Earlier this month, the Russian government released its latest macroeconomic forecast. It could not have been an easy decision: Whereas Russian President Vladimir Putin and his government campaigned last year on a promise that the Russian economy would grow at 5 percent to 6 percent per year during his six-year term, the growth rate is now expected to average just 2.8 percent from this year to 2020.
Russian Minister of Economic Development Alexei Ulyukaev explicitly acknowledged that achieving the targets set by Putin “will take longer.” In some cases, that means much longer. For example, in May last year, Putin promised to increase Russia’s labor productivity by 50 percent by 2018; the current forecast does not envision this outcome even by 2025.
For independent observers, the ministry’s grim forecast comes as no surprise. Judging by low stock prices and high capital outflows, investors were already betting against high growth rates. Now Putin and Russian Prime Minister Dmitry Medvedev are pessimistic as well. Medvedev, who had been publicly forecasting 5 percent annual growth as recently as January, told foreign investors last month that this year’s growth rate would not exceed 2 percent.
CLEAR BLAME
Previously, the government blamed Russia’s economic problems on the global slowdown. Today, that argument makes little sense. The global economy — and the US economy, in particular — is growing faster than expected, and world oil prices are above US$100 per barrel.
The ministry’s forecast answers the perennial “who is to blame” question very clearly: The slowdown reflects Russia’s own “internal problems.” The ministry’s baseline forecast assumes that the price of oil — Russia’s main export — will grow at 9 percent per year in real terms over the next 17 years, or more than three times the forecast for Russia’s annual GDP growth.
A week after the ministry’s forecast was released, the European Bank for Reconstruction and Development — Russia’s largest foreign direct investor — followed suit, cutting its growth forecast for Russia to 1.3 percent for this year and 2.5 percent for next year.
The bank’s view was even more straightforward: The slowdown is the result of the Russian government’s lack of structural reform. Poor governance, weak rule of law, and the assault of state-owned companies on competition undermine Russia’s business climate and cause capital flight.
Russia’s ruling elite understands very well that reforms are needed; indeed, the Putin-Medvedev era, now in its 14th year, has suffered no shortage of reform programs. For example, in 2008 then-president Medvedev was praised for his seemingly credible commitment to implementing the changes that Russia’s economy needed. However, Medvedev’s one-term presidency — like Putin’s administrations before and since — did not deliver on these promises.
STAGNATION
The Russian government’s reluctance to fight corruption and strengthen the country’s legal institutions reflects a perverse — yet stable — political equilibrium. In 2010, a “70-80 scenario” was predicted for Russia in the coming years because oil prices, which had plummeted to US$40 per barrel, recovered and surpassed US$70 per barrel, Russia would return to the stagnation of the 1970s and 1980s.
Sure enough, GDP growth from 2010 to last year, though averaging a respectable 4 percent, turned out to have been driven by the post-crisis recovery and the further increase in oil prices to US$100 barrel. Now all of these short-term factors have been exhausted, and a Brezhnev-like period of stagnation has begun.
Russia’s political elite understands that the economy is capable of 5 percent to 6 percent annual growth. The problem is that the reforms needed to achieve such growth — fighting corruption, protecting property rights, privatization, and integration into the global economy — directly threaten the elite’s ability to hold on to power and extract rents. For those in power, a big piece of a shrinking pie is preferable to no piece of a growing one, which is what most of the current elite would receive under a fair legal system with clear rules and predictable enforcement.
Seen against this background, this month’s release of the ministry’s grim forecast for growth is surprising and welcome. At the very least, the authorities deserve praise for frankly admitting that Putin’s promises are impossible to fulfill, rather than continuing to ignore, sugar-coat, or divert attention from the evidence.
The growing realism of the government’s internal — and public — discourse is no small matter. It is finally leading to the much-needed discussion of budget cuts. What this new candor means for Putin’s political future remains to be seen.
Sergei Guriev, a visiting professor of economics at Sciences Po, is a professor of economics and former rector at the New Economic School in Moscow.
Copyright: Project Syndicate
Recently, China launched another diplomatic offensive against Taiwan, improperly linking its “one China principle” with UN General Assembly Resolution 2758 to constrain Taiwan’s diplomatic space. After Taiwan’s presidential election on Jan. 13, China persuaded Nauru to sever diplomatic ties with Taiwan. Nauru cited Resolution 2758 in its declaration of the diplomatic break. Subsequently, during the WHO Executive Board meeting that month, Beijing rallied countries including Venezuela, Zimbabwe, Belarus, Egypt, Nicaragua, Sri Lanka, Laos, Russia, Syria and Pakistan to reiterate the “one China principle” in their statements, and assert that “Resolution 2758 has settled the status of Taiwan” to hinder Taiwan’s
Singaporean Prime Minister Lee Hsien Loong’s (李顯龍) decision to step down after 19 years and hand power to his deputy, Lawrence Wong (黃循財), on May 15 was expected — though, perhaps, not so soon. Most political analysts had been eyeing an end-of-year handover, to ensure more time for Wong to study and shadow the role, ahead of general elections that must be called by November next year. Wong — who is currently both deputy prime minister and minister of finance — would need a combination of fresh ideas, wisdom and experience as he writes the nation’s next chapter. The world that
The past few months have seen tremendous strides in India’s journey to develop a vibrant semiconductor and electronics ecosystem. The nation’s established prowess in information technology (IT) has earned it much-needed revenue and prestige across the globe. Now, through the convergence of engineering talent, supportive government policies, an expanding market and technologically adaptive entrepreneurship, India is striving to become part of global electronics and semiconductor supply chains. Indian Prime Minister Narendra Modi’s Vision of “Make in India” and “Design in India” has been the guiding force behind the government’s incentive schemes that span skilling, design, fabrication, assembly, testing and packaging, and
Can US dialogue and cooperation with the communist dictatorship in Beijing help avert a Taiwan Strait crisis? Or is US President Joe Biden playing into Chinese President Xi Jinping’s (習近平) hands? With America preoccupied with the wars in Europe and the Middle East, Biden is seeking better relations with Xi’s regime. The goal is to responsibly manage US-China competition and prevent unintended conflict, thereby hoping to create greater space for the two countries to work together in areas where their interests align. The existing wars have already stretched US military resources thin, and the last thing Biden wants is yet another war.