The Russian president has said that the government underestimates Russia's potentialities. But can the economy mobilise its resources by decree? Does Russia have untapped resources? Economists offer at least three formulas for making the gross domestic product grow faster. The government's scenario has been prepared by the Ministry for Economic Development. State Duma deputy Sergei GLAZYEV presents another programme offered by the Russian Academy of Sciences' Institute of the Economy. Finally, the president's liberal economic adviser Andrei ILLARIONOV expresses his "special view" on this issue.
Sergei GLAZYEV, State Duma deputy:
The economy's reserves are determined by untapped resources. Today, industrial facilities in Russia operate at only 51 percent capacity, and these are not "dying" enterprises. Facilities are standing idle because enterprises lack funds. The reason is the growth of natural monopolies' tariffs, the Central Bank's policy of strengthening the rouble, and the government's policy of reducing import tariffs.
It has long been proven in the economic growth theory that if a state lags behind other countries and wants to catch up with them it will need active support of competitive industries. The economies of countries using these instruments - China, India, many countries in Southeast Asia - have been growing by six to ten percent a year. However, the Finance Ministry is reducing expenses and is not investing additional budget incomes in the economy: the money is kept at the Central Bank instead of being invested in production. Even the investment programme provided for by the budget has not been fulfilled.
According to the government programme, the less the state spends, the better for economic growth. This is an attempt to justify one's inactivity. We have singled out areas in which relatively small investments can bring about rapid economic growth. These are biotechnology, information telecommunication technologies, the rocket and space industry, the aircraft industry, and the processing of natural gas. By supporting these industries, we will make them into locomotives of economic growth. Yet, this does not mean that other industries must be forgotten.
Where can one take the money? The state must create development mechanisms (a development budget formed of superprofits from oil exports, development banks). The larger part of citizens' savings are kept in the Savings Bank, 51 percent of shares in which belong to the state. Part of its resources could be attracted to development banks and invested. Another possible variant is refunding development banks by the Central Bank [by means of controlled issue of money - AiF]. All these expenditures will be recouped: you invest in your own economic growth.
Tariffs of natural monopolies must be frozen until the real composition of prices is revealed. There is a suspicion that the cost of luxurious offices, apartments and private aircraft is included in production costs. It turned out at a parliamentary hearing that salaries of chief executives at Russia's Unified Energy Systems amount to tens of thousands of U.S. dollars a month. It may be an insignificant part of production costs, but even a one percent increase in tariffs means a 0.3 percent decrease in the GDP. This is a very high price to pay.
Andrei ILLARIONOV, the president's economic adviser:
We must set up a "stabilisation fund " (similar to the "development budget" proposed by Glazyev) and channel superprofits from oil export into it.
However, we must not invest this money in production but take it out of the country, for example, pay our foreign debts as soon as possible. The less surplus dollars in the country, the slower the rouble will grow stronger, the more expensive imports will be, and the more advantageous it will be to Russian producers.
The state must not invest in domestic industries in order to ensure their growth. In an open economy, stimulating economic growth with state investments is the same as pouring water into a bottomless barrel. Outdated industries are absolutely inefficient. Most likely, this money will not help any enterprise grow stronger but will simply make its way out of the country, as it did on many occasions when the state tried to support industries.
Not only state investments, but all state expenditures in federal and regional budgets must be reduced by about 100 billion roubles in total. How can this be done? For example, the state must speed up the reform of the public utilities sector. At present, Russians pay only part of communal service fees, the remaining part being paid by the state. Budget spending on the public utilities sector now amounts to roughly 100 billion roubles. If people start paying 100 percent of communal service fees, the budget spending can be saved. The logic is as follows: the less budget spending, the less taxes the state will have to collect, and the less taxes, the more economic growth.
Natural monopolies must be resolutely reformed and split up. Only then will competition emerge and tariffs start decreasing.
Arkady DVORKOVICH, Deputy Minister for Economic Development:
The amount of investments and their quality are the most important factors in economic growth. To attract investments in this country, we must radically improve the investment climate here.
This goal will be served by Russia's joining the World Trade Organisation.
Second, we must enhance competition in the Russian economy, attract new players to the market, especially small businesses, and to this end, remove administrative barriers.
Another important factor for attracting investments is the quality of state institutions. I mean observance of law and the level of corruption.
To ensure economic growth, it is now often proposed reducing state spending and combating the rouble's strengthening, which can be achieved by stimulating capital outflow from the country and limiting foreign investments. This is a short-sighted policy. It can speed up growth for a while but it denies Russia prospects for the future. Without investments we will not be able to modernise production and will remain technologically backward.
We cannot strengthen state institutions and carry out necessary reforms by cutting budget spending. It's another matter that we must essentially change the structure of state expenditures, which is now greatly distorted.
We should not consider production growth as an end in itself. The most important task is to improve living standards. By weakening the rouble, raising import tariffs and erecting other barriers to imports and foreign investments, we can increase production, although for only a while, but we will thus bring down living standards. We must not forget about it.