By diversifying our economy through stimulation of three factors. This involves doing three things: Boosting the export of goods other than raw materials, replacing imports with Russian-made items, and stimulating the new, high-tech economy. >>
Sounds like the sensible 20th century Japan-S. Korea-etc. (and 19th-century US-Germany) development model. It should also provoke direct conflict with the US (although that may be a fait accompli, thanks to Bushie the Conqueror).
---------- Original Message ---------------------------------- From: "ChrisD(RJ)" <chrisd at russiajournal.com> Reply-To: lbo-talk at lbo-talk.org Date: Thu, 3 Apr 2003 16:59:03 +0400
>Moscow News
>April 2, 2003
>Debating New Economic Program
>The Economic Development and Trade Ministry has come up with a
>socioeconomic development program for 2003-2005 which is supposed to rid
>the country of its dependence on raw materials
>
>The program's authors say that anyone dissatisfied with the paper is
>welcome to lash out at it. It has already been discussed at the Academy of
>Sciences round tables, and is open to criticism on an Internet site that
>has been expressly opened for the purpose.
>
>One of the program's drafters, Deputy Minister for Economic Development and
>Trade Arkady Dvorkovich, talks about it with MN's Dmitry Dokuchayev.
>
>The socioeconomic development program, popularly known as Economic
>Development and Trade Minister German Gref's program, was adopted in 2000.
>Why was a new version necessary? Late last year, the country's leadership
>instructed our ministry to draft a new version of the program. We have
>since analyzed a mountain of information about the country's economic
>development following the August 1998 financial crash. And we noted some
>new trends that should be taken into account. In certain areas, we found it
>necessary to implement measures other than those laid down in the original
>program. For example, the previous program envisioned a unified system of
>medical and social insurance; our study shows that the two must be
>separate. What is more, today we are confronted by an entirely new and
>extremely important issue - administrative reform.
>
>What trends did you observe?
>
>In the first place, we saw a downturn in economic growth rates. The
>combined growth rates for the last four years came to 25%, with the rate
>falling from year to year. In fact, we had expected that the structural
>reforms undertaken by the government (tax reform above all) would slow down
>growth rates. Because of the structural reforms, we haven't been able to
>collect the amount of investments needed to boost industrial production.
>What is worse, a large part of consumer demand is met from imports. The
>main reason for that is neither the ruble's real appreciation nor the
>natural monopolies' increased tariffs; the reason is the low
>competitiveness and narrow range of our goods. We just don't produce many
>of the items that we import.
>
>There is a related trend that I would describe as an acute form of Dutch
>disease. I mean our economy's extreme dependence on the raw material
>sectors. In 1998-2000, we seemed to have taken a step away from raw
>materials production to come closer to processing.
>
>Now we have taken a step backward. The fuel and energy sector accounts for
>about 30% of Russia's industrial output, for more than half of its federal
>budget revenues and export earnings, and for 45% of its hard-currency
>receipts. Moreover, Russian investments abroad exceed foreign investments
>in Russia. Ours is the only transitional economy with such an investment
>pattern. Why is capital flowing out of - and not into - Russia?
>
>We still have a high inflation rate. You know that it has lately been
>higher that the government's target figures, and that it is mostly
>structural inflation. We see a faster rise in the costs of services - from
>educational and medical to housing services and public utilities. Another
>cause of capital flight is poor state administration. According to our
>estimates, businessmen spend 10% to 20% of their time fighting bureaucratic
>barriers; red tape is causing the country to lose an enormous amount of a
>valuable resource.
>
>Your study of the prevailing trends shows that our economy is in dire
>straits. What conclusions did it prompt to the program's drafters?
>
>The first few years following the August 1998 financial crash produced a
>mechanism for economic growth that diverted resources from the raw-material
>sectors to the rest of the economy. That mechanism has lately stopped
>working. The market services sector has been growing increasingly slowly.
>Over the last four years, it has grown 23%, against a 34% growth in
>industrial production. This kind of economic structure will not allow us to
>achieve a yearly growth of more than two to three percent. And if we are to
>attain an acceptable living standard in the foreseeable future, we must
>have an annual growth of five percent or more.
>
>How can we attain the necessary growth level?
>
>By diversifying our economy through stimulation of three factors. This
>involves doing three things: Boosting the export of goods other than raw
>materials, replacing imports with Russian-made items, and stimulating the
>new, high-tech economy. Encouraging the export of non-raw material items
>should lead to higher domestic demand, which is a direct stimulus to
>economic growth. The replacement of imports with home-produced items will
>divert capital from the raw material sector to the processing industries;
>it is also a factor in attracting foreign investments. And if we can get
>the "new economy" to outdistance the other sectors, we will have paved the
>way to making our goods more competitive.
>
>Through what measures can the high-tech and processing sectors be
>stimulated? By slashing the tax burden and the inflation rate?
>
>The range of relevant measures is far broader. In fact their description
>takes up most of the space in the program. As for the measures you have
>mentioned, we are studying them. But it is not as simple as that. The
>government, for example, affirms that axing inflation at a stroke from the
>present 12%-13% to five or six percent would harm the economy, as this
>would lead to lower profitability in certain sectors. Inflation must
>therefore be reduced gradually, bit by bit. To do that, we must, in the
>short term, maintain a budget surplus, given relatively high prices for our
>exports. In the medium-term, inflation can be lowered by boosting demand
>for money.
>
>As for the tax burden, if we just ease it, the raw-material sectors will
>still remain dominant. If our economy is to get rid of its dependence on
>the raw-material sectors, tax reform must be pursued in a way that would
>induce investors to put their money into the processing industries.
>
>Basic Indicators of Economic Forecast
> 2003 2004 2005 2008
>Rise in inflation, % 10 - 12 8 - 10 6 - 8 5 - 7
>GDP growth, % 3,5 - 4,4 4,2 - 5,5 4,5 - 5,7 4,5 - 5,5
>Foreign direct investment, $ bn 5,0 - 6,5 6,0 - 7,8 7,5 - 8,5 9 - 11
>General unemployment level as % of economically
>active population 8,2 - 8 8,1 - 8 7,8 - 7,7 7,2 - 7,1
>Increase in citizens' real incomes as %
>of previous year's 105,7 - 107 106,2 - 107,2 106,4 - 107,4 106 - 107
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