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Wednesday, December 7, 2016

The Russian economy will offer three ways


From three scenarios of the Russian economy from the crisis will be addressed by President Putin. The main question is what to do today – to ensure long-term economic growth in the future. Compete program Kudrin, Ulyukayev and the so-called Stolypin club. How do they differ?

Scheduled for Wednesday, may 25, meeting of the Economic Council under the President of the Russian Federation is intended to be “brainstorming” for the authorities, but it is not planned to take a particular decision, said the press Secretary of the head of state, Dmitry Peskov. According to him, the experts will Express their opinions in the form of advice. “It’s such a brainstorming in order to subsequently, these expert points of view were taken into account by those who are directly responsible for the economic development of our country”, – said the representative of the Kremlin.

“This is brainstorming, so these expert points of view were taken into account by those responsible for the economic development of our country”

With their reports on how to make the Russian economy grow, by the Minister of economic development Alexei Ulyukayev, former Finance Minister and now Deputy Chairman of the Economic Council under the President Alexei Kudrin. And finally, the President will hear the reports of the business Ombudsman Boris Titov, his Advisor Sergei Glazyev and other economists of the Stolypin club. Thus, Putin will be offered three plans to stimulate growth in the Russian economy.

Plan Ulyukayev

The Minister of economic development Alexei Ulyukayev believes that the downturn in the Russian economy has largely been completed, and close the lower point of this fall. Overall, the economy is stagnating, but “in some moments we are already seeing signs of recovery, which will continue in the medium term”, according to the documents the MAYOR. If in the first quarter of 2016, the GDP fell by 1.2% on year, the decline will be reduced to 0.2% of GDP, said the Agency (if the price of Urals crude oil $ 40).

The Agency States that Russia will not be able to return to previous growth rates of 5-7% per year, even if oil prices exceed $ 50 per barrel. “This is due to deep structural changes in the world economy”, – stated in the materials of economic development, prepared for the meeting of the Economic Council under the President of the Russian Federation, reports TASS.

“Potential growth is now at 2%, and in the next couple of years we will return to this trajectory. However, these rates for the Russian economy are unacceptable, as are the reduction of our stake in the global economy, loss of competitiveness, the fall in the standard of living of the population relative to most countries,” the document reads.

However, Russia could double the potential growth (i.e. to reach 4%). This can be achieved through more intensive use of labor resources, the accumulation of investment and increased productivity of these factors.

Most importantly, Russia must provide the investment growth of 7-8% per year in the coming years while maintaining the stagnation of current consumption. This can be achieved due to active investment policy, which is based on the “three pillars”: the creation and maintenance of investment resources, creating conditions for the transformation of savings into investment, to stimulate investment activity through the mechanisms of state support.

In particular, the MAYOR proposes to change the current support release and employment of individual businesses and industries to support export of products and support companies that are leaders in terms of export growth.

Of course, government investment should be directed to the infrastructure created via budget funds at different levels of government. Also, the MAYOR proposes to make a flexible labour market, and on the other hand, to reduce the costs of the state for regulation of business of several hundred billion rubles a year. It concerns including tariff regulation of state monopolies, reduction of administrative load on business, pressure from law enforcement. Plus it is necessary to ensure the stability of tax policy and the size of the required payments.

Each economy has its own specifics. For China, for example, GDP growth of 6% is the level below which you cannot fall. The Russian economy showed relative stability, even if the decline in GDP for last year to 3.7%, says Natalia Milchakova, Deputy Director of the analytical Department of “Alpari”.

In her opinion, Russia could reach annual growth of 4% and even go back to a higher rate of GDP growth of 5-6% per year. Another thing is that the engine of this growth will be not more intensive use of labor resources, suggesting a hard staff reduction and, consequently, reduced consumer demand, and most other factors. For example, the growth in consumer demand and investment growth, and it depends on stable, predictable exchange rate of the national currency and flexible monetary policy, said Milchakova. So says, for example, and the world Bank.

The main disadvantage of the “plan of speaker” is the simplification of procedures of dismissal of workers by the employer. However, it is unclear why the MAYOR wants growth and reduce unemployment. “Apparently, the experience of modern France, which does not stop the protests against the anti-people reforms in the labour laws, anything our economic development is not taught. Also judging by the recent absurd proposal to freeze wages for a few years, which the MAYOR then they themselves disowned, the Agency is not able to learn the lessons of history,” said Milchakova. In her opinion, would be better if the speaker had reduced the staff in his own Department.

Plan Kudrin

Deputy Chairman of the Economic Council under the President Alexei Kudrin said that the economy will remain “at the bottom” if the Russian authorities will carry out structural reforms.

“It seems to me that our economy is now a specific determination is not enough. We delay important reforms. This will be the reason and postpone the start of economic growth,” said Kudrin in interview to TV program “Vesti on Saturday”.

Unlike the speaker, which relies on government investment to stimulate the economy, Kudrin offers to the Russian companies to actively invest in the economy. “Today, in the accounts of enterprises available resources were formed in the amount of the annual volume of investments that each year Russia carries. That is free money is, they are even cheaper than Bank loans, because it is companies ‘ own funds. But they are not invested,” – said the former Minister of Finance.

But how do you get business to spend their money for the benefit of the whole country? This requires structural reforms. Kudrin’s position, essentially, is this: better a few years to be patient, to be content with little growth, but spend gosdengi on structural reforms. As a result of these reforms, the Russian economy will change and will begin to show high growth rates.

If we go the way Ulyukayev, said Kudrin, in one or two years, the Russian economy will revive, but it will be only inflating the bubble. As soon as the state will run out of money to stimulate investment collapses and growth.

Kudrin’s plan seem sensible. However, he confined solely under macroeconomic performance, while the needs and problems of ordinary people relegated to the background.

“Kudrin does not go to the absurd to what sunk the Ministry of economic development. But “the Kudrin plan” catches the eye with its anti-people,” – said Milchakova. The former Minister of Finance no offers to stimulate consumer demand and investment growth in the real sector. “Instead, it is proposed to return to the dead and nearly decomposed Gaidar’s model of “balanced budget”, but in even more disgusting version of it. In the early ‘ 90s the goal was at least a balanced budget, and now the goal is a deficit of 1% of GDP. So, if to believe to forecasts Kudrin, now Russia’s economy is in even worse shape than in the 90-ies,” – said the interlocutor of the newspaper VIEW.

As for business, that he began to invest their money in development and need a predictable exchange rate. In addition, it is necessary to reduce the discount rate, to abandon the VAT increase and, finally, to limit the growth of tariffs of natural monopolies, said Milchakova.

The third way

There is another path of development offered by the adviser of the President Sergey Glazyev, the business Ombudsman Boris Titov and other economists of the Stolypin club. They have a ready and well-known program “Economics of growth”.

The eyes and Titov, as MAYOR, advocate for the promotion of economic growth through investment growth. However, they propose to use for this purpose not just the accumulated state reserves. They want the Bank of Russia held a trust issue and invested in the corporate sector. It is necessary “to ensure investment of no less than 1.5 trillion rubles a year to support investment growth by financing development institutions and refinancing the commercial banks, including in the framework of the development of project Finance, said in the program.

Nothing wrong with the additional issue not if she controlled, said Titov. While the target emission will allow to profit from each invested rouble. He explains that, in fact, the issue is constantly due to the fact that the Bank of Russia renders support to the banking sector in the trillions of rubles. But no big impact on the economy, it does not have, he said.

Also plan “Stolypin club” means the stimulation of production at the expense of soft monetary policy and the introduction of compulsory sale of foreign currency earnings by enterprises. “In 90-e years under Primakov it worked, and thus contributing positively to the reduction of inflation and production growth,” – recalls Milchakova.

However, this plan has many risks, so it is criticized by liberal economists. It is clear that the main danger from the additional issue – hyperinflation. More stringent exchange control exporters may stop the rapid development of export. In fact, this path means isolating Russia from the world community on its own initiative, the development of domestic resources. Moreover, the West and so cut economic and financial ties with Russia. Under this plan, it is not necessary to sit and wait until things return to normal, and you should build a new economy without such heavy reliance on the West.

Most likely, the President will not be to choose none of the ways of Russia’s development. More likely a symbiosis of different approaches and elaboration on their basis of a new plan.

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