Russia and challenges of the new decade

Finance Minister Alexei Kudrin warned in April that Russia can expect to see budget revenues stagnate; therefore, state expenditures should also be kept flat. He drew more public criticism recently by saying that the retirement age should be increased because of the country's aging population.

His concern is understandable. Russia, which has been consistently cutting its government debt, risks turning into a country with a rapidly accumulating state debt. On the other hand, a slight increase in government debt may do us good, the absence of any internal government debt market is a serious obstacle to having a healthy financial market. Yet, soaring government debt would certainly alarm investors, so if Russia does not set some limits internally, external limits may come into play as was the case with Greece.

Budget problems will not be the only challenges facing Russia in the new decade. It is also vital we brace ourselves for a change in the energy market structure. Gazprom's weakened position in Europe may not necessarily be a national tragedy, but the change will require a different approach to managing the state monopoly.

The innovation sector that the Russian government is currently trying to boost will face its own challenges: new products will be designed, go into production and become obsolete too quickly. Competition will increase as science and entrepreneurship develop in many countries. Given that situation, the government would be able to provide only limited support to the sector to make it internationally competitive.

Growth will mainly rely on open markets and a culture of entrepreneurship. However, the situation here is not likely to improve, and could even deteriorate. Russia came last in its group of similarly developed markets and last but one worldwide in the Global Entrepreneurship Monitor 2009 business activity ranking. What's more, the older generation of entrepreneurs, who set up their businesses in the late 1980s, are beginning to retire; younger Russians prefer civil service to business, as recent surveys say.

The demographic situation will be another destabilizing factor, as the thinnest generation in numbers, born in the early 1990s, will be joining the workforce. Neither the country's armed forces nor the education system are prepared for the change. The latter is in fact in for several shocks: the surge in demand for kindergartens caused by the mid-2000s baby boom will give way to a slump and a shortage of schools. The labor market will also have to adjust to the change.

The government began writing long-term strategies in the 2000s, yet, their ongoing policies were often dominated by tactical concerns. When the global crisis hit, many decisions were made for their short-term social effects. But the situation is changing again, and new trends still have to be analyzed and interpreted. It is time to find new scenarios and develop new strategies.

RIA Novosti

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