Page 8 - bne IntelliNews Russia Country report May 2017

Russia’s perennial question: What’s to be done? Should Russia prudently husband its financial resources and concentrate on making workers more productive, or should it borrow heavily and drop a ton of money on the economy in the hope of kick-starting a virtual cycle of growth and investment. Russian President Vladimir Putin is due to choose one of these options this month.
The economy already came to a shuddering stop in 2012 when incomes were still rising by about 10% a year, when oil prices were still over $100, and when its leading banks and companies were still welcome on the international capital markets.
The easy catch-up growth had been exhausted. No amount of oil money was going to bolster growth. The deep structural reforms had been left undone and suddenly they became an unbearable ballast. And then everything got worse with the annexation of Crimea, the de facto invasion of Ukraine, Western sanctions, a war in Syria and the double whammy of the collapsing oil prices and ruble values.
The Kremlin’s efforts to contain the damage have been remarkable in that Russia has avoided the debilitating collapses of the past, but insufficient to return to the 6-8% GDP growth of the boom years in the noughties. And currently there is no prospect of return to those halcyon times anytime in the foreseeable future. Even according to the ministry of economy’s official forecast the best Russia can do in the next three years is to grow at 2.4%.
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The country faces the very real danger of sliding into long-term stagnation and eventual irrelevance despite is brisling arsenal of nuclear weapons and newly revamped conventional army. The Kremlin can’t bully its way back to prosperity. Some fundamental changes need to be made, otherwise Russia will simply get left behind.
Russia’s high competent, but largely powerless, liberal reformers have been putting their heads together and former finance minister Alexei Kudrin is due to present Putin with a new plan, a Strategy for Modernising the Economy and Social Institutions in a meeting later this month.
Typically, the contents of the plan have not been made public and its methods
8 RUSSIA Country Report May 2017 www.intellinews.com