Russia, which is hosting this year’s APEC summit, has announced four priorities for the meetings. These are: a) trade and investment liberalization, as well as regional economic integration, b) strengthening food security, c) establishing reliable supply chains, and d) increasing cooperation to foster innovative growth.
According to the official Web site for the summit in Vladi-vostok, Russia says it is looking forward to becoming an integral part of the system of economic ties in the APEC region through “organic integration” and much desired modernization and innovation-driven economic development.
Moscow added that Siberia and the Russian Far East are two areas where it would especially like to see these wishes fulfilled.
Russia intends to make a contribution to achieving APEC’s objectives, including trade and investment liberalization, facilitating business, intensifying regional economic integration and ensuring personal security, the Web site said.
However, it also plans to propose that APEC member economies should focus on practical issues, such as bolstering food security, improving transport and logistics systems, and cooperating in the interests of modernization and innovation.
In addition, Russia aims to promote economic and technical cooperation, stating that cooperation on modernization is in the interests of all APEC member economies. For the most part, “this involves initiating the exchange of advanced know-how on how to shape a favorable institutional environment for innovative development and creating regional cooperation mechanisms in science, technology and innovation.”
A look at APEC’s priorities over the past decade shows that they mainly mirror two types of interests: a) common interests, and b) the host’s specific interests.
Common interests have mainly related to APEC’s institutional objectives, such as regional economic integration and the three pillars — trade and investment liberalization, business facilitation, and economic and technical cooperation. The host countries’ specific interests differed, depending on their economic performance and condition.
Since the collapse of the Soviet Union in 1991, the Russian Federation has gone through a series of dramatic reforms and changes. Reforms have helped the country transition from a planned economy to a more market-oriented economy. The Soviet Union was a globally isolated country, but Russia has become a more internationally integrated nation. It is therefore sensible that a more internationally integrated Russia would be interested in becoming part of the system of economic ties in the region as stated in APEC’s priorities for this year.
During the 1990s, Russia undertook substantial economic reforms by embracing market mechanisms and privatizing state-owned industries. However, while privatization continues, most of Russia’s private companies still operate under the influence of the state, while the protection of businesses’ property rights remains tenuous.
Russia is a big exporter of commodities: It is the world’s No. 1 exporter of natural gas, the second-largest exporter of oil and the third-largest exporter of steel and primary aluminum. However, an overreliance on exports of natural gas, crude oil and other commodities makes the Russian economy particularly vulnerable to the regular business boom-and-bust cycles that follow the highly volatile swings in global commodity prices.
As world commodities are denominated in the US dollar, the greenback’s appreciation very often has had an adverse impact on the Russian economy. To address this problem, the Russian government decided to make a critical change in 2007 by adopting an ambitious program to reduce such dependency and strive to enhance its high-tech sector. However, Russia has yet to achieve success in this area, and remains vulnerable to external shocks.
The 1998 Russian financial crisis was a big frustration for its people. After that setback, Russia had a strong recovery, with real GDP growth averaging 7 percent from 1999 to 2007. Its economic performance in that period doubled Russians’ real disposable incomes and the nation earned a place among the four promising emerging economies known as the BRIC countries — Brazil, Russia, India and China.
However, Russia was one of the hardest hit by the 2008-2009 global economic crisis. Oil prices plummeted due to shrinking global demand, and foreign capital pulled out of Russian banks and firms, causing not only a liquidity crunch, but also the devaluation of the ruble.
The Central Bank of Russia spent one-third of its US$600 billion international reserves in late 2008 to slow down the currency’s devaluation. The government spent another US$200 billion in a rescue plan to enhance liquidity in the banking sector and help bail out financially struggling firms. With looser monetary operations and an expansionary fiscal policy, the economy bottomed out in the middle of 2009 and started to grow in the first quarter of 2010.
However, Russia experienced another disaster in 2010: A severe drought and fires in central Russia seriously hurt agricultural production. The country had no choice but to ban grain exports for part of 2010. That is why enhanced food security is an important issue for Russia at the APEC summit.
Many economies adopted very loose monetary policies to address the 2008-2009 crisis and its impact. Those policies created a lot of hot money. Commodity prices soared as hot money entered the markets in 2010 and the first half of last year. The resultant rise in crude oil prices helped boost Russia’s growth in the first quarter of last year, and the nation was able to reduce the fiscal deficit caused by its expansionary actions from 2008 to 2009. However, the bad news is hot money also stoked inflation. Russia experienced high inflation last year — like most emerging economies. That limited the positive impact of increased revenues and growth.
Russia is a unique economy in that it is neither a typical emerging economy nor an advanced economy. Its per capita income is low by advanced economies’ standard, but higher than that of other emerging and developing economies. On average, a Russian can make as much as US$13,236 a year, compared with US$5,184 per year for a Chinese, US$1,527 for an Indian and US$1,362 for a Vietnamese. In terms of inflation, Russia dealt with surging prices for the first two quarters of last year like most emerging economies did. Therefore, in terms of the weighting of goods’ prices, Russia is more like an emerging market.
By listing its priorities for the APEC meeting, Russia pinpointed Siberia and the Russian Far East as areas that need to be further integrated with the region. The Far East area of Russia is less developed than its European area. Again, this is a demonstration of how Russia’s economy is a combination of developed and emerging economies.
To sum up, Russia is trying to seize the momentum as an APEC host to upgrade its Far East area and utilize others’ innovative growth to resolve its own ingrained economic problems, namely an overreliance on commodity exports.
Darson Chiu is director--general of the Chinese Taipei Pacific Economic Cooperation Committee.
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