Russian and foreign businessmen, politicians and experts came together at the St. Petersburg International Economic Forum (SPIEF) to discuss the future of Russia’s economy, the ongoing crisis and the role of the government in jump-starting economic growth.
From left: German Gref, the head of Sberbank; Igor Shuvalov, Russia's deputy prime minister; and Alexey Kudrin, ex-finance minister, at the 2015 St. Petersburg International Economic Forum. Photo: RIA Novosti
On June 18, Russian and foreign businessmen, experts and officials met on the first day of the 2015 St. Petersburg International Economic Forum to discuss the most pressing challenges facing Russia’s economy.
This year the forum brought together foreign participants from more than 100 countries, even more than last year, according to Russian Deputy Prime Minister Sergei Prikhodko. The list of participants includes former British Prime Minister Tony Blair and Lim Siong Guan, the current Group President of the Government of Singapore Investment Corporation.
One of the major questions discussed at the forum was whether the Kremlin has a roadmap and a long-term strategy to bring about sustainable economic growth in the country. This is especially important, given the economic crisis driven by both Western sanctions and the headlong oil prices drop.
Russia needs to think long-term about the economy
Almost all the speakers who took the floor at the panel titled “Economics: Frank Answers to Pressing Questions” admitted that Russia has only a short-term plan of how to steer the country out of recession.
Alexey Kudrin, the former Finance Minster and the dean of St. Petersburg State University ‘s Faculty of Liberal Arts and Sciences, points to the fact that the Kremlin has only a three-year plan (lasting until 2017), which is hardly likely to be reliable, given the current financial and economic volatility.
According to Kudrin, this doesn’t resolve the problem, especially, a series of legislative and political initiatives that seem to contradict the very idea of economic growth.
“Economically, we are in the middle of the storm,” said Kudrin, “We are in a situation, when one hand does one thing, while the other does the opposite.”
He also added that the first quarter of 2015 has been dangerously soothing and drove the government to forget about consequential and challenging issues. The second quarter will show that the economic crisis is far from over, Kudrin believes, with the rest of 2015 (third and fourth quarters) going to be much more unpredictable and volatile.
"There is a high level of uncertainty,” he said, pointing to the deleterious effect of sanctions and the situation in the world’s energy market. However, the most serious challenge is the lack of understanding of how institutions in Russia will work and how Russia is going to talk with the West during a period of geopolitical tensions. Moreover, he expresses concerns with a series of political initiatives from officials and parliamentarians of diminishing ties with the West in favor of the East.
Meanwhile, Russia’s First Deputy Prime Minister Igor Shuvalov claims that strategically, Russia shouldn’t turn its back on Europe to come closer to the East. The Kremlin is just working out the terms of limited trade and economic ties with the West, he said, arguing that Russia’s steps to establish closer ties with the Eastern countries has been misinterpreted.
“The topic of ‘the Greater Europe — From Lisbon to Vladivostok’ is still not out off the agenda,” he said. “The fact is that [Russian] political leaders don’t want to raise this issue, until the situation in Ukraine is settled down.”
Anti-crisis measures need to be updated for changing market conditions
At the same time, Shuvalov pointed out that Russia showed a better economic record than initially expected.
“The [economic] situation is very difficult, but it is not as difficult as we initially expected last October,” he said.
However, such logic creates a sort of cognitive dissonance, according to German Gref, a prominent Russian economist and the head of Sberbank, the country’s largest state bank.
“We thought that it [economic decline] would be minus seven, but it turned out to have been minus three. So is this good or bad?” he asked, and then answered that it could be both. He explained that the very anti-crisis program, which was useful and probably effective last year, would not be relevant today, because the economic situation is changing very fast.
“We are discussing what was yesterday, but don’t think about the future,” he concluded pointing out the “terrific outflow of human capital.” According to him, this should puzzle us first and foremost.
When asked what is to be done to resolve the problem, Gref said that the government just “should do banal things” by improving the investment climate and, particularly, creating a system that encourages private business.
At the same time, Gref argues that the current crisis — the lack of capital and tight budgets — is hardly likely to be a stimulus for Russia’s economy. Russia usually changes when it is “caught up against the wall” and “faced with a standoff,” but success means permanent changes, not the ones driven by a crisis, he clarifies.
Will the economic crisis really change anything?
Kudrin disagrees in his assessment of the impact of the crisis on Russia’s economy. In most cases, he argues, “the crisis improves productivity,” because it drives ineffective economic players out of the game and favors the strongest, most prepared and efficient.
However, Kudrin warns against mistaking the crisis as a result of sanctions, because the latter doesn’t increase efficiency, but deprives the economy of additional opportunities of getting financial and technological support from abroad. Without such support, Russia won’t be able to tackle the crisis.
Likewise, Shuvalov believes that the crisis reveals the most pressing and hidden problems in the economy and allows ordinary people to talk about them. According to him, the crisis can encourage people to resolve big problems because it can unite people.
However, Gref doesn’t think so, insisting that any crisis is “the result of bad management.” According to him, effective management means looking forward, not backward. And this is the key.
“We are trapped in the present and don’t look to the future,” he said, adding that Russia has all the resources to be successful. And the most important and challenging thing is the capability to use this potential.
The role of the Russian government in fixing the economy
“The only thing that differs a successful government from an unsuccessful one is the quality of government management,” Gref said at another panel named “Crisis Mitigation Policies: The Need For Government Reform.”
Former UK Prime Minister Tony Blair, who took the floor at this panel, agrees. He argues, the challenge for the government is “how to get things done” and it requires changes in the system as well as in the mentality of personnel to encourage officials to be more “innovative,” “creative” and ready to change in a fast-moving world.
Former UK Prime Minister Tony Blair at the 2015 St. Petersburg International Economic Forum. Photo: RIA Novosti
In addition, he and other participants of the panel agree that a “smaller,” “more strategic,” transparent government, led by a consistent leader and based on the principles of key performance measurement, could be a good and very promising approach.
Differing outlooks for Russia’s economy in 2015
Meanwhile, some experts interviewed by Russia Direct, for example, Christopher Hartwell, the president of the Center for Social and Economic Research in Warsaw (CASE), argue that the Russian economy is not resilient, and it would have gone into a recession even without the war in Ukraine.
“The invasion just makes things worse. Sanctions haven’t had a direct impact, but they continue to contribute to the perception that Russia is a mono-state, built on oil and ready to fall apart at any time,” he said. “And Russia’s reaction to sanctions has just made things worse. Doing business in Russia I would say is now nearly impossible for a foreigner.”
Hartwell argues that the crisis is not over, but it “has abated somewhat, especially in currency markets, but the underlying structural defects are still there.”
“Russia is a terrible hybrid of an economy – it’s a petro-state that is tied closely to commodity prices, meaning that it has uneven development but is not resilient to shocks,” he said.
In contrast, Stanislav Tkachenko, an associate professor at St. Petersburg State University, believes that the economic crisis in Russia has significantly abated and reached its low. He is more optimistic about economic growth at the end of the year, because, according to him, “cautious reforms have been started,” the possibility of new sanctions is close to zero, the results of import substitutions are showing their first results and oil prices seem to have stabilized.