It so happens that our conversation coincides with the present debate on economic growth rate. Last week, President Vladimir Putin harshly criticized
(Mikhail Kasyanov's) government for a sluggish economic growth rate. Today, GDP is growing not by the 8-10 per cent the Centre for Strategic Research promised Putin back in 2000, but at a much lower rate. His opponents object that there is nothing tragic about this. What is your opinion on the matter?
What growth rate would you prefer -- 8-10 per cent or 3-4 per cent?
As for me, of course, I would prefer to see the higher rate. But then again,
the aim of an economy is not just to grow at any cost. The main thing is social stability based on the majority of the population being satisfied with the existing conditions. Also, geopolitical aspects are important, i.e. what
position this or that country is willing to assume on the international stage.
Take Sweden, for instance. This county does not strive for a leading role in
the world. At the same time the citizens of Sweden provide the authorities with an absolutely unique kind of support (thanks to expensive social protection programmes, et cetera). They have chosen such a way of development and do not aim for anything else whereas, the US, for example, pursues different priorities.
But, in any case, governments and politicians, when talking about reaching GDP growth of 6 per cent or 8 per cent per year, as a rule, mean more or less specific proposals concerning concrete changes in economic policy.
Growth rate alone does not mean much. What is it? The result of an increase in labour productivity brought about by the introduction of new technology, or simply the consequence of high oil prices abroad? It is clear, that provided there is a gross demand for Russian energy resources, a considerable increase in GDP can be attained without having to do anything to the economy.
But then, what about the 8-10 per cent GDP growth rate promised to the President?
Actually, a supplement to the programme for economic development in the following decade elaborated on by the Centre for Strategic Research envisaged an increase in GDP of 70 per cent within that period.
In theory, the government is ahead of schedule so far. In the past three years, economic growth amounted to 21 per cent, or 89 per cent in terms of a
decade. Hence, even if this year the growth rate is only 3 per cent, the plan will, nevertheless, be over fulfilled.
In the course of any economic development, fluctuations of growth rate may occur -- at times deceleration, at times acceleration. It is important to understand what is behind that, and to react appropriately.
As far as I understand, the president did not demand the government ensure high economic growth rate, immediately and at any cost. The thing was that the government's response to the slowdown of growth rate was vague.
The report drawn up by the Ministry for Economic Development and Trade contains a rather detailed description of the current economic situation and
lists all the factors affecting it. The part (of the report) where it should
have been indicated how to find a way out of the situation though, is more about the GDP rate dependence on oil prices.
It transpires that the government simply sits and waits when the oil price goes up. Such a position on the government's part has vexed the president. In other words, in order to overcome the economic recession at present, it is important to understand what is going on, and to determine what the government is able to do in this situation.
And so, in your opinion, what is going on and what can the government do?
After a high growth rate, we have witnessed a temporary slowdown of economic
development, and today one can say that in the 1st quarter of 2002 the GDP grew only by 3 per cent. There is an explanation for this, and a quite evident one.
In the aftermath of the industrial crisis, the Russian economy saw easy growth possibilities not requiring huge investments. The price umbrella that
emerged after the devaluation of the national currency created an opportunity to produce far more goods than before: it was enough merely to utilize the hitherto idle production capacities and to assign staff who before the crisis were registered as employees at enterprises, but in fact did nothing. A short-term bank loan - and businesses began making profit. As production and
sales grew, enterprises repaid loans easily. That factor of growth was the first to be used.
The second factor is the confidence in the government, which has proved its ability to control the budget and not to waste fantastic amounts of money. Of course, that confidence did not emerge immediately. After the crisis, it seemed that the situation was different. Everybody thought that the government did not understand what it was doing, many forecasted collapse, and hyperinflation… But no collapse happened. It has been three years now that the federal budget has had a surplus. In other words, the rather cautious macroeconomic policy has revived public trust in the authorities.
And, well, the third factor -- the market situation was very favourable. Russia, in the course of 3 years, has increased exports by over $30 billion.
This is fantastic growth. At first, it was namely physical volumes of exports that grew contributing to GDP growth, which in turn propelled the economy forward.
Why has the growth halted? Mainly due to the decrease in demand for Russian exports. Demand fell by 17 per cent in the 1st quarter. In addition to that it is possible to assume that the slowdown of the economic growth rate is the direct result of the cyclic nature of economic development. For instance, in
America, the economy also grows faster at times, at times slower and yet no big crisis is anticipated.
Roughly speaking, such cyclic recurrences in international markets cost the Russian economy some 1.5 per cent GDP, either in growth or decrease. I assume, therefore, the government can continue pursuing the same cautious macroeconomic policy.
As for the utilization of production capacities, today, in order to increase
production and to produce competitive goods, chiefly in the food, petrochemical and mechanical engineering industries, investments are required.
Foreign investment, too, could become a solid source of development for Russian industry. The level of investments in Russia, however, is as low as it was ten years ago…
That's true. Direct foreign investments in 2001 in Russia amounted to only a
little over $2bln. Lithuania has precisely the same level of direct foreign investments. That proves that in Russia the system of procuring capital is rather inflexible. It simply does not welcome direct foreign investments. Most likely that happens primarily on the Russian regional level where the authorities, for various reasons, do not welcome direct investment. I have arrived at such conclusions from the information I receive. I think it could
also be connected with the interests of local enterprises, interacting with regional authorities.
Major Russian companies are not willing to sell their assets to other investors either. The process of consolidation on that level is not completed yet. It is nearing an end, but so far we do not see any sales. In any normal
economy the process of exchanging assets constantly goes on -- some companies grow, sell some subsidiaries to other companies and with the derived profit engage in a different business. With us, everyone sits on his trunk, so to speak, and keeps others away from his possessions.
The role of bureaucracy in all this is, beyond doubt, enormous -- state authorities still do business no favours. I mean the judiciary and law enforcement agencies, which, in defiance of their designated roles, often act in a hostile way to business. Yet, even if the government is rather passive,
in the long run these problems will gradually sort themselves out.
If business is eager to grow and develop, then it will somehow overcome these barriers, however ugly the methods that can be applied. Today, by all appearances, there is a period of some re-appraisal of values. That process is rather complicated and, I think, it is unlikely that that period will be characterised by a high growth rate.