Page 19 - bne_newspaper_July_26_2019

Opinion
July 26, 2019 www.intellinews.com I Page 19
MACRO ADVISER:
Quiet evolution is better than noisy revolution
Chris Weafer of Macro-Advisory
Most of the discussion about Russia in recent years has been about the sluggish economy, sanctions, a revolting society or the perception of threats that would seem more appropriate in the Cold War days. Very little has been discussed about the quiet but steady evolution taking
place in monetary, fiscal and industrial policy; an evolution that does pose a risk of a public backlash over the near and medium term but which could very well be the catalyst for the next phase of meaningful economic growth.
We are today half-way through the first year of the latest transition in Russia. In fact, this is the third major transition, or change of direction and priorities, since the emergence of modern Russia in 1991. This particular stage in the evolution is when, if handled correctly, Russia should start to see the emergence of a new economic order and the start of more sustainable and steady growth with lifestyle and social improvements to match. It is of course far too early to be able to say that this process is successful, or will be successful, or is a failure. Focusing on short-term indicators and political headlines in the midst of what has already been a very significant process is both pedantic and wrong.
It is better to look at how the major parts of the process, the big picture as it were, are working, or not, and to then be able to assess the probability of eventual success and in which direction the economy and investment climate are heading. The first adjustment period in Russia was in
the early 90s. The country and economy were brand new and the government was essentially experimenting with policies. In the end,
the various policy combinations and vested interests, both domestic and external, led to the polarisation of society, widespread poverty and the banking and currency crisis of 1998. That drew an end to the first period of adjustment. The second period started with the arrival into government of Vladimir Putin plus the revival
of both hydrocarbon volumes and a rising oil price. The former brought greater stability and the latter boosted the budget and created the conditions that led to an economic boom which lasted until early 2013. The adjustment period, i.e. the current one, first started in mid-2013, when the economy started to slow as the hydrocarbon driver became less effective. Russia was firmly
in this adjustment period with the imposition of sanctions and the oil price collapse in mid-2014.
The first phase of this current adjustment was essentially crisis management, both as a result of the failing economy from 2013 and especially because of the consequences of the sanctions plus oil collapse combination of mid-2014. That ended in late 2015, although not before the government adopted the current weak ruble policy and the so-called Fiscal Rule aimed at weaning the economy off oil dependency and vulnerability. The second phase was essentially a planning and restructuring period that lasted until late last year. In this period, there was a lot of debate over industrial planning and economic