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Wednesday, December 7, 2016

Glazyev accused the Finance Ministry is “insanity”


Advisor to the President of Russia Sergey Glazyev called the Finance Ministry’s proposals to freeze Federal spending for the next three years “absolutely insane measure”, which drives the country’s economy in the so-called “stagflation trap” (it is a combination of at least two adverse factors: rising prices and falling production. — “MK”). About it the economist said, speaking at the forum “Strong Russia-2016”. The opinions of the experts interviewed by “MK” divided. However, the Ministry of Finance supports the majority.


photo: Natalia Gubernatorova

On 4 July, Prime Minister Dmitry Medvedev held with members of the Cabinet Commission for budget projections, which Finance Minister Anton Siluanov proposed to fix the spending budget in years 2017-2019 level 15,78 trillion per year, which, by the way, even less approved for current year spending. Even if we take into account the official forecast of inflation is obtained three years in real terms, budget spending will be reduced by 20%.

Presented by the Ministry of Finance estimates, the Federal budget deficit in 2016 will still exceed 3% of GDP. However, freeze will reduce this figure over the three years up to one percent. The officials assured that the funding of pensions, debt service, all will not touch it.

July 7, freezing will consider at session of the government. The conceptual solution is likely to be positive. This was confirmed by the Kremlin — told the press Secretary of the President Dmitry Peskov and the Minister of economic development Alexei Ulyukayev. At least psychologically more comfortable to freeze than cut to the quick.

However, according to Sergei Glazyev, in a crisis, the adoption of such measures not only lead to a reduction in real costs, but will also exacerbate falling demand. “I wonder why in all the countries measures are taken to stimulate economic growth, and we have, on the contrary, for a long time have a policy on prevention”, asked himself on the forum “Strong Russia-2016” adviser to Putin.

Experts of “MK”

Ruslan Grinberg, head of the research Institute of economy, RAS:

— Freeze Federal spending is counterproductive. It gives little stability and certainly inhibits the development. To Finance the deficit, we have enough opportunities to expand the debt space by increasing internal and external borrowing. Recall the recent success of Eurobonds.

I think that the main imperative today is to revitalize the economy and transition to a sustainable growth path, which is impossible without massive state investment. In times of sluggish investment and consumer demand to freeze spending is harming the economy and citizens.

Nikita Maslennikov, a senior expert of the Institute of contemporary development:

— In the current environment freezing nominal spending — is the inevitable solution. On the one hand, it contains risks, with another — promising. So, the Finance Ministry’s proposals may be one of the options medium-term programme of fiscal consolidation, easing of fiscal policy, lowering the key rate. Plus new budget planning optimizes the state of spending within a software articles. In particular, the assumed reduction of cost in 36 state programs.

The biggest risk is a decrease in the volume of state investments and subsidies. However, as I said, in this case, the stimulation of economic growth will occur by increasing the efficiency of budget expenditures and their reallocation to the financing of human capital development.

Grichenkov Alexander, expert-analyst of MFX Broker:

— Freezing cost — of course, a necessary step, but it allows Russia to maintain the stability of public finances and to continue the path of inflation reduction. And low inflation will lead to lower interest rates in the banking system that will finally allow businesses and consumers to borrow at low interest rates, to open and expand a business, buy a mortgage homes, borrow from other banks consumer loans on very soft by Russian standards conditions. This is the Foundation of macroeconomic stability, which can rely on national economy to exit the crisis and resume sustainable growth.

Rising prices and a falling ruble. Chronicle of events

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