Several economists have questioned the Kremlin's new ambitious plan to jumpstart economic growth over the next six years, with most describing it as flawed or fuzzy. In a raft of decrees signed last week, Russia's newly-inaugurated President Vladimir Putin laid out an ambitious plan to attract businesses, promote investment and spur economic growth. But economists who analyzed the president's ambitious economic agenda said Russia has neither the necessary preconditions to stimulate economic growth nor the wherewithal to accelerate productivity – both of which are crucial to the success of Putin’s plan.
Despite spelling out ambitious goals, president Putin’s latest
economic decrees are reminiscent of command-style economics, offering
much room for optimism but little in terms of practical implementation,
economists at the Higher School of Economics' (HSE) Center for
Development said in an article cited by Vedomosti on Monday. "Some
goals, which in the Russian reality are achievable in ten to 15 years,
have been squeezed into a six-year presidential term, trampling the laws
of nature and economic development," said Natalya Akindinova, director
of the HSE Center for Development.
Despite such misgivings,
Russian Prime Minister Dmitry Medvedev indicated last week that the
government is set to speed up the implementation of the targets set out
in the presidential decree. Medvedev, who is expected to submit
proposals on the structure and composition of a new government to
president Putin on Tuesday, has already appointed acting First Deputy
Prime Minister Igor Shuvalov to oversee the implementation of the
Putin's long-term economic policy.
One of the optimistic targets
set out in Putin’s directives is for the government to create 25 million
highly-productive jobs by 2020 and increase investment by up to 27
percent of the gross domestic product by 2018. But since investment
hardly reached 20 percent of the GDP last year, economists have
expressed skepticism that the government could indeed reach the 27
percent target by 2018. Economists also took issue with Putin’s order
instructing the government to improve Russia’s rating on the World
Bank's “Doing Business” ranking from 120th position in 2011 to 20th
place by 2018. Economists said that particular order evokes memories of
China’s “Great Leap Forward” – a campaign by the Chinese Communist Party
under Chairman Mao Zedong to rapidly transform the economy – adding
that no country in the world has so far been able to achieve such an
economic feat before.
In order to increase productivity by one
and a half times, Akindinova said, the economy must enjoy a stable
growth of seven percent annually. But that will be hard to pull off, she
said, considering that the government has projected a four-percent
growth in the gross domestic product amid an almost static growth in
employment rates. While growth in investment can accelerate
productivity, the presidential orders have failed to set out the sources
of such growth, she said. "Out of the country's 110 industrial sectors,
only about ten have been growing for at least three consecutive months,
[while] private capital outflows from Russia have continued,"
The latest figures on capital flight released by the Economic Development Ministry on Monday appear to lend credence to the conclusion drawn by the economist. Capital flight reached an estimated $8 billion in April, a much larger amount than expected, Deputy Economic Development Minister Andrei Klepach told journalists on Monday. The ministry had predicted that the rate of capital flight would drop off in the first month of the second quarter after net outflows of $35 billion in the fourth quarter of 2011 and $35.1 billion in the first quarter of 2012. "Capital outflows are much more severe than we expected," Klepach said at a State Duma budget committee meeting, RIA-Novosti reported. Worse still, Klepach said capital flight would likely continue into May, then drop off and reverse course, turning into inflows in the second half of this year. The Economic Development Ministry predicts that net capital flight for 2012 will be about $25 billion.
Some economists, including Alexander Morozov, the chief economist for Russia at HSBC in Moscow, believe that Putin's economic goals are attainable in boom time, when the economy enjoys heady growth. However, beyond declaring intentions, the Russian government has so far done little to improve the country's business environment, Morozov said.
But apart from dealing with its own poor investment climate, the government will have to contend with external economic factors that could dramatically affect its fortune. With the global economic recovery slowing, the share of investment in gross domestic product may actually decline, said Vladimir Tikhomirov, chief economist at Otkritie Capital. "Everything revolves around generating investment," Tikhomirov said. "Massive inflow of investment could accelerate productivity, but then, there can't be capital inflows without radical reforms."
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