Facing Threat of Stagnation, Russia Promises Reforms
Russian authorities, increasingly concerned that the current recession will be followed by prolonged economic stagnation, are redoubling efforts to persuade investors that much-needed reforms will be pushed through.
The Saint Petersburg International Economic Forum which runs from Thursday to Saturday will be dominated by discussion of ways to breathe new life into the Russian economy.
The Kremlin will use the so-called "Russian Davos" to insist that the longest crisis of President Vladimir Putin's rule is winding down, but forecasts remain gloomy while the economy remains under Western sanctions.
Here are four key questions for Russia and its investors.
- Where is the economy now? -
A fall in the price of oil, which is a major source of revenue for the government, and Western sanctions over the Ukraine crisis led to Russia's GDP contracting by 3.7 percent last year and continuing to fall in early 2016.
The dismal start to the year made analysts fear the worst after the oil price fell further along with the ruble, but the last few weeks have brought more positive news.
The economy seems to have withstood the shock of January -- when oil prices hit a 12-year low and the ruble hit a record low against the dollar -- better than expected however, notably seeing an easing of inflation.
And oil prices have since more than doubled from their lows, which should make austerity measures less painful.
Russia is set for "imminent growth recovery," the central bank estimated last week.
- What is the scenario for economic recovery? -
In an opinion piece in early June, economy mister Alexei Ulyukayev wrote that Russia is experiencing "stagnation" and it is "almost impossible" to return to the spectacular growth rate of the boom times during Putin's first two terms, from 2000 to 2008.
For many years economic international organizations such as the International Monetary Fund (IMF) have warned Moscow of the risk of a slowdown due to its aging population and the disincentives to investment such as bureaucracy and corruption.
In late May, Putin himself summoned his Economic Council for the first time in two years and asked former finance minister Alexei Kudrin, who is respected by liberals, to give him suggestions for reforms ahead of the 2018 presidential elections.
Putin warned that without "structural reforms" growth will stay close to zero and there will be less room for maneuver on social and military spending.
- What are the proposed reforms? -
The reforms under discussion are close to the IMF recommendations; budgetary rigour to keep inflation under control as well as liberalization to tackle demographic challenges and to stimulate the private sector to make the economy less dependent on energy.
To encourage investment, the economy minister has proposed spending on infrastructure and measures to support exports. He wants to make the job market more flexible, particularly making it easier to lay off people and to increase the retirement age.
This last point is seen as particularly urgent by experts since the current system is a ticking bomb. The current retirement age -- 55 for women and 60 for men -- has not changed for over 80 years
Ex-minister Kudrin has also urged the authorities to put less pressure on businesses which have to submit to multiple checks by law enforcement agencies, breeding corruption and uncertainty.
- What is the chance of success? -
The adoption of major reforms will be slow due to the upcoming parliamentary elections in September and presidential polls in 2018, Kudrin said in a recent interview with the Russian edition of the Harvard Business Review.
The authorities "will pass them slowly because the electoral cycle reduces the radicalness of reforms," he said.
Another reason for skepticism is that oil prices are rising again, even though this is good news for Russia.
"Far from giving the government more comfort to implement unpopular reforms, higher oil prices will instead blunt their sense of urgency," political risk research firm Eurasia Group analysts said in a note.
The Kremlin's business ombudsman Boris Titov warned in turn that reforms are "impossible" without normalizing relations with the West, since "access to technology and financing is to a large extent barred" by the sanctions.
Source: Agence France Presse
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