Mr. Zoellick may have discussed many of the issues on the Moscow agenda with Russian Deputy Prime Minister and Finance Minister Alexei Kudrin several days before. Both had been in the Japanese city of Osaka for a meeting of G8 finance ministers devoted to the crises on June 13-14.
Mr. Zoellick was generous with his praise for the Russian economy. He congratulated President Dmitry Medvedev and his colleagues on Russia's strong economic growth, and said that this is a very interesting time for Russia and its relations with the World Bank.
Mr. Zoellick was much more diplomatic than the authors of the World Bank's early June report on the Russian economy. They too commended Russia for its economic growth rates: 8.1% in 2007, and 8.7% in the first quarter of this year. But they again criticized the Russian government for persistent inflation (which reached 7.7% from January to May of this year, and was up to 8.1% by June 9).
Importantly, for the first time World Bank experts spoke about the overheating of the Russian economy, which they define as a situation where consumer demand outstrips the supply of goods and services. Graphic evidence of this is the faster growth of wages and salaries than labor productivity.
This situation threatens even higher inflation, which could eventually slow down economic growth rates. Nevertheless, the experts have concluded that all macroeconomic indicators, except for inflation, point to the strength, rather than weakness, of the Russian economy.
Their recommendations on combating inflation, now firmly established as the worst headache for the Russian economy, are obvious but difficult to carry out. They suggest that Russia pursue a policy of strict fiscal discipline in the short term, and simultaneously plan for long-term spending. It should also toughen its credit and monetary policies by gradually increasing interest rates and reserve requirements for banks, and pursuing a more flexible exchange rate policy (the Central Bank has already started taking steps in this direction).
But it is also necessary to enhance labor productivity. The World Bank's experts believe that this can be done by implementing structural reforms, that is, by improving the business environment and investment climate, reducing bureaucratic barriers for business and innovation, and resolving infrastructure problems. In other words, doing everything to promote competition.
But all these tasks will have to be tackled by the Russian authorities, and there were no grounds to expect Mr. Zoellick's visit to produce any sensational proposals for the Russian economy.
It has long become clear that Russia, which has been showered with petrodollars for several years, no longer needs any financial help from the World Bank. It is, however, interested in exploiting its expertise.
Prime Minister Vladimir Putin emphasized this at his meeting with Mr. Zoellick in Moscow: "Today, we look at the [World] Bank primarily not as a source of funds, but an institution, which may give us additional knowledge, know-how and recommendations on the development of our financial and economic policies, and in individual directions of major importance for us."
For instance, now the World Bank is ready to carry out a project to improve the financial competence of both rich and poor Russians. It is also ready to share with Russia its proposals on short- and long-term funding for agriculture, aimed at overcoming the negative consequences of food price hikes.
During Mr. Zoellick's visit, the World Bank Group and the Russian Bank for Development of Foreign Economic Activity (VEB) signed a memo of understanding on June 17. The World Bank will help the VEB to grow as a state development institution, to fund infrastructure projects, and strengthen the mechanism of public-private partnership.
Russia and the World Bank also cooperate over sovereign investment funds, which national governments use for investments abroad. China, Singapore, and the Gulf countries all have sovereign funds. Their Russian counterparts are the Reserve Fund and the National Prosperity Fund, which were established this year on the basis of the Stabilization Fund.
For a long time Western countries were unconcerned by sovereign funds. But in 2006, the United States and the European Union (Germany) initiated legislation to block unwanted investment by these funds. Last May, Russia responded by passing a law limiting foreign investment in strategic industries.
Attitudes began to change at the end of last year, when sovereign funds played a key role in maintaining liquidity in the world markets and saved several major Western banking groups. Together with the International Monetary Fund (IMF) and the EU, the World Bank began drafting rather liberal terms for the operation of sovereign funds abroad. The main requirements are transparency in operations and decision-making, and a pledge not to pursue political goals. These were reiterated at the recent meeting of G8 finance ministers in Osaka.
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
