Strategy-2020 experts finalize researches into painless transformation of Russia
Issue:
May 2012, Vol.7, No.5
Tags:
Strategy-2020
By all indications, the far-reaching recommendations proposed by the nation’s experts engaged in searching for solutions to the pressing social and economic problems facing Russia within the framework of the Strategy-2020 are to be implemented during the third term of President-elect Vladimir Putin. The proposals comprise lots of new ideas on how to transform Russia in general, and its business climate and investment landscape in particular. In March, the Strategy-2020 experts presented the preliminary results of their numerous brainstorming sessions accompanied by a series of road-show events aimed at informing the general public about the upcoming full report of their vision and recommendations for moving Russia forward.
In a nutshell, most of the experts’ recommendations are aimed at creating different workgroups at various levels to study in detail the urgent problems and challenges facing Russia and find effective ways for solving them. All branches of the government are to be involved in all of these processes working in close contact with the expert community.
As a part of these roadshows, the experts met with the professors and students from the Russian Presidential Academy of National Economics and Public Administration (RANEPA), a major academic center in the country, and organized a press conference at RIA Novosti to highlight their recommended measures for improving the situations in the nation’s economy and society in general.
For example, one of the suggested measures envisages the creation of a National Investments Council under the auspices of the Cabinet of Ministers that will oversee, amongst others, the appraisal of the Russian legislation in the field of entrepreneurship from the point of view of its effect on investors’ activities, market institutions and economic freedom. It will also oversee in the development of measures aimed at improving the investment climate, attracting foreign capital and solving typical corporate conflicts via civilized means, as being done in more economically developed and more democratically advanced countries.
“In March, the Strategy-2020 experts presented the preliminary results of their numerous brainstorming sessions accompanied by a series of road-show events aimed at acquainting the public of their vision of Russia’s future.”
Another recommendation calls for the creation of a Special Financial Stability Council under the Russian Central Bank to carry out strategic monitoring of possible economic situations on the domestic and foreign markets, develop and implement timely measures, including the so-called macro- and micro-prudential regulations of the economy in general, and its financial system in particular. The ‘micro-prudential approach’ means regulation by setting a number of qualification requirements for players on the nation’s capital markets and oversight regulations for its financial institutions.
In other words, micro-prudential approach is aimed at handling the reactions of individual banks and other financial mediators to exogenic risks. In this regard, the macro-prudential approach is equally important. The state regulator uses it to minimize risks originating from external factors. Therefore, these two approaches must be combined as they complement each other, compensating one another’s weaknesses, while amplifying their positive synergies. For example, the micro-prudential approach, according to its definition, cannot ensure the stability of an entire system as the activities of financial mediators often generate external factors, which in their aggregation can lead to a crisis in such system. The use of the macro-prudential approach is required to avoid this.
All these measures are aimed directly at preventing the so-called overheating and bubbles in the Russian economy as well as studying the accumulation of unjustified risks in large and systematic financial institutions, regardless of the types of their activities both in and outside Russia.
The Russian economy is actually exposed to all sorts of destructive changes in foreign economies because of its lopsided dependence on hydrocarbons in particular, and natural commodity resources in general. This is particularly true of countries that are importers of Russian energy and natural raw materials. Any significant fall demand for such goods in these countries always poses serious challenges for the Russian economy.
Among other fiscal initiatives proposed by the Strategy-2020 experts is the call for the differentiation of the mining tax with regard to natural gas and make it directly dependent on its internal prices and conditions of gas production. There are other standard and non-standard proposals aimed at rational optimization of the Russian legislation in the field of taxation, notably for legal corporate entities.
RANEPA provost Vladimir Mau noted that Strategy-2020 should not be confused with the official programs being developed by the president-elect as the experts’ proposals are recommendatory, rather than obligatory for the government. “We have been discussing separte chapters of the Strategy-2020 with the Russian president and prime minister on a weekly basis.”The Strategy-2020 authors specifically noted that they have certain disagreements with authorities on some key issues, notably, the pension reform. However, the experts expect the Russian president and prime minister to support the key proposals, despite such disagreements. “The pension reform is the key stumbling block, where the positions of the experts and authorities differ. We think Russia cannot achieve any macroeconomic stability in the nearest future without taking more radical measures to cut the budgetary allocations to the national pension fund,” Yaroslav Kuzminov, the provost of the Higher School of Economics, said. “The president-elect said he supports the ‘mild’ reform scenario, which, amongst others, does not envisage any increase in the current retirement age. As for the macroeconomic policies, there are no differences between the experts and policy statements in Putin’s articles.”
Kuzminov said the national leaders have yet to fully respond to some of the experts’ initiatives, citing as an example the proposal to increase the volume of investments into transport infrastructure by about 700bln-800bln rubles per year. “We expect to have several meetings coming months to discuss the various sections of the Strategy-2020 programs.”
Other experts highlighted the urgency to reform the entire pension system as well as the need for an inevitable increase of the retirement age; noting at the same time that both measures are only palliative as they can only partially solve the old perennial deficit pension problems in the country. Specifically, Yevgeny Yasin, a research supervisor at the Higher School of Economics, noted that both measures can only reduce the current deficit in the Russian Pension Fund by less than 30%. “The pension reform is one of the issues concerning the reforms of the Russian economy, where the Strategy-2020 experts and the government have so far failed to reach a common ground,” he added. “However, we must solve this problem. We have about 15 years in reserve to do this, after this deadline, the problem will become insolvable.”
RANEPA’s Mau noted that Russia is currently at the critical stage of its demographic crisis, a phase characterized by a prolonged reduction in the number of able-bodied members in a population for two years. “This sets very serious challenges for the Russian government not only in pension reform, but also in the economy and society in general, as solutions to these challenges will require technological upgrade of the entire economy to boost labor efficiency in the country.” He also emphasized the need for the population to support the suggested reforms, rather than the authorities. “There must be demand for these reforms and policy from the citizens. The economic situation will make us solve these current problems.”
Lev Jacobson, the first deputy provost of the Higher School of Economics, shared a similar opinion. “In addition to the economic factors, it is also necessary to take into consideration the political restrictions as well as the social and cultural factors for the reforms to have the desired results. This is very important, especially today, when the population’s literacy and rationality have increased, and this means that the citizens are fully ready to understand the necessity and the painful measures demanded by radical reforms.”
Sergey Drobyshevsky, head of the Macroeconomy and Finances Department at the Gaidar Institute for Economic Policy, called the unfavorable business climate, high dependence of the Russian economy on the global market and ‘development gaps’, which mean “the impossibility to take simple industrialization decisions from scratch, like it is done in other countries lagging behind Russia in terms of economic development” among the principal medium-term challenges facing Russia today. “We have so much natural resources that their share in the national economy will always be substantial, regardless of the scenarios of the adopted reforms.”
“Our activities as a part of Strategy-2020 team are aimed at using our nation’s strategic resources to achieve the state goal of making Russia one of the global leaders in all spheres of human endeavors in this century.”
Highlighting his recommendations for the Russian government, Drobyshevsky called on the state economists to reduce business risks, improve the business climate, stimulate savings, increase investment into human capital and embark on the redirection of the economy to external demand. “We can achieve these goals by solving the three major problems in the macro-economic policy of Russia, namely, stabilization of budgetary expenditures, achievement of stability of the fiscal system and promotion of the development of banks and other financial institutions in the country.”
Alexei Moiseyev, the director of the Macroeconomic Analysis Department at VTB Capital Asset Management, viewed the recommended reforms through the prism of the new architecture of the post-crisis global economic order. The expert called idea that developing countries will pull the world out of the global recession an absolutely wrong misconception. “The total GDP of all these emerging countries is less than the annual debt of the Top 10 economies of the world. For example, the U.S. budget deficit is comparable in size to the annual GDP of the entire Russian economy.”
In relation to this, the expert forecasts that an imminent end to the so-called super-cycle of high oil prices. “This is why the plans set out in Strategy 2020 must be implemented prior to this deadline if the strategists want them to be effective. “Our activities as a part of Strategy-2020 team are aimed at using our nation’s strategic resources to achieve the state goal of making Russia one of the global leaders in all spheres of human endeavors in this century.”
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