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Major Achievements in Joint Research in 1999

28 February, 2000

With this report on Russia's economic reform, we acknowledge the successful completion of the joint research project by officials of Japan's Economic Planning Agency (EPA) and of the Ministry of Economy (MOE) of the Russian Federation in FY1999.

This project has investigated three themes: analysis on causes and effects of the currency and financial crises in Russia, policy-based finance in the market economy, and analysis and forecast of the macroeconomic situation in Russia. These themes were initiated by the Record of Discussions on 2 March, 1999, at the end of the 14th Economic Policy Dialogue. The authors of the papers in this report listed in the attachment have enriched their views through frequent exchanges between the EPA and the MOE. Such discussions form the Economic Policy Dialogue, along with meetings of Japanese economists from both inside and outside the EPA, when three MOE economists were invited to Japan for this project.

As a result of those spirited discussions, a consensus was reached on the following points:

1.The currency and financial crises of Russia in August 1998 was attributed to the vast fiscal deficit and a decline in raw material world market prices. Moreover, confusion caused by impetuous market reform, especially liberalization of the financial system without sufficient legislation framework and supervisory mechanisms, made the situation worse.

2. Since early 1999, the Russian economy has been recovering more rapidly than expected, thanks to an import substitution effect caused by the depreciation of the ruble, a rise in crude oil prices (since March 1999), and an increase of export of raw materials. However this recovery should be recognized as the rebound of the crisis in some part. To achieve sustainable growth, it is indispensable to consolidate the country's economic foundation more firmly.

3.It is especially important to build up a system that can avoid capital flight from Russia and apply funds to domestic investment. From this viewpoint, such problems of policy finance in Russia as the shortage of funds, the mixture of the funds with the general account, and the delay of the Russian Development Bank opening should be solved.

4.It is necessary to examine various methods of quantitative economic forecast and improve its precision in order to plan and carry out the economic policy measures effectively.

Taichi Sakaiya

State Minister for Economic Planning

Japan

Andrei G. Shapovalyanz

Minister of Economy

Russian Federation

Appendix: Themes of joint research project in FY1999 and authors of papers

Theme 1 Analysis on causes and effects of the Currency and Financial
Crises in Russia

Russia:Ms. Elena Valentinovna BOLKHOVITINA

Head of Division, Credit Policy and Financial Market

Department, Ministry of Economy

Theme 2 Policy-based Finance in the Market Economy

Russia: Ms. Natalia Aleksandrovna MOKHOVA

Head of Division, Structural Policy and National Accounts

Department, Ministry of Economy

Theme 3 Analysis and Forecast of the Macroeconomic Situation in Russia

Russia: Dr. Vladimir Nikolaevichh VOLKOV

Deputy Chief, Macroeconomics Forecasting Department, Ministry of Economy

Japan: Mr. Shigeru HIROTA

Deputy Director, Second International Economic Affairs Division, Coordination Bureau, Economic Planning Agency

Mr. Jun MASUDA

Staff, Second International Economic Affairs Division, Coordination Bureau, Economic Planning Agency

Note: All opinions expressed in the papers are those of the authors and not of the concerning institutions.


Record of Discussions

28 February, 2000

In connection with the recent discussions held in the Economic Policy Dialogue on 28 February, 2000 in Tokyo between the representatives of the Economic Planning Agency of Japan and the Ministry of Economy of the Russian Federation on their joint research project, both sides wish to record the followings:

1. Both sides intend to undertake the joint research project to take up the following topics in 2000:

(1)Analysis of macroeconomic conditions of Russia in the medium-term perspective

(2)Financial market reforms and roles of the government for facilitation of investment

2. Both sides share the view that the Economic Policy Dialogue on the economic reform provides valuable opportunities to discuss the above topics.

3. The Economic Planning Agency of Japan intends to invite two economists of the Russian Federation to Japan and support their research related to this project.

Taichi Sakaiya

State Minister for Economic Planning

Japan

Andrei G. Shapovalyanz

Minister of Economy

Russian Federation

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