Leaving aside vague declarations--'the tax system must not weigh excessively on business,' 'the state and business must make every effort to reduce unemployment and poverty'--we asked a number of leading analysts to comment on the few exact figures that the president did offer.
'First of all,' said Vadim Kotikov, an analyst for NetTrader.ru, 'many of Putin's assertions have already been amended by Economics Minister German Gref. Putin is, of course, a politician, not an economist, and so a few errors on his part can be excused. But it is odd that the people who wrote his speech let such mistakes get by.'
'Gross domestic product (GDP) grew 8% in the first four months of 2004,' Putin stated at the start of his speech. While that number might seem too good to believe, the analysts don't question it.
'There is no reason to doubt it. It is no great jump, just a perfectly credible increase in the rate of growth [7.3% in 2003] arising from historically high prices for oil and the investment and consumer boom that high oil prices stimulated,' Kotikov said.
Anton Struchenevsky, an economist with Troika Dialogue, said: 'To judge by the growth rate, the country will outperform last year. Moreover, growth is not being powered by the raw materials sector alone, and its particularly favorable price conditions, but by other elements of industry as well. Still,' he said, 'it is hard to believe that this kind of growth will last very long. Oil prices are not going to stay up forever, and when they begin to decline, so will growth.'
Aleksey Vorobyev, an analyst for Aton, said preliminary figures from the Economics Ministry indicate an 8% growth rate for the January-April period of 2004 as compared with the same period in 2003. 'More exact figures will come in time from the Statistical Service,' he said. 'However, judging by the 7.9% growth rate in basic sectors of the economy (manufacturing, construction, agriculture, transportation, retail trade), the announced figures look reliable.'
But what about the president's confidence that GDP can be doubled by 2010? Is this realistic?
The notion of doubling GDP by 2010 is, obviously, a great motivator, said Maksim Sheyn, who heads the analysis department of Broker Credit Service. 'But to double national output in 10 years will require growth of 7.3% a year,' Sheyn said. 'And to double it by 2010 (that is, in six years), a rate of 12.2% a year would be needed, not 8%. . . . This kind of exaggeration may be all right for fairy tales but not for serious statements of policy. . . . One can only hope for a more sober approach in any corrections that are forthcoming.'
Kotikov also was critical of the president's arithmetic. 'Even assuming continuation of current high growth rates of 8% a year, simple arithmetic shows that GDP can be doubled no earlier than 2012 (taking 2003 as the base year),' he said. 'The real question is on what basis Putin and the government believe the current growth rate can be maintained. Doubling GDP is a nice-sounding slogan, but there's not been a word about concrete measures that the government plans to take to see it into reality. The most disappointing thing is that the president said nothing about government plans to encourage small and medium businesses, which are the source of 40%-60% of GDP in developed countries and less than 15% for us. Creating favorable conditions for small business would set the stage for a real economic breakthrough, but that apparently is harder to do than resting on the laurels of high petroleum prices and taking credit for the growth those bring with them.'
In the opinion of Struchenevsky of Troika Dialogue, a doubling of GDP is possible only with very high petroleum prices or if there are radical reforms in the economy. 'Unfortunately, reforms are barely moving,' he said. 'All we can say at this point is that the president's figures are part of a political game. We'll only really be in a position to say how the president's declaration is being acted on when we see the budget for 2005.'
Even maintaining the current 8% growth rate won't produce a doubling of GDP by 2010, Aton's Vorobyev said. 'Doubling GDP in 10 years is an extremely tricky business,' he said. 'Much depends on the economic picture outside Russia and that is completely beyond the control of the Russian government.'
Finally, the president called for full ruble convertibility within two years while holding the rate of inflation to 3% annually.
Vorobyev said: 'Sharply reducing the rate of inflation while stimulating high rates of economic growth is virtually a contradiction in terms. One certainly cannot expect a substantial cut in inflation in the next two years, as that would hurt the effort to double GDP. As to a freely convertible ruble, that is unlikely any earlier than 2007, when the laws on hard currency are to be fully liberalized. Convertibility has to be a long-term goal, attaining which will require that the economy becomes more competitive, balanced budgetary policies and liberalized rules for hard-currency capital operations. All that would encourage trust in the Russian economy as a whole and thus in Russia's currency as part of that.'
Even if the ruble is entirely liberalized, Struchenevsky asked, 'Who will want it?' There is only one answer, he flatly declared. 'It is not going to happen without entry into the World Trade Organization.'
On the matter of inflation, Kotikov noted that German Gref had already quite correctly stated that an inflation rate of 5%-6% is normal during a period of reform (in housing sector, for example), with a 3% inflation rate possible after 2008. 'Generally speaking, inflation always accompanies high rates of growth. It's at 2% in Europe, where GDP is growing at less than 1% a year,' Kotikov said.
'As to ruble convertibility, that is a realistic goal but only if there is a gradual relaxing of the curbs on capital movement. But the new law regulating hard currency, which comes into force on June 18 this year takes what looks like just the opposite approach. There is, for example, the requirement to keep 20% to 100% of the amount involved in a hard-currency operation on deposit in the Central Bank for two months to a year,' Kotikov said. 'If we want to make the ruble convertible in two years, it hardly makes sense, as the Chinese say, to harness the horses for the north when you're planning a trip south.'
Maksim Sheyn, of Broker Credit Service, in an effort to take the discussion beyond economics, said the current national situation contained crucial new elements. 'For example, on the matter of building strength on oil exports. This runs directly contrary to calls to reduce the country's dependence on natural resources, yet it makes perfect sense geopolitically. Bringing in new wells in Eastern Siberia, the Caspian, Sakhalin are keys to Russia's political and economic integration both with the West and the East,' Sheyn said. 'We are talking of foreign affairs, the area in which Russia has seen some very favorable changes. Instability in the Near East and international terrorism are all the more reason for integrating Russia into the world. At the same time, big expenditures toward harnessing the resources of Eastern Siberia and Sakhalin will push Russia toward creating a stable investment climate and government concern for investors.'
In this regard, Sheyn said, the United States may well move from being a mere potential customer for Russian oil (although it is certainly seeking an alternative to Near Eastern oil) to becoming a basic source of financing. After September 11 the geopolitical landscape shifted. The US has lost some of its faith in Persian Gulf oil. But the cost of pipeline construction and its effect on oil prices cannot be overlooked. From this perspective, deliveries to the West Coast of the United States are less promising than deliveries to China. Transportation costs would raise the barrel price of oil delivered to California by USD 3.5-7.4, while delivery of Saudi oil to California adds USD 1.5-2.5 a barrel.
Sheyn concluded: 'The president stipulated as the main tasks: the economy and the army. Any state that wants to take a leadership position in the world today must have these three constituents of success: a strong economy, a powerful military and natural resources. The US has the first two, both of which Russia lacks. That is why we see the president's goals as absolutely right. But can they be reached in the foreseeable future?'
Sheyn left that question unanswered.
Viktor Tsuker, Agency for Conflict Situations Translated by Howard Goldfinger
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