Comparison between Russia and Other Economies in Transition
Vladimir N. Volkov
Deputy Head, Macroeconomics Forecasting Department,
Ministry of Economy, Russian Federation
March 1998
(Summary)
Within the limits of the present study it is impossible to characterize even the principal results of various transitional economies countries development in the past years, to say nothing of peculiarities of this development. A more specific aim is raised: to analyze other countries transformational experience which may be useful for the further reforming of the Russian economy with Russia's own experience and results of reforms achieved by Russia taken into account. From this point of view it seems expedient to focus the attention on East European countries experiences (with no discussion of the CIS countries experiences), first of all Poland, Czech Republic and Hungary's experience. In doing so the attention will be focused on the most "painful" points of the Russian economy which undergoes reforming. There are a number of significant differences of conditions of reforms that go on in the Russian economy and in economies of the countries mentioned above. Due to these differences it is senseless for Russia to emulate reforms made elsewhere including reforms carried out in the East European countries (one should note that these countries' experiences are ambiguous, rich with peculiarities inherent to individual countries). At the same time a series of lessons derived from the reforms carried out in these countries and specific instruments developed in the course of reforms in these countries seem to be useful for Russia, of course, with the Russian peculiarities taken into due account. The first lesson consists in the necessity to overcome simplified notions about the transitional period. Another lesson consists of preferability of successive and decisive actions during the period of transition and, first of all, in macroeconomic stabilization policies carrying out. The next lesson consists of necessity to devote a greater attention to microlevel of reforms and to carry out a meticulous work in that sphere. One more lesson consists of the necessity to carry out a budgetary reform as soon as possible. In this respect great reserves lie in reformation of the social sphere financing system which provides the next lesson. The primary reason for this lesson is, first of all, the following: for a long time the social sphere was at the periphery of reformers' efforts in the post-Socialist states. Finally, one more lesson consists of necessity to create acceptable conditions for foreign investors.*All opinions expressed are those of the author and not of the institution.
Is Economic Growth Reviving in Russia after High Inflation Stabilized?
Kenji Umetani
Director Second International Economic Affairs Division
Economic Planning Agency, Japan
March 1998
(Summary)
It was 1996, the fifth year of economic reform in Russia, that the annual inflation dropped to 22 percent, the range of a moderate increase. Price stabilization has been brought about by the combined effort of both the administration and political leaders. Though the battle against inflation seems to be going well, economic activities have been hindered through a liquidity shortage in almost all areas; rising defaults in business, unpaid taxes in government revenue, and arrears in wages of government employees. These facts reveal the characteristics of the Russian economy in which creditors allow debtors to postpone their obligations. It can be said that the gradualism type of reform has been embedded there, as opposed to the shock therapy that was applied in some Eastern European countries. Much related literature suggests that economic growth could be initiated after high inflation is successfully lowered to a moderate rate (20 to 60 percent per year). In fact, real GDP of Russia in 1997 showed a modest pick up of 0.4 percent. However, the future remains cloudy, mainly because of the lack of investment opportunities. The debt crisis between companies and the mounting arrears of people's income, some critic have voiced arguments against price stabilization. They prefer the coexistence of moderate inflation and economic growth to low inflation at any cost. This paper concludes that the tight control on inflation should be kept in place.*All opinions expressed are those of the author and not of the institution.
Dynamics and Structure of Production as Result of Economic Reforms
Alexey V. Koltsov
Head, Division for Structural Policy,Ministry of Economy, Russian Federation
March 1998
(Summary)
The dynamics and structure of production during economic reforms in Russia with taking into account the most important economic factors are regarded. The structure of GDP by sectors, incomes and final demand is analysed. The main tendencies of GDP structural shifts and its reasons are discussed. The dynamics of industrial production and main structural shifts for basic sectors in period of reforms. Some positive tendencies in 1997 associated with growth rates of GDP, industrial production and some manufacturing sectors and suitable structural shifts are marked and explained. Taking into account significant price changes by sectors during economic reforms the comparative analysis of structural shifts in constant and current prices is done. Investment and employment are two main economic factors which may provide growth of production. That is why the correlation between structural shifts in investment, employment and production by sectors is regarded. The problem of investment which is the key to further growth of the Russian economy is analysed more detailed. For instance the correlation between consumption and accumulation in GDP, dynamics of foreign investments, private savings, structure of investment by forms of ownership, by sources etc. are discussed. Openness of the Russian economy which is increased essentially after the former USSR break causes a necessity to study the mutual interrelations of the exports-imports and production structures and impact of different factors on these structures. From this point of view the impact of exports and imports dynamics on volumes of production by some sectors are discussed, and interrelation of the ruble exchange rate and volumes of exports and imports by some groups of commodities are analysed. Finally some directions of industrial policy to secure the positive results being achieved and to provide economic growth with increasing rates are formulated.*All opinions expressed are those of the author and not of the institution.
Industrial Policy for Structural Change Toward Economic Growth in Russia
Hirofumi Arai
Second International Economic Affairs Division,
Economic Planning Agency, Japan
March 1998
(Summary)
The industrial structure of Russia, based on a system of planned division of production, was inefficient and should be changed. The postwar Japanese economy had achieved high economic growth through the expansion cycle of investment, production, income, and consumption. The cycle, in its own turn, was supported by such processes as the shift of resources from lower productivity industries to higher ones, aggressive investment in growing industries, the advancement of consumption structure induced by growth of wages, and the growth of export-oriented industries. In Russia the cycle can't be expected due to the lack of sufficient capacity in the supply side to satisfy new demand that would be induced by growth of investment and consumption. This is the main reason why the structural change in industry is needed in Russia. We can imagine the structural change by taking examples of individual industries. First, because the oil and gas industries are competitive in the world market, their growth and active investment can be expected. In order to ensure both the structural change in industry and economic growth together, it is necessary to promote industries that supply equipment and materials to these core industries. Besides the energy industry, there are new lights in some consumer goods industries, like the motor industry. These industries may face a market expansion as consumers with rising incomes demand more goods. They may also be assumed as cores of economic growth. Among various policies and policy tools to enhance structural change, policy-based finance, which provides public funds to private sector in forms of granted loans, is argued mainly in this paper. Currently the supply of investment funds is not enough to change the industrial structure, which hinder the economic growth. To overcome this challenge, a financial intermediation system with disciplined entities should be developed. However, policy-based finance also could play a significant supplementary role until the financial market begins to allocate funds appropriately. Even when that market comes to function well, it wouldn't lose significance; it supplements market function in such a way as providing extra-long-term and/or high-risk loans. In Japan, public funds have contributed to the supply of long-term credit for investment.*All opinions expressed are those of the author and not of the institution.
Long-term Economic Development with Consideration to Changes of Policies and Factors in Russian Economy
Galina E. Maslovskaya
Deputy chief of division,Macroeconomics Forecasting Department,
Ministry of Economy, Russian Federation
March 1998
(Summary)
In this paper we discuss the economic policy impact upon the economic situation in previous and recent years and in the long-term period. The monetary and financial policy in the first stage of transition was not consistent enough. The tough periods were followed by slack ones. Consequently it slowed down the realization of economic transformations and the way out of deep crisis the Russian economy has been since the end of 80's. In accordance with achievement of economic stabilization at present the most important are stable economic growth and institutional and structural transformations ensuring the effective functioning of economy. The analysis of policy realization in the previous years and current situation allows to make the following conclusions with the respect to policy for the next few years. The necessity of budget reform. First of all reduction and liquidation of the budget indebtedness are urgent. It is necessary to exclude primary causes of the indebtedness. It is necessary to reduce tax pressure to a real sector through redistribution of tax load to the sectors which have essential share of GDP but escape paying of taxes. It is necessary also to decrease the load to the budget, which is result of tax exemptions and privileges. It is very high even in comparison with advanced countries. A general level of subsidizing economy is almost 10 % of GDP. That is why reforms of social sphere, housing and utility services, military reform are necessary. It is necessary to remove obstacles to make more active investment process. Transformation of the existing accumulated funds into investment, dedollorization of the economy and stopping of the capital outflow are priority problems in Russia. Another important factor is a formation of an effective capital market and of its mechanisms, ensuring the mustering of investment resources and their most effective placement. Political and economic stability, consolidation of the property right, improvement of management at the enterprises and an improved criminological situation are the necessary prerequisites for that.*All opinions expressed are those of the author and not of the institution.
Trade Policy and Tax Administration Reform
Susumu Kuwahara
Deputy Director,Second International Economic Affairs Division
Economic Planning Agency, Japan
March 1998
(Summary)
In this paper, we discuss trade policies and the reform of tax administration, two major issues related to the medium and long-term objectives and constraints for economic developments in Russia. The composition of Russia's exports has not changed since the CMEA (Council for Mutual Economic Assistance) era; it still relies on energy and mining products. Energy resources and mining products have kept their share of exports. But not because they have the comparative advantage in Russia. Other industries, such as manufacturing, also have the potential to expand exports that have not been realized. The lack of investment has resulted in insufficient production technology and capacity that cannot compete in the international market. To raise the productivity and international competitiveness of various industries in terms of quality and prices, it is important to increase investment with capital equipment embodying advanced technologies. This is most efficiently achieved by encouraging foreign direct investment. Various effective policy measures to increase foreign direct investment, including facilitating capital inflow and reducing its risks, exist from the trade side, the comprehensive reduction of tariffs or the elimination of non-tariff barriers that reduces costs of intermediate inputs from abroad are effective. Activities in APEC (Asia Pacific Economic Co-operation) will also help this. Reduction of tariffs and non-tariff barriers is consistent with Russia's desire to join the WTO. Stable tax revenue sources are indispensable conditions for government activity as well as for the sustainability of economic development. To consolidate tax revenue, it is necessary to establish clear tax rules and a tax administration that executes the rules. The following three points can be pointed out as lessons for a successful tax administration reform achieved through experiences in other countries. Those are, (1) simplification of the tax system, (2) strategy (priority setting of works for the reform), and (3) commitment by decision-makers and managers to reform. We hope discussions on a new tax code now being held in Russia will lead to a fruitful conclusion and that the new tax code will be implemented as soon as possible in a manner consistent with the above three points.*All opinions expressed are those of the author and not of the institution.