February 3, 2011
Joseph Stiglitz opened the discussion. He mentioned basic problems that economies based on natural resources usually face. Dutch disease and overvaluation of the national currencies, instability of global prices and the resulting unsustainable dynamics, and poor governance were among these problems. In his view, Russia is facing all of these challenges. Optimal domestic policy should include the development of industries. It should support the market, but the market is unable to substitute the government. More attention should be paid to the development of small and medium-sized businesses, and the government should encourage this process.
Mikhail Pogosyan thinks the aviation industry could become the key for the realization of the country’s innovation potential. This industry is seeing very strong competition on the global market, and its effectiveness is very high. Russia is still very competitive on the military aircraft market. United Aircraft Corporation is a good example of cooperation with foreign companies. The company may be the basis for developing small and medium-sized businesses as an important customer of their services.
Odd Per Brekk sees Russia’s major problem in the instability of economic development. The sensitivity of economic processes in the country to changes in the oil price is too high. Unfortunately, economic policy over the last 10 years has added to this instability. The Russian government needs to change this policy. In addition, capital flows are also sensitive to oil prices: investors become too optimistic toward Russia if the oil price rises, and too pessimistic if it falls.
Russia needs to tighten economic policy. It is possible to slow inflation and simultaneously maintain a high pace of economic growth. Improving the effectiveness of budget expenditures should be the government’s priority. Brekk takes a positive view of increased exchange rate flexibility and believes that economic growth of 5% is achievable in Russia.
Andrey Belousov believes that Russia’s economic growth was previously based on three factors: increasing exports in real terms, expanding household consumption (due largely to high oil prices), and booming credit. These factors no longer drive the economy. Labor productivity improvement has become a major factor behind growth.
Russia should return to 6-7% growth to solve social problems. Belousov sees potential in the development of machinery exports, growing investments and improving labor productivity due to imported technology. This is possible, as the savings ratio in Russia (27% of GDP) is among the highest in the world. But the government should create a comfortable business environment.
Belousov does not believe that it is possible to reduce budget expenditures. He thinks that Skolkovo may be the basis for creating infrastructure to develop exports of intellectual services.
Zeljko Bogetic believes that the recovery in foreign trade and the restocking process were the major drivers for post-crisis growth in Russia. Consumption growth was sluggish. As a result, the country’s economic recovery was not sustainable. The country should switch its focus to expanding domestic demand and investments. Russia should develop infrastructure and small businesses. He also sees room to improve the effectiveness of budget expenditures.
Kirill Androsov thinks Russia’s major weakness is its poor efficiency. But improving effectiveness will stimulate economic growth in the country.
Evgeny Gavrilenkov does not believe that Russia has limitations for economic growth. The foreign debt/GDP ratio is extremely low. The demographic situation is not perfect, but not tragic, and increasing labor productivity and immigration will easily compensate for the expected decline in the working-age population. Budgetary policy remains the Achilles heel. The acceleration of inflation at the beginning of the year shows that the economy does not need the injection of budget expenditures that is typical for December.