Vedomosti
Russia-2020: Development options – Bonanza ends
This article is one of a series by the Moscow Carnegie Center, published each Wednesday, outlining likely development options for Russia over the next 10 years.
The survival of Russia’s current socio-political model depends on whether or not its economy resumes its formerly high growth rates. Nearly ten years of impressive growth has made society more tolerant of restrictions on civil freedoms: the decade of upturn in the 2000s benefited every section of Russian society.
If, however, Russia’s economic growth slows, stagnates or even declines, people will fast become dissatisfied with government policy and the present political system. Only a return to high, stable economic growth rates can keep the current political model afloat.
But the factors that drove Russian economic growth over the period 1999-2008 are nowhere to be seen, and are unlikely to reappear any time soon.
Russia’s recent ten-year growth period can be divided into two phases. First there was post-crisis rehabilitation: driven by a depreciating ruble, unutilized production capacity and rising raw materials prices. By 2002-2003, these factors were no longer at play.
Deeper changes – more investment, greater labor productivity, the privatization of state-owned companies, etc. – were needed to ensure growth. German Gref drew up a program to take care of all those issues. But its patchy implementation in 2000-2007 failed to produce a marked effect.
The oil price hike in 2003-2005 pushed growth rates to 6% or 7%, while a massive inflow of investment provided a new growth factor.
But growth based in this sizeable increase in “easy money” petered out as the global financial crisis struck. Starting in the second half of 2008, capital again began fleeing the country.
To deal with this falling liquidity, the government virtually exhausted its cash reserves. The Finance Ministry’s reserve fund went from $60 billion in January 2010 to $25 billion at the year’s end (and has not moved since).
Although late in 2010, GDP rose to the level reported at the end of 2007, it is difficult to be optimistic, especially since there was less fixed investment over January and February. Slow growth or even stagnation is expected to be the dominant scenario until new growth drivers are found. Unfortunately, they remain nowhere to be seen.
What could encourage an upturn over the next ten years? Foreign capital is unlikely to make a large scale return to Russia. Nor can Russia count on being bailed out by oil prices: even $100 per barrel is barely enough to keep the budget deficit-free.
There is only one potential path to resuming substantive economic growth in Russia: increasing economic efficiency, boosting labor productivity and encouraging investment in fixed capital.
If the authorities decide not to overhaul their economic model, the only hope left will be a bonanza like the one seen over this past ten years. But if no new windfall follows, and current government policy is not radically altered, the Russian economy may face a very dim future.
Gazeta.Ru
Incomes move into the shadow
Although officially real incomes fell almost 3% in the first quarter of 2011 compared to the same period last year, people have not started spending less and their bank balances remain much the same. Analysts explain this contradiction by the fact that businesses have moved into the shadow economy due to higher social welfare costs.
On average, salaries reached 22,127 rubles in March, exceeding March 2010 levels by 9%, and nominal wages increased by 10.1%. Yet official figures show that real incomes fell by 3.4% year on year.
Part of people’s incomes is eaten away by inflation: housing and utilities bills have gone up by 11.8% in the first quarter of 2011, with healthcare, public transport and communications prices soaring by 9.1%, 8.9% and 2.4%.
Consumer goods and services cost 3.8% more in January-March 2011. Cereal and bean prices soared by 75.1%, with fruit and vegetable prices rising by 46.8%. Cooking oil and butter prices went up 33.6% and 21.4%, the cost of sugar by 19.8%, and milk and dairy products prices also rose 16.1%.
Tobacco and gasoline prices rose by 20.4% and 10.6%, respectively, the highest price hike for non-food products.
The annual consumer price index reached 9.5% in the first quarter. The government has promised to keep inflation down: the latest forecast by the Economic Development Ministry raises maximum planned inflation to 7.5%.
Despite inflation eroding their incomes, consumers are happy to keep on spending: retail trade turnover has increased 4.7%. “Instead of saving, people prefer to spend their money,” said Alexei Devyatov, chief economist at URALSIB Capital.
Alfa-Bank chief economist Natalia Orlova said that overall bank deposit volumes remained the same. “I’m afraid the only possible explanation is that businesses have moved into the shadow economy, and in reality there has been no fall in real incomes.
Since 2011, employers’ contributions to the Pension Fund, the Mandatory Medical Insurance Fund and the Social Insurance Fund have gone up from 26% to 34%. This increase is motivated by the need to modernize the healthcare system and to raise pensions. However, the business community warned before the measure was introduced that salaries would be paid under the table as a result.
A 2010 poll conducted by Delovaya Rossia (Business Russia) showed 25% of businesses were ready to operate in the shadow economy.
“The business community is facing a difficult situation: apart from rising taxes, they have to deal with falling investment volumes,” Devyatov said.
Devyatov said the Russian economy was now at a crossroads: reduced investment could cause a production slump and, consequently, a fall in incomes.
Izvestia
Russian government denies internet clampdown planned
Izvestia has investigated potential threats to internet freedoms after a U.S.-based watchdog ranked Russia “partly free” and a state tender was opened for research into “foreign experience in regulating” the web.
Several proposed bills regulating the internet, discussed by the Russian parliament, have sparked a heated public debate, reviving fears that the authorities might clamp down on internet freedoms ahead of the 2012 presidential elections.
Dmitry Peskov, spokesman for the Russian prime minister, reassured the nation that there were “no such plans.” “None of the bills we discussed at the working group called for shutting anything down,” said Olga Noskova from the Duma committee on information policy.
Freedom House, a U.S. rights watchdog, said in a report that the situation in Russia would likely deteriorate further in 2011, with bloggers and so-called extremist websites facing more attacks by hackers and authorities. The internet in Russia is threatened by political censorship and government control over its infrastructure, it said.
Public activist Igor Yakovenko agrees there is some ground for these conclusions. “However, these are merely potential threats. They have not yet led to any limitations of internet freedoms. The foundation I head has cooperated with Freedom House in the past, and I can say that their methods are somewhat mechanical,” he said.
“These rankings fail to take Russian specifics into account,” said Galina Timchenko, editor-in-chief of Lenta.ru. “There have been plans to regulate online media before, but none of the initiatives has been carried thorough.”
It appears that authorities are restricting access to certain online resources and prosecuting bloggers in a bid to curb propaganda of terrorism and extremism. Although their intentions are good, their methods may cause an uproar in the online community.
Russia’s media watchdog has announced a tender to create a filtering system that would automatically shut out calls for terrorism, recipes for cooking up illegal drugs at home and “false accusations” against state officials. Experts remain skeptical about this system being workable.
Popular blogger Anton Nosik remarked ironically that the internet in Russia has been “potentially” threatened by censorship ever since the first Russian domain was registered 17 years ago. “But these horror stories are most often spread by people who are paid for their anti-censorship protests.”
The recent state order for a study to reveal best practices in web regulation in other countries, including China, has also caused outrage.
In fact, European governments, which are known for their respect for freedom of speech, also monitor the internet. In France, providers have to disclose information on the site owners. The authorities also monitor all the national media for racist content.
German and UK authorities monitor and filter online resources, too.
According to Izvestia’s online survey, 41% of Russians believe any web regulation is pointless; 40% said resources promoting pornography, terrorism or violence should be closed; and 5% said the internet is evil and should be banned altogether.
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