Russian Economy General News: #1

MOSCOW, January 29 (RIA Novosti) – Russia’s Oil Wealth Fund will be totally consumed if world oil prices plunge to $60 per barrel and stay at that level for a year, experts from the Russian School of Economics (VSE) said on Tuesday.

That scenario presents “a shock not only for the budget system but also for the economy as a whole,” experts from the Higher School of Economics' Development Center said in their stress-test survey.

The stark warning echoes the Precarious Stability scenario outlined by former Russian Finance Minister Kudrin at the World Economic Forum at Davos last week, which predicted an oil price plunge to $60 per barrel, forcing the Russian government to preserve social stability at the expense of economic development.

Last week's Davos forum was presented with three broadly pessimistic scenarios for Russia’s economic development, based on a poll of over 350 Russian and foreign economists and decision-makers who warned that the Russian economy remained acutely vulnerable to world energy prices and could become more risky for investment.

World prices for benchmark Brent crude have been hovering at about $110 per barrel in recent months, a level Prime Minister Dmitry Medvedev said was optimal for both oil consumers and producers.

Kudrin warned on Monday that the eurozone sovereign debt crisis was continuing and the global crisis could worsen as soon as the end of this year, which would certainly cause a plunge in demand for oil and hence oil prices. That could undermine the Russian economy, which continues to depend heavily on raw material exports.

The Russian 2013 budget is based on an oil price of $97 per barrel.

Aside from Oil Wealth Fund depletion, “Russia’s GDP would contract by 5.9 percent compared with 2012 while budget revenues [would fall] by 3 trillion rubles ($100 billion) or 23 percent,” the VSE Development Center survey said.

“The budget deficit would widen to 3.5 trillion rubles (6.4 percent of GDP) and the ruble’s average yearly rate would fall to 35.5 rubles to the dollar in 2013.”

The ruble is currently trading at about 30 rubles to the dollar. Russia’s Oil Wealth Fund totaled 1.886 trillion rubles ($63 billion) at the start of 2013.

This scenario “is not the most probable” one, considering current world economic developments, the survey said, however.

The Development Center experts were also pessimistic about Russia’s economic performance in 2012, saying the macroeconomic data were increasingly reminiscent of the stagnation period in the Soviet economy thirty years ago.

“The most important sectors of the economy slowed their growth from the very start of the previous year, which was related both to the deterioration in external economic conditions and the pessimism of businesses over the prospects of domestic demand and the expediency of investment in development,” the survey said.

Viktor wrote:Kudrin sounds like a one of apocalypse horseman.

I hope Russia will do better this year specially with industry sector.

The Russian economy will grow steadily until 2030 but at a rate of no more than 4 percent a year, according to a long-term forecast of socioeconomic development up to 2030 presented by the Ministry of Economic Development on Wednesday, January 30.

It said such growth could be possible under an innovation scenario, according to which the growth will be stable and will decrease from 4 percent (before 2015) to 3.8 percent by 2026-2030, while investments will go down gradually from 7.3 percent to 4.8 percent by 2025-2030.

The scenario calls for a greater role of investment in generating economic growth and strengthening Russia’s positions in the world economy. It is based on the creation of modern transport infrastructure and a competitive sector of high-tech production and knowledge economy along with modernisation of the energy and resource sectors.

According to the scenario, innovations will have to be turned into a leading source of economic growth and increasing the efficiency of human resources in 2020-2022 in order to improve social parameters of development.

Private and public expenditures in the field of healthcare will grow from 4.6 percent of GDP in 2020 to 7.1 percent of GDP in 2030, in education from 5.2 percent to 7 percent of GDP, respectively.

The average annual rate of economic growth in Russia is projected at 4.1 percent in 2013-2030, excluding possible global economic crises.

The scenario is based on a moderate growth of prices of oil and other mineral resources of about 1 percent in real terms in 2016-2018. The price of Urals blend will be 116 U.S. dollars per barrel in 2020 and 164 U.S. dollars in 2030. In 2013-2030, oil will cost 90-110 U.S. dollars per barrel in real terms in prices of 2010.

The price of natural gas exported to foreign countries is projected at 340 U.S. dollars per 1,000 cubic metres in real terms, which is higher than in 2010-2011.

The Russian economy will be able to reach and exceed the growth rate of 5 percent declared by Prime Minister Dmitry Medvedev only after 2016, provided Russia chooses an accelerated development scenario and softens the budget rule.

This scenario calls for implementing the tasks set by the president in his decrees in May 2012 to create and upgrade 25 million highly productive jobs by 2020, increase investments by at least 25 percent of GDP by 2015 and to 27 percent by 2018, increase the share of high-tech products made in high-tech and science-intensive sectors 1.3 times by 2018, boost labour productivity 1.5 times and raise real wages 1.6-1.7 times by 2018.

The average annual GDP growth rate under this scenario should increase to 5.4 percent and Russia’s share in the world economy will grow to 5.3 percent by 2030.

The ministry also prepared a conservative scenario with a moderate growth rate of no more than 3.2 percent based on intensive modernisation of the fuel and energy and resource sectors, with a relative delay in civilian high-tech and medium-tech sector.Under this scenario, the economy will decline from 3.7 percent a year until 2015 to 2.5 percent by 2026-2030, while investments from 7 percent to 3.6 percent, respectively.

The Russian economy will only double by 2030 while the share of real disposable income of the population in the global GDP will decrease from 3.8 percent in 2012 to 3.6 percent in 2030.

The ministry believes that by 2030 Russia will reach a level of economic development that matches that of a leading world power of the 21st century. By that time, the Russian economy will come close to the front edge of global technological development and the quality of life in Russia will exceed the average level in OECD countries.

These results will be achieved by creating a globally competitive institutional environment that stimulates entrepreneurial activities and by attracting capital into the economy.

This will require Russia to improve the business environment and investment climate, improve public governance in the economy, create an international financial centre that will provide the private sector with necessary resources, and form the Eurasian Economic Union in the post-Soviet region.

By 2030, the public sector will shrink considerably in the economy, the majority of state-owned corporations will be liquidated, and state property will be privatised.

Vedomosti reports that Sergey Glaziev, the economic mastermind behind the Eurasian Union, sent an official report to Kremlin, stating the necessity of a radical revamp of Russia’s economic policy in the wake of the second wave of global economic crisis. “Unknown sources” have provided the media with the contents of this highly controversial document, igniting a fierce debate in the press and blogosphere.

Glaziev’s report features apocalyptic predictions in regard to the state of the world economy but the most interesting part of the text refers to the so-called “currency wars”. Basically, one of the most influential advisors of the Russian president accuses both the US and EU of “legalized aggression” through unbridled monetary emission. Vedomosti cites several fragments from the report, “As a key point of their anti-crisis policy, they are refinancing their banks using negative real interest rates” and meanwhile “1.5 trillion dollars, 1.2 trillion euros and comparable amounts of yen and pounds are used to finance debt pyramids and acquire real assets across the world”. Western banks are accused of blocking their debtors in “debt traps”, with the ultimate goal of “obtaining political control” and “seizing the real assets” of the debtors.

Sergey Glaziev considers that such a policy is actually a form of legalized aggression and that the world is in a state of financial war. According to the conclusions of this report Russia “cannot win this war” without some major changes in its own economic strategy. Vedomosti reports that Vladimir Putin assembled a crack team of experts from Russian Academy of Science with a mission to create a brand new economic policy. Glaziev is reported to be the team’s liaison in the president’s administration, while the team itself is led by Alexander Nekipelov, a member of Rosneft’s board of directors.

According to the preliminary conclusions of this team, a radical revamp of Russia’s economic policy could lead to spectacular results. Glaziev’s report indicates the following key elements required for sustainable growth: radical increase of the savings rate, investment in breakthrough technologies (up to 4% of the GDP), and creation of a strong and self-sufficient banking system. Although the nation’s economy is considered a top priority, national problems cannot be solved without mitigating some of the global risks. According to the Russian media, the report contains a warning regarding the risks of a global military conflict, “The conservation logic of the current financial and political system leads to a further escalation of military and political tensions, including the start of major war”. There are solutions mentioned which serve as recommendations to avoid this outcome. A reform of the global financial system, spearheaded by Russia, is reported to be one of those solutions. It remains to be seen whether this initiative will gain support from other developing countries.

This week Russian Prime Minister Dmitry Medvedev has submitted the government’s strategic plans for the period of up to 2018 when the next presidential election is due. Russian President Vladimir Putin was the chairman of the extended cabinet session.

The prime minister made a detailed report in which he specified the key directions of the country’s development in the post-crisis period. Emphasis will be laid on modernizing the social sphere and the infrastructure, technological overhauling, updating the business environment and improving the state management system.

Dmitry Medvedev believes that a drastic change in the social and economic situation in Russia would only be possible if the economy grows by at least 5% a year. Meanwhile, at present the growth rate is only 2%, so the government would have to work in a difficult situation. Vladimir Putin announced that a return to the pre-crisis model was out of the question.

The president is convinced that Russia should not go with the stream adjusting to the development trends of the world financial and economic system. Russia should take an active part in determining priorities, especially because it enjoys fundamental advantages for investment and a more important role in global processes.

“Russia has one of the most capacious markets in Europe and even in the world. Here we should also add the potential of the Customs Union and the common economic space. We have natural resources, a basic infrastructure and a high general education level of our citizens. According to experts, Russia is one of five countries potentially attractive for investment. Our aim is to turn this potential into real investment and create new manufacturing and new jobs.

Vladimir Putin pointed out that for many years the growing consumption in the US and Europe was the motive power for the world economy but now this mechanism is malfunctioning. So as to whip up the demand, developed economies burdened with debts are employing standard methods that they used to criticize. One of them is printing banknotes. The consequences of this policy are unpredictable. Against this ambiguous background, Russia should raise its competitiveness and its citizens’ social security.

To achieve this aim, the president believes, the Russian economy should develop much faster than the rest of the world. Mechanisms for boosting the development are creating millions of new jobs, fighting corruption, implementing large infrastructural projects, raising the population’s incomes and expenses, as well as raising labour productivity. It is also important to take advantage of the WTO membership. We should also remember about consolidating democratic and public institutions, as well as law enforcement.

Prime Minister Dmitry Medvedev, in turn, announced that the government’s main task was to raise people’s living standards and create conditions for people’s personal fulfilment. The government has managed to keep people’s incomes intact and to reach a steady growth of the GDP. This trend should be developed.

“We should consider both the real state of events and the global trends that have taken shape in the world economy and finances, so as to be able to adequately respond to their challenges. I mean setting up a new technological basis for further growth in a situation when non-material factors, such as education, science and health protection, are gaining in importance. The demand for our traditional articles of export is falling, so we should think about the future. The budding post-crisis improvement is unstable and general uncertainty remains. For this reason the next five years are of paramount importance. This would be the time for the post-crisis world to take new shapes and new technological and social alliances to be established.”

The prime minister pointed out that the potential of the model of the Russian economy focused on exports of raw materials has run dry. Medvedev described the growth points for the next five years, such as creating a favourable business environment, integrating into the Eurasian, European and Pacific markets, as well as a global technological overhaul.

“This is all today’s reality. We should create adequate conditions for innovations with the help of taxation and budget reforms, customs and anti-monopoly regulations. We’ll be able to provide the necessary growth rate of the economy only on the basis of mass introduction of advanced technologies.”

Some other important tasks are raising the effectiveness of the management system, preserving the traditional industrial potential and competitiveness of agriculture with the aim of Russia regaining the role of one of the world’s leading agricultural states. Special emphasis will be laid on building a modern infrastructure, such as roads, ports, air communications, the Internet and energy networks. The state would assist Russian citizens in solving their housing problems and modernizing the social sphere. In particular, the parliament is planned to adopt all laws associated with the drawn-out pension reform this autumn.

First Deputy Prime Minister Igor Shuvalov expects hard work for the government in the next five years.

“We should be brave and disciplined to put all the ideas into practice and prove to people and ourselves that we are capable of carrying out such ambitious plans.”

In his report Dmitry Medvedev promised that the work of the government would comply with the president’s decrees signed straight after his inauguration and the president’s message to the Federal Assembly. Medvedev did not rule out that the government would sometimes have to take painful steps but the main task is to transform present-day challenges into sources of the country’s stable development.

Putin Submits Foreign Accounts Ban Bill


MOSCOW, February 12 (RIA Novosti) – President Vladimir Putin has submitted a draft bill to the State Duma prohibiting Russian officials from holding bank accounts abroad or owning foreign-issued shares and bonds, according to information posted on the Duma’s website.
"This ban applies to persons who hold government positions in Russia, the Prosecutor General's first and other deputies, members of the Central Bank's board of directors, government officials in the regions, federal civil servants and officials at state-run corporations, foundations and other organizations established under federal law, who can only be appointed or dismissed from their posts by decision of the President, the Government or the Prosecutor General of Russia," the president's bill says.
Putin and the government have had their sights on apparatchiks' foreign assets for some time, as part of the wider effort to stamp out Russia's rampant corruption.
Speaking to the Parliamentary Assembly in December last year, Putin said: "if a person has chosen state service, he should be ready to be devoted to it exclusively, and to be subject to control from society, and to meet special requirements, as is accepted in practically all nations of the world. How can there be trust in a politician or bureaucrat who speaks loudly about Russia but tries to send all his wealth overseas? So I ask you to support this draft bill to limit the rights of bureaucrats and politicians to have foreign accounts, shares and bonds."
Meanwhile, the Duma is currently preparing for a second reading of a similar bill which would ban government officials and military personnel, and also their spouses and underage children from owning real estate abroad, holding accounts with foreign banks outside Russia or owning foreign issued stocks and bonds, including foreign government securities.
The president’s draft bill will ensure Russian officials are not subject to foreign influence, said Alexander Torshin, first vice-speaker of the Federation Council, the upper house of Russia’s parliament.
“All these measures are aimed at ensuring the country’s sovereignty: officials making decisions on the country’s state security must be free of the possibility of being influenced from abroad,” Torshin said.
If such foreign bank accounts are found, options for dealing with them could include sequestrating them or freezing them, he said.
The president's bill stipulates Russian officials will be given three months “either to rid themselves of accounts abroad or rid the state of themselves,” Torshin said.
Another positive effect of the measure would be that such account holders would keep more funds in Russian banks and consequently support the Russian banking system and the domestic economy, he said.
It was not immediately clear whether Putin's bill would replace the Duma's earlier bill, or be integrated with it, or would replace it.
Russia’s Communist Party leader Gennady Zyuganov said the Communists, Russia's main opposition party, would support the president’s bill.
“We have long insisted that anti-corruption measures should be energetic, more decisive and principled,” Zyuganov said.

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TR1 wrote:What lost territories?
Are you seriously implying Russia needs to, wants to, or should take back all the former Soviet republics?

Thats ridiculous and a terrible idea.

GarryB wrote:simply if it did collapse then something new would have to take its place and no other country has the military power or economic power to dictate what the new system would be... except the US and her western allies.