Gaidar Forum 2014: Day 1

The following topics were covered during the discussion.  The national economic policy in a volatile  environment; structural and stabilization measures of the economic policy; the future of the world reserve currencies; updating the global financial architecture. The discussion was attended by Minister of Economic Development of the Russian Federation Alexey Ulyukaev, Finance Minister of the Russian Federation Anton Siluanov, First Deputy Governor of the Bank of Russia Ksenia Yudaeva, Chief Executive  Officer Unilever Russia Ukraine Belarus chez Unilever Laurent Kleitman, Sberbank Chief  Executive Officer, Chairman of the Board German Gref. The discussion was held under the  chairmanship of Sergei  Sinelnikov-Murylev, Rector of the Russian Foreign Trade Academy of the  Ministry for Economic Development of the Russian Federation, Academic  advisor at Gaidar Institute.

According to Mr. Ulyukaev, Russia is being in opposite phase to global economic growth. The global growth is 3.5%, whereas Russia  may expect a 2% of growth at best in 2013, 2014, 2015.  At the same time, what we see  today is not a crisis but a transition from one economic development model to another which is  distinguished by slower growth rates and overcoming the prevailing  unbalances. Additionally, the minister pointed out that sustainability and development are different  sides of the same coin. They can be maintained by creating high-quality institutions,  comfortable business environment, lifting the existing barriers to the supply rather  than the demand.

Mr. Siluanov reported that the federal budget deficit stood at 0.5% of GDP against the planned value of 0.8% of GDP at the 2013 year end. At the same time, he stated that 200 billion rubles haven’t been withdrawn from the Reserve Fund as it was planned before. “On the contrary, we plan to replenish it with 200 billion rubles”, outlined Mr. Siluanov. He also pointed out that the Ministry  of Finance’s key task is to reduce oil and gas deficit to a level of 5-6%, and added that the deficit stood at 10.2% against the planned value of 9.7% at the 2012 year end. “Redundant  optimism in planning  revenues has resulted in having to use oil and gas revenues to replace shortfalls in oil and gas revenues in implementing the budget. Conservatism in planning is a key  conclusion made at the 2013 year end”, said Mr. Siluanov. According to Mr. Siluanov, diminution in the US quantitative easing program will not lead to divestiture globally in 2014, however it will result in a certain outflow of capital from emerging markets and have  no adverse impact on the economy in Russia. In addition, Mr. Siluanov expressed his  confidence in that equilibrium of the pension system could hardly be attained unless the issue of  extending the  retirement age is properly addressed.

Mrs. Yudaeva believes that the Russian economy has reached the end of its capacity to recover growth and encountered stagflation as recently as the previous year. “In general, countries with emerging economy, including Russia, are facing such issue as stagflation, when economic growth and its slowdown accompanied by a spurt in inflation. This is what is happening in Russia and in some other countries, like Brazil”. According to Mrs. Yudaeva, this issue constitutes a challenge derived from the previous year. It is important to make adequate conclusions and “design a development strategy factoring in this challenge”.

Mr. Gref criticized the Russian Government. He said he don’t understand what tasks the Russian Government has set for 2014: “I’ve found the Government’s website but no steps to be taken in 2014, then I visited the open government’s website to find nothing there too. However, they have figures for 2018”. Nonetheless, Mr. Gref stated that there is no point to go down in the dumps. Instead, one should simply work. At the same time, he gave recommendations to individuals and small businesses about which foreign currencies should be bought for saving purposes and presented the results obtained by Sberbank’s experts on 33 countries of the world. The status and sustainability of the economy of these countries was studied. Switzerland, Norway, and Sweden were ranked in the top-3 leaders. Savings in the currencies of these counties are considered the safest in terms of sustainability. Taiwan, Singapore, and Malaysia are ranked a bit lower, because they have some budget deficit. The Swiss Franc (CHF) is considered most liquid of the currencies, as liquidity of the currencies was taken into account: Mr. Gref pointed out that the amount of CHF equal to about $80bn circulates daily in the world. This liquidity is sufficient for most of SMEs. The Russian ruble took 11^th place in the ranking. “It’s not a bad place at all”, noted Mr. Gref. “We didn’t include the EURO into the list of recommended set of currencies, because the EURO zone is very heterogeneous”. The US dollar took 9^th place in the list of recommended currencies, based on the Sberbank’s study.

A plenary discussion – “Contours of the post-crisis world” – was dedicated to analyzing the picture of the post-crisis world, trends in the development of the global economy, global economic unbalances. The discussion was attended by Dmitry Medvedev, the incumbent Prime Minister of the Russian Federation; Mario Monti, President of Bocconi University, a lifetime senator, Prime Minister of Italy from 2011 to 2013; Angel Gurria, Secretary-General of the OECD;  Vaclav Klaus, the President of the Czech Republic from 2003 to 2013; Rachel Kyte, World Bank Group Vice President of Sustainable Development; Jacob A. Frenkel,  Chairman of JP Morgan Chase International; Jeffrey D. Sachs, Director fo The Earth Institute, Columbia University. The discussion was moderated by RANEPA (The Russian Presidential Academy of National Economy and Public Administration) Rector Vladimir Mau.

The discussion was opened by Prime Minister Dmitry Medvedev. According to Mr. Medvedev, the economic situation in Russia is, on technicalities, stable enough, but the dynamics of its development is far from not being a concern. The Prime Minister noted that the efforts to recover the financial systems of global trade development, support investment activity have been paying off. “Today we talk about looking for points of sustainable growth instead of reanimation measures on the global economy which was the topic of discussion”, – he said, underlining that no government can offer ready, tried and tested measures.

The Prime Minister also emphasized that the Russian Government tends to support the area of lifelong education. The “one life – one diploma” principle has quickly been getting out of date. “Having graduated at the age of 22, there is no way one should use throughout his/her entire life the skills he/she learned as a student. Regrettably, those who constantly update their professional skills, undergo further education are yet in the minority in Russia”. According to the Prime Minister, the share of workers undergone advanced training must increase 10% to reach approximately 37% by 2015.

Prime Minister Medvedev noted that it is important today “to make Russia a highly efficient country out of the country with expensive but often low-quality and inefficient labor”, minimizing social and political risks associated with releasing jobs. According to Medvedev, it is important to ensure flexibility of the labor market and employment and labor laws and regulations, enhance mobility and quality of labor force.

Speaking about improving the investment environment in Russia, the Prime Minister pointed out that a performance standard for the executive bodies of the constituent territories of the Russian Federation has been developed to help local teams in their work. The standard is intended to help the regions deal with potential investors and improve investment environment.

“We have now and then been blamed for a short planning horizon, criticized for making constant changes to the legal regulations concerning entrepreneurial activity. This is unfair”,  stated Prime Minister Medvedev. For instance, the Russian Government Guidelines until 2018, a series of long-term strategies, as well as 39 national programs on the development of the key economic and social sectors have be approved over the last 1.5 years. According to the Prime Minister, these are “fairly clear leads for investors, allowing long-term investment to be planned”.

“I’m sure that the Eurozone has generally recovered from the crisis. Most of the issues have been resolved, however some still remain to be addressed”, said Mario Monti. Angel Gurria believes that Russia should ensure the division between politics and business, as well as independent judicial system in order to improve its business environment and speed up economic development growth.

According to Jeffrey Sachs, Russia is facing good times today. Unlike the rest of the world, Russia has rich resources which is enough to manufacture food products, and it also has gas, crude oil etc. As soon as Russia begins to sell natural gas to China, it would imply an Eurasian integration. He emphasized an important role which Russia plays in resolving the climate crisis. Global climate would be stabilized and the power system become sustainable if Russia manage to sell natural gas, nuclear power in the global market while leaving the coal in the soil. The famous economist also emphasized that Russia can become a world’s integrated leader, provided that it manages to achieve success in such industries as space, aviation, information technologies, heavy engineering etc. and in natural resource sectors. Additionally, he pointed with satisfaction to the fact that Russia plays a serious stabilizing role in various regions of the world.

A panel discussion – “On the Way to the OECD: Prospects for Russia” – was dedicated to a positive, potential effect which the OECD membership may have on Russia. The OECD’s key objectives and working methods were discussed, including what the OECD membership can give to the country in different conditions; the effect which the OECD has on the policy of its members was analyzed and the current agenda’s items such as global development after the crisis, sustainable development and environmental protection, social stability were covered.

In his speech First Deputy Prime Minister of the Russian Federation Igor Shuvalov pointed out that most difficult issues concerning Russia’s accession to the OECD refer to environmental liability of the Russian industry and business community. According to Mr. Shuvalov, there are 22 committees working on Russia’s accession to the OECD. “Seven committees have provided their positive opinion, i.e. one third of the way is over. We will do what we have to do during this year and at the beginning of the next year we may obtain a positive opinion from other committees”. At the same time, Mr. Shuvalov stated that the government’s contribution to the Russian economy must be reduced to 25% or less by 2020 (today it is about 50%).

A panel discussion – “Can the Budget be “Healthy”?” – was attended by  Chairwoman of the Accounts Chamber of the Russian Federation Tatiana Golikova; Minister of the Russian Federation Mikhail Abyzov; ОАО VTB Bank Chief Executive Officer, Chairman of the Board Andrei Kostin; Head of the Federal Tax Service Mikhail Mishustin; Chairman of the State Duma Committee for Budget and Taxes Andrei Makarov; Chief Executive Officer of the Russian Direct Investment Fund Kirill Dmitriev; Deputy Finance Minister of the Russian Federation Alexey Lavrov; Deputy Minister of Economic Development of the Russian Federation Nikolai Podguzov. The discussion was moderated by Sergei Sinelnikov-Murylev, Rector of the Russian Foreign Trade Academy of the Ministry for Economic Development of the Russian Federation, Academic advisor at Gaidar Institute. The following issues were considered. The outlines of the future budget reform, a new fiscal rule; fiscal policy amid economic turbulence; sovereign debt stability; the future of sovereign wealth funds.

Mrs. Golikova pointed out that “state programs were declared as a budget reform. Was it the right thing to do? Yes, it was, however the work has failed to be done so far, except that previously stand-alone industry-specific expenditures have been merged and an effort have been made to establish certain metrics which in some cases contradict long-term development concepts”. She also added that the programs also provide for measures aimed at executing political statements in pursuance of the Decrees issued in May 2013 by President of the Russian Federation Vladimir Putin. Additionally, Mrs. Golikova reminded that the programs before February 1, 2014 must be revised.

Mr. Kostin believes that the Russian budget has potential to increase expenditures, especially on infrastructural projects. “If we take the European standards which are accepted as safe, we would have the potential allowing us to accumulate debt to be able to ensure more expenses on the development which we need now”. According to Mr. Kostin, the debt to GDP ratio is currently 12%, while under the Maastricht criteria it may reach 60% and budget deficit up to 3% of GDP. “Our federal budget’s dependence on crude oil imposes physiological limits which makes us believe that the federal budget must be deficit-free”, said Mr. Kostin, although he thinks that a budget deficit of 1% is far from being sensitive. Last year Russia ran its budget with a deficit of 0.5% of GDP.  

Mr. Dmitriev dwelled on the steps which may help the budget be “healthy”, namely  replacing budget resources with private and sovereign investment; enhancing the quality of budget investment; investment with the yield of a part of the budget resources; prioritization of projects for investment.

Mr. Lavrov estimated that the Russia’s budget is basically “healthy”, because there are certain risks. He came to a main conclusion that deficit is not good for the Russia’s budget, especially in terms of assuming long-term liabilities.