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Presidential Economic Council:  at sixes and sevens

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Presidential Economic Council:  at sixes and sevens

The Economic Council has considered three programs for Russia’s economic rescue. They differ from each other crucially, and this is another problem to be solved.

On May 25th, a long-awaited sitting of the Economic Council Presidium, directed by the President, took place. It was dedicated to Russian economic growth in 2025. It was decided to hold such Council sittings regularly, which cannot but satisfy people, but will they be satisfied with the adopted solutions and their consequences?  

 

Elites’ rift

Before the sitting, three programs, very different from each other, had been published. There are serious contradictions in the approaches and standpoints present in the upper echelons and the scientific community.  

It is not just about different viewpoints but the destiny of the country during the coming years. The decisions which may be adopted soon will be life-changing. Let us sum up the standpoints of the central figures.

 

Just before the Economic Council, the RF Ministry of Economic Development published its program. Its principal message is the achievement of mid-term steady economic growth. Among the basic proposals is the reform of the Labour Code, in particular, the simplification of the procedure for firing employees for economic reasons. It should be mentioned that similar ideas in France caused unprecedented mass street protests.

Another already-famous thesis from Alexey Uliukaev’s department is the consumption restriction for the release of material resources for investments. According to the concept’s authors’ opinion, the optimum relationship between current consumption and investments should be within the range of 22—25% of GDP. To enter these parameters, investments in the economy in the coming years should grow by 7—8% a year, but in practice it means a total salary freeze, primarily in the budget sphere and in pensions indexing cancellation. In these conditions, salary growth in the private sector will also stop. Besides this, it involves a retirement age rise from 63 to 65 years of age.

The Ministry of Economic Development also proposes active and large mid-term borrowings, including those from abroad. It should be noted that this idea may work. It is proved by the investors’ interest in Eurobonds, which were successfully invested by the Ministry of Finance for the first time after anti-Russia sanctions were introduced.

Emission, and again emission

The main proposals from the Stolypin faction may be narrowed down to several items: a money supply pick-up via the refinancing of the economy by the Central Bank to the tune of 1.5 trn roubles a year, and a return to a currency rate with a constant 10%-lower-in-reality efficient rouble rate.

The second stage of the “Stolypin” reforms includes taxation principle alterations, with a focus on final consumption. The Stolypin faction thinks it is possible to increase the total volume of investments from the current 18% to 30% of GDP in the nearest decade. To achieve that, it will be necessary to increase the money supply but in a way that means it will be directed towards the real economic sector.

For example, according to one of the concept’s ideologists, the academician Sergei Glaziev, the Central Bank’s decisions cut out internal credit, having raised the rates.  The real sector remained without money. The credit is twice as expensive as the average efficiency level in the processing industry. At the same time, speculative capital is on top, as the sharp weakening of the rouble offered up the opportunity for lining pockets.  As a result, GDP shrunk in conditions where industrial capacities were only at two-thirds capacity.

The economy faces an important problem – decreasing the price of money, the “Stolypin Club” members think. It is possible when switching to multichannel financing. Investment channels must borrow loan funds at much lower rates.

Besides this, the control of financial streams going through banks should be adjusted. The state allocates money to the banks for them to offer credit but instead the money goes to the currency market. The author of the program thinks that it is not very difficult to make controls in the sphere stricter, taking into account the fact that 70% of all funds go via several state credit organizations.

Russia must solve large-scale tasks. Our economy is 3-4 times less efficient than in leading countries. To correct this, 10 trn roubles are needed, but neither the state nor existing financial systems can provide the economy with the sum. It is not just on account of a lack of money, but also on account of the money circulation mechanisms in the economy.

As Sergei Glaziev says, strategic planning is needed which is to be directed at real targets of resources' submission, not invented ones.

 

Systematic problems in the system

The report, prepared by the Center of Strategic Developments associated with Alexei Kudrin (by the way, he was recently appointed Deputy Chairman of the Economic Council), is dedicated to the systematic problems of the Russian economy. These are the main reasons for the current crisis, from the point of view of the authors of the report.  

Two other components – the oil price decrease and the anti-Russian sanctions – have increased these negative tendencies. According to the analysts of the CSD, to achieve economic growth of up to 4%, 40 trn roubles of capital asset investments will be needed. In this respect, the CSD suggests carrying out judicial reform, state management reform, and improvement of the investment climate.  

The important element of the program is the deficit decrease to 1% of GDP. For this, it will be necessary to reduce expenses, mainly inefficient ones, and decrease inflation to 3-4%.

 

Not together

Even this short review shows how different the concepts for economic reforms by the three principal analytical groups are. The differences are not so much economic as ideological.

The neo-Soviet proposals from the “Stolypin Club”, the neo-liberal ideas from the CSD headed by Kudrin, and the rather vague suggestions from the Ministry of Economic Development have tried to mark their own standpoints as being different from the other two non-compatible approaches.  The President had to admit that the parties are far from being in agreement.

Speaking at the sitting’s opening, Vladimir Putin said, “There are people of differing views in the Presidium, and sometimes they adhere to opposite viewpoints as to the socio-economic development of the country. But this is the advantage of the chosen format: it allows us to speak, to argue, to discuss alternative approaches, to consider the problem from different points of view. I think that you will agree that there should not be any monopoly on truth in an economic discussion”.

Speaking to the participants of the Economic Council, Vladimir Putin stressed that, “the current dynamics… show that the reserves and resources which have driven the economy of the country forward since the beginning of the 2000s do not work as they used to, and economic growth will not start by itself. If we do not find new growth sources, the GDP dynamics will be zero. And then our opportunities in the social sphere and in the spheres of national defense and security, our decisions on other tasks, will be much lower than those needed for the full-scale development of the country”.

The President appealed to all of the people with their different views to share their opinions about ways of overcoming the crisis.

According to many experts’ opinion, the economy of Russia has adapted to the crisis, but its further growth has not yet been seen. Sooner or later one of the proposed variants will have to be chosen, or maybe a sort of compromise between them. This is another big problem which must be solved as soon as possible.

 

Vladimir GURVICH

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