Russia’s leading economic thinkers say the country needs bold action to avoid stagnation. After President Vladimir Putin set out his ideas for the economy in a keynote speech on Friday, they are still waiting to hear what that action will be. Addressing the St Petersburg International Economic Forum, an annual gathering where investors look to the Kremlin to set the direction of travel for the economy, Putin said Russia’s future lay in developing the digital economy.
But he had few detailed and finalised plans on how to achieve that ambition, and many of the other themes in his speech – on improving the investment climate, on protection of ownership rights – had recurred in previous speeches at the forum over several years.
Putin, now in his 17th year as Russia’s paramount leader, did not set out what economic strategy he would pursue if, as most people anticipate, he is re-elected in 2018 for another six-year term. “The president creatively skirted around this subject,” said Alexander Shokhin, a former deputy prime minister and now the head of the Russian Union of Industrialists and Entrepreneurs, an employers’ lobby group.
Shokhin said Putin still had time to formulate his strategy before the election. In any case, the speech on Friday contained useful signals for Russian businesses, Shokhin said, though they “might not be totally understandable for foreign participants”. Russia has managed to ride out a period since 2014 when a slump in world oil prices and Western sanctions imposed over Moscow’s intervention in Ukraine combined to tip the economy into a sharp slowdown and send the currency plummeting.
The rouble is now stable, inflation is falling and economic growth this year is forecast by the World Bank at 1.3 percent. Foreign direct investment was $7 billion in the first quarter, its highest level in three years, Putin told the forum. But policy-makers want to achieve gross domestic product of 3-4 percent, and to achieve that, many economists say, Russia must make structural changes to its economy, in particular by reducing the role of the state.
“Putin said some standard basic things, voicing main themes but offering no insightful ideas,” Dmitry Polevoy, chief economist at ING Bank in Moscow, said of Friday’s speech. The return to growth and pick-up in investment are presented by Russian officials as a big achievement. “From the maths point of view it is not bad but conceptually it is far from an ideal situation that you can brag about,” said Polevoy.
Several of Russia’s most powerful business leaders did, however, praise Putin’s speech. “He is a great leader,” said Vagit Alekperov, chief executive of Lukoil, Russia’s second-biggest oil company.
In what has become an annual ritual, liberal businesspeople and economists used the St Petersburg event, Russia’s main showcase for foreign investors, as an opportunity to press the case for urgent reforms. “Between 2008 and 2017, 10 years, the average economic growth rate was 1 percent. That’s a lost decade. The reasons are the failure to conduct reforms and the state takeover of the economy,” said Alexei Kudrin, a former finance minister.
The liberal camp’s main prescriptions for the economy involve a privatisation programme to shrink the state’s role, decisive steps to rein in law enforcement agencies that they say harass businesses, and guarantees that bureaucrats will not steal businesses from their owners. This camp has some influence. It includes such people as German Gref, chief executive of Russia’s biggest lender Sberbank. Central bank governor Elvira Nabiullina is sympathetic. Kudrin has been commissioned to submit proposals for economic reforms to the Kremlin.
This group is countered though by a powerful group with ties to the Kremlin and state-owned business who believe bold reforms could hurt stability, and that the state needs a strong role in the economy to protect national security. The rivalry between those groups has intensified because the policy direction for the next presidential term is being defined in the next few months, and both sides want to put their stamp on it.
“We can live without reforms, and in previous years that’s essentially what happened,” said Andrei Sharonov, dean of the Moscow School of Management Skolkovo. “The question is, how long can we live without reforms, and how high will be the price that we’ll have to pay for that?”