.
As Arkady Dvorkovich firmly believes, there is no need to try and maximize the growth rates in the nearest three years. The major task now is to implement structural reforms, which will subsequently give a push to a qualitatively different development of the economy. In the meantime, from his point of view, it would be better to set 2012 as a deadline, when the GDP should double as compared with 2003. Then, a Government, which will be in place instead of Mikhail Kasyanov’s Cabinet, will have less problems to accomplish the task.
The world is closely watching the development of the domestic situation in Russia. In its recent report "on results and prospects for development of the Russian economy" the World Bank also named among Russia’s major tasks such measures as the economy diversification, improvement of the investment climate and establishment of effective state machinery. However, recommendations of the World Bank are not limited to these. The Bank puts on the economic level problems, which are still interpreted in Russia as being purely social: regions’ inequality, the growing gap between the poor and the rich as well as between city-dwellers and countrymen. The report’s author Asad Allam warns: unsolved social problems are threatening the country’s further economic growth. As a whole, in the opinion of the World Bank, the economic situation in Russia now depends most on political decisions. As Allam puts it, Russia finds itself at the cross-roads: the country has to make up its mind whether to be content with the current rates and, as a result, with a moderate economic growth and limited reduction of the poverty level or to intensively implement reforms that would lead to raising both rates of the economic growth and the standard of living.
It seems that the President’s message perceived by many in the world as "Russia’s business plan" is showing the way that has been chosen. The economic spurt, which Vladimir Putin is now focusing the country on, not only opens up a possibility for political maneuvering at the threshold of the election and helps create a basis for keeping election promises. It also sets the course of actions by his successor. And it means quite a lot for such a country as Russia.