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Friday, February 23, 2018

Kudrin has decided to reduce the budget deficit: Putin offer to play roulette

He waited, and he returned, quite unchanged for a long period of absence. We are talking about the former Vice premiere of the Russian government, and now Chairman of the Center for strategic development Alexey Kudrin. May 25 will be a meeting of the Presidium of the economic Council under the President of Russia, where he will present his plan for the withdrawal of the Russian economy from the crisis. However, will this breakthrough strategy — the big question.

photo: Alexander Astafyev

The essence of the so-called “Kudrin’s plan” is that the money the state sorely lacking. This is for anybody not a secret. According to official data, the budget deficit threatens to be about 3% of GDP in 2016 (2.8 trillion rubles). But maybe even more. By the end of April this figure had grown to 8.6% of GDP.

If no money, then you should forget about economic growth and inflation below the current levels, and to engage in budget consolidation, i.e. a reduction of the budget deficit to below 1% of GDP.

According to Kudrin, it is safer to treat the decline in production and to reduce the budget deficit, in a few years to reach the level of growth in the 1% of GDP. While this emergency measure is institutional reform, i.e. the reform of the judicial and law enforcement system.

However, there is no doubt that “the plan Kudrin” does not yet have the concept or strategy of economic development. It is more like a set of emergency measures contradict each other. If you have no money, due to what carry out institutional reform? It is also a cost. However, unclear sources of deficit reduction. It is always tax increases or spending cuts. Sometimes both at the same time. Before the election, raising taxes is unacceptable. From which it follows that a significant part of Kudrin’s plan will remain on paper.

After the election the question of raising taxes, including income tax, could theoretically be considered, but the problem is that it’s not so much achieving formal indicators of a low deficit, but in the maintenance of an equitable system of income distribution. This is just the plan Kudrin” is missing. Certain sensible ideas in it, but not the main thing — the welfare of society and people’s living standards.

An alternative concept is the plan, the main idea is that using monetary policy is expected to stimulate economic growth. For example, due to the inexpensive loans. This plan is aimed more at improving the welfare of society, rather than achieving any cost of certain targets in the economy. The issue is that the Central Bank, which is legally independent institution and is not yet ready to lower interest rates.

Natalia Milchakova, Deputy Director of the analytical Department Alpari

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