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Russia’s economy: adaptation, not reform

Экономика России: адаптация, а не реформа

The year is coming to an end, the economic bloc of the government is gradually beginning to bring statistical results of the year, reporting the recovery of economic growth and revitalization of the domestic economy. As you know, you can say anything, to draw figures in Rosstat anything, especially given the fact that the Agency is now subordinated to the Ministry of economic development, which develops forecasts of economic development.

 So “animated” deathly ill eyes slightly. And commercial Dr. report: the revival!



For the first nine months of this year, the economy grew by 1.6%, while the expected forecast was 2.1%. In October, the growth of industry stopped, although the other figures are still growing. It is noteworthy that growth of 1.6 per cent, largely backed by just mining. She grew 2.5%, while the manufacturing industry by 0.9%. Became record natural gas production, which grew by 12%. Despite the fact that Gazprom for the first time in years fell into a loss! The manufacturing industry though showed growth, for the strategic directions — manufacture of machinery and equipment manufacture of computer, electronic and optical products growth was at the level of statistical error or was declined.

Like grew for 9 months and investment by 4.2%, but their growth is exclusive exclusive in nature: in the construction of Gazprom and the Crimea bridge. In other sectors, the average decline and noticeable. Cerevisae and structural degradation continues. And that is typical — the growth of incomes does not occur. On the contrary, the decline in real income amounted to 1.3% in January—October, which will lead to the annual reduction, with the result that the reduction will be the fourth (!) year in a row. And now a question for logical thinking: the real income is a measure of effective demand. The latter is one of the growth factors. As in the reduction can grow retail and to recover the economy? This is actually the parameter that controls the statistical falsification. Lie detector.

Inflation indicators even exceeded. Instead of 4%, it was 2.6%. This time, the Central Bank does not consider this value as a deviation from the purpose for which you need to respond with monetary policy measures. However, there have been attempts to associate low inflation with growth, while the economic slowdown is clearly not the result only of inflation, especially since the latter figure is deliberately understated for the sake of achieving targets. Does the lie detector is simply hot.

It is worth remembering how the budget funds were spent inefficiently. It is not even about megastrike, given to friends of the President, and for the salvation of the banking sector. This year funds were allocated to save banks associated with the ruling elite — Opening, Binbank. Remember the plan to support the economy in crisis — 1 trillion rubles were channeled into the banking sector. As usual, save steel is not the most in need of funds industry. Since the beginning of 2014 to rescue the Russian banks the government spent 3.2 trillion rubles — the money came in the form of direct capital injections, were given to the bankers for recovery of other troubled banks and flowed to the Deposit insurance Fund, the completion of which is almost entirely laid down on the printing press of the Central Bank. However, of the 32 banks that received assistance, only half recorded the actual increase of capital, every second, the Bank lost all of the money allocated, and only 4% gave it to the stated purpose of lending to priority projects in the economy!

So, oil and gas, as usual, pull modest “growth” (which is really none) of the Russian economy, while manufacturing industries not related with raw pipe is stagnating. The real profit of the sector has fallen by almost 10% since the beginning of the year, the statistics also “decorated” postroiki and mega-projects, which allowed to hide the real extent of the failure of the economy.



For a long time when doing something, sooner or later comes the fatigue. And then we need to find more tools to restore interest in the case. For example, the Russian President is already quite visible. Indifferent person, a report on a piece of paper, with earphone, a repetition of the same thoughts, a formal interview with the chosen “people”. The closure of the landfill, and then the indignation of that garbage in another place began to carry. Meeting with the economic block of the government, the leadership of the Central Bank and the presidential administration on issues of economic policy have shown that the President is looking rather indifferent to everything that happens. For the failures, no one is not responsible, new solutions and approaches are not taken, everything happens at the level of ordinary meetings, “And of course — to look at the first quarter of next year, in the medium term. To see what made that failed to do and to coordinate our actions in various departments”. This is the top topical solutions.

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According to statements of the Chairman of the Central Bank, the government “compensated 95% of economic decline, which occurred, starting in 2015”, “the economy has rebounded faster than many expected, than we expected”, “in our assessment, is now growing rapidly, already close to potential. Potential — what is possible with the structure and the performance of the economy.” This play on words is usually called the verbiage. First, what do you mean — compensated 95% drop — is unclear. Russia’s GDP in 2017 to 2015 amounted to 98.7 percent, that is below the pre-crisis level is not reached we have not reached even the level of GDP in 2013. Secondly, what kind of policy when authorities say apprised of the potential, while the Russian economy came down to positions below tenth in the world? This is what happens, its “potential” is estimated at that level? Third, the solution once again is the growth of labor productivity, which in Russia is directly connected with technical equipment. And this is a question of investment in fixed capital, and not too “high” wages, we have tried, say officials.

The Prime Minister is generally satisfied with the situation and considers the performance is good: “For the last time, and it’s not some data, it is a medical fact, it is a diagnosis that put economic analysts, the economy has entered a stage of growth. I can’t say that it is absolutely steady growth, such as we would like to achieve, but, nevertheless, growth of around 2% on a world scale, this is a very good growth.”

However, the only diagnosis that really put the economy and its leaders, is that as a resource colony Russia is not viable. The increase of the level of statistical error, the failure to pass reforms is a time bomb, which in the short term will lead to a protracted recession, that should have even the “talented” Rosstat will not. Meantime, but the allegation that “the Russian economy needs to develop much faster in order to make up for the problems that have arisen in 90-e years, well, and connected with the crisis of 2008 and the economic crisis of the decade” nothing is being done. Installation is simple and it is advertised everywhere — “our economy has adapted to the conditions of life in the situation of General economic crisis, and taking into account the constraints that were imposed on the Russian economy, the US and several other Western countries” (Medvedev). And if adapted, then you can leave everything as it is. So far, the timing and prospects for reform are vague and to be honest, it is not expected at all, but plans for higher tax burden for business and the population is quite tangible.



The growth itself was not. The 1.6% is more of a gift to the presidential campaign. In order to show that the economy began to recover. Could draw and 5%, but it was too indecent in a real downturn.

Since the introduction of sanctions, the government has adapted, learned to live (yet without a social explosion-that time is the only criterion of “success”) in terms of oil prices of $ 60 per barrel, and once again came to the idea that somehow, but the raw model of economy allows him to stay afloat, why bet on its preservation. What factors provided a small increase?

First, the rising cost of oil, which remains the main export product.

Second, investing in energy projects and the construction of Putin’s friends. The growth rate of investment was due to investment in pipelines and the construction of the Kerch bridge. A surge of investment in the second quarter mainly reflects the investment of the public sector and fuel complex. The public sector, for example, significant amounts spent on the construction of a bridge to Crimea, and fuel farm implements pipelines to China, Turkey and Europe “Nord stream-2”.

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Thirdly, the proposed alternative means of economic recovery of Russia were not accepted. Monetary policy is tight, although a bit rate was lowered. That insignificant. Central Bank remained on the position that the growth of the money supply through lending leads to economic risks: “lending is gradually increasing, based on the healthy basis of lower inflation, that is, lending is growing, creating risk of excessive inflation”, “this is an adequate rate for our economy, without the formation of bubbles. More rapid change in the key rate would risk accelerating inflation is its stabilization, in our view, and could require even reversal of monetary policy that, in our opinion, is totally unacceptable and would undermine, offset by the advantages of stability, which we are already receiving now.” And to the IMF, the Central Bank fully listens, heeding the advice of lower interest rates with “appropriate caution”.

Russia did not develop the technology and to support the domestic business, and have narrowed it down to the mythical concept of the digitalization of the economy, which should become the new growth factor. Herman Gref even has offered to encourage the Russians to create a farm for mining cryptocurrency. The country increasingly needs to virtualservices, leaving the real production in the past, and adaptability in an unattainable future. Kudrin, for example, announced the availability for Russia the risk of losing the status of a technological power, believing that the growth of Russia’s GDP to 4% is impossible without doubling non-oil exports. That’s only when and how Russia has become a technological power — a rhetorical question. According to the HSE, the level of innovation in Russia fell to the lowest in 17 years. And this despite the fact that he was modest and even overstated statistically. In 2015, the share of large and medium-sized businesses that are adopting in their work, high technology and innovative solutions, was 9.5%, and in 2004 was 10.5 per cent. Fixed rate — the lowest since 1999.

Russia is lagging behind on this indicator in 4-6 times from leading industrial countries: in Switzerland, 60,2% of companies use innovation in Germany — 58.9 per cent, France — 46.5 per cent in the UK — for 45.7%.

Fourth, when small and medium businesses in need of support and preferential terms, against him continue to tighten the screws. Promised preferential treatment stops, although the President promised not to raise the tax burden on businesses by 2018. In 2018, the authorities intend to restore the tax on personal property, called “tax modernization”, which will be assembled subjects. The draft budget introduces three new payment: import duties on machinery and equipment, recycling of the means of production heavy and power engineering (7%), investment in sea ports collection (25%). Also indexed already existing fees: for example, the recycling fee on cars to 15%. Thus, the authorities are torn between the problem of saving the regions which are leveraged, and business support, the latter in turn has always been a victim of the economic decisions.

Fifth, the government saves the budget by reducing expenditures on priority sectors — social sectors, education and health. As said Silvanus, “can find resources through more efficient use of funds in education, healthcare, social sphere”, which means that savings in these areas will free up resources for other industries. This time the government intends to save those who, in his opinion, needs no help: “for Those who need more to give, and those who don’t need why from the state to some social benefits”. In fact, this will lead to the reduction of social spending of individual groups.

When ostentatious “growth,” provided the state order in the area of infrastructure and extractive industries, to talk about the economic recovery is not necessary. As well as not have to rely on reform, when the election outcome is already a foregone conclusion, and the economy is “adapted”. No wonder the draft budget for the new year is already outlined spending cuts on the economy and pensions.

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