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Macroeconomic Policy after Economic Stability is Establishedby Alexander A. Khandruyev, Deputy Chairman, Central Bank of Russian Federation


Russia is currently completing the first stage of the radical market reform, linked with the dismantling of the command economy and early manifestations of macroeconomic stabilisation.

Despite a widespread view, at the second stage middle-term economic growth will not be restored automatically or with a small time lag. Thanks to the use of underutilised production capacities, the expansion of export and import operations and the increased activity of small enterprises business activity will increase in some sectors. There will be signs of a transition to positive capital investment and GDP dynamics.

However, the transition to noninflationary economic growth implies a change in the structure of the Russian economy, closure of inefficient enterprises, an end to the default payments crisis, better quality of corporate management and transparency of accounting and reporting.

At the same time, consolidation of the results of financial stabilisation remains a priority at the second stage of market reforms. The reduction of the budget deficit and improved tax collection acquire special importance. The attainment of a zero primary federal budget deficit would have a great role to play. Low inflation rates combined with a stable exchange rate and zero federal budget deficit create favourable conditions for reducing real interest rates and encouraging investments in the nonfinancial sector.

Thus, there is a period of adaptation between the first signs of financial stabilisation and the transition to noninflationary economic growth in the middle term. The most important objectives during this period are to consolidate the results of financial stabilisation, overhaul enterprises, rehabilitate the banking and financial sectors and pass the laws necessary for sustained economic growth, especially a Tax Code.

Macroeconomic Stabilization and Anti-crisis Regulation

by Alexei V. Ulyukaev, Deputy Director,

Institute for Economy in Transition


In the present paper the author considers the matters of macroeconomic policy pursued in the conditions of the global economic crisis.

In 1997, Russia's economic development has found itself under a strong impact of the budgetary crisis, on the one hand, and the emerging second wave of economic reforms, on the other hand.

The results of 1997 are positive on the whole. This country's monetary system and the system of public finance have survived through the crisis in the financial markets, production and investment fund were over, and positive structural shifts have been noted. In the social sphere, reforms were launched, although they proved to be consistent enough.

However, the majority of the favorable results of 1997, specifically in the monetary sector, were to a significant extent put in doubt by the financial interest, which made the major financial aggregates to return to their level as of early 1997.

In this connection, the government will have to have its policy focused on the problem of maintenance of the trends of macroeconomic stabilization to a higher extent compared to what was envisioned prior to the dramatic events worldwide.

The Russian Far East and Northeast Asia:Prospects of Economic Development and Regional Integration

by Valery K. Zaitsev, Deputy Director,

Institute of World Economy and International Relations (IMEMO)


The key to Russia's future in Northeast Asia will be redeveloping and revitalizing the Pacific Russian economy.

Despite the formation of a regional association, the ten territories of the Russian Far East face the center largely in isolation from each other. The Pacific Russian economies are not complementary, but are based on natural resource exploitation, local elites see themselves not as partners but rather as rivals for export quotas, markets, and domestic and foreign investments.

The Russian Far East is looking to new opportunities to address at least three of the most serious problems: to develop energy supplies; to reconstruct the transportation infrastructure; and to accomplish the conversion of some of its defense enterprises. The long-term economic viability of the region, however, requires a coordinated approach to development which will both promote economic activity and safeguard the region's natural resources.

The case for decentralization in Russia as part of market-oriented reforms and as a mean to democratization seems incontrovertible. But original model of decentralization has failed, and the burden of development is shifting back to the center.

We believe that the Russian Far East can achieve its place in a dynamic Northeast Asia only through measures strengthening centralization, controls over cross-border ties, and adopting favorable climate for foreign investments. Moscow must find a new mixture of centralization and decentralization.

A workable model of sustainable development strategy in the RFE should proceed from the steps to develop a single macro-region on the basis of megaprojects in energy and transportation. Such large-scale Projects are already becoming the engine for emerging regionalism in Northeast Asia.

Two extreme scenarios for the mid-term future may be suggested, a pessimistic and optimistic ones. The probability of both depends on combination of trends in regional environment and evolution of the domestic economic situation.

The pessimistic scenario starts with the suppose that recent Russian activities on revitalizing its Far Eastern economy and broader cooperation with the regional nations fail to bring sensible improvement of Russia's posture in Northeast Asia. This means that continuing aloofness from Asia-Pacific excludes Russia from Asian and global roles commensurate with its size and potential. Even joining the APEC cannot compensate for missing East Asia's economic revolution.

The optimistic scenario proceeds from the assumption that Russia will be able to achieve major goals under favorable regional international environment ensuring Russia's larger economic and political participation. To become a major regional economic power, Russia must reorganize itself for serious competition and cooperation in Asia-Pacific. It means first of all, establishing a legitimate, law-abiding, hopefully democratic, and stable state with relatively predictable economic policies.

Geopolitics dictates a compelling reason for Russia to develop more coherent Asia-Pacific policy. Russia will hardly be able to play a significant role in the system of international economic relations of the region. Keys to most important regional variables are outside Russia's control. Russia may affect them predominantly by cooperating with other regional states.

Structural Transformation in Russia Achievements and Remaining Issues

Sadao Nagaoka

Hitotsubashi University

February 1998


The sharp output decline of the Russian economy, which had continued consecutively since 1992, the year of price liberalization, finally stopped in 1997. However, investment is still declining and the output recovery in Russia has not yet been led by investment growth, in contrast to the case of Poland.

This paper aims at reviewing the structural transformation in Russia and at identifying remaining policy issues, with a focus upon investment. It has three sections. Section A points out that there has been significant structural changes in Russia over the last five years, in terms of the expansion of private sector as well as in industrial structural change. Section B analyzes the constraints upon investment and structural change. It points out high real interest rate even in terms of the central bank refinance rate, the near absence of financial intermediation from household saving to real investment except for some export-oriented firms, and declining profitability of capital. Section C discusses policy issues for overcoming these constraints: reduction of transaction cost, strengthening internal financial resources of business firms, strengthening institutional framework for industrial finance, strengthening the capability for enterprise restructuring, and removing barriers to export development.

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