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#3 - JRL 2007-27 - JRL Home
RIA Novosti
February 6, 2007
Russia lacks public optimism for an economic leap

MOSCOW. (Political analyst Georgy Pankov for RIA Novosti) - Several members of the Russian government's economic section have started talking about a "Russian economic miracle."

Experts think the officials are being overly optimistic, because Russia is ranked 61st in GDP per capita. However, First Deputy Prime Minister Dmitry Medvedev, Economic Development and Trade Minister German Gref, and Finance Minister Alexei Kudrin surely know what they are talking about. There may be more to their seemingly excessive optimism than a trite desire to embellish facts.

Russia's GDP calculated in U.S. dollars tripled in 2000-2006, and the volume of its stock market went up from 11% to 90% of GDP. Russia overcame a psychological threshold in January 2007, when it surpassed the 1990 level in terms of GDP. The country is going through an investment boom, with $41 billion of foreign private investment in 2006, including $31 billion of foreign direct private investment.

According to an optimistic scenario, Russia can become the world's sixth power in terms of purchasing power parity (PPP) in two years, surging ahead of Italy, France and Britain. The ruble is expected to become one of the world's reserve currencies, and Russia will regain the economic influence of the former Soviet Union.

But can it be called an economic miracle, if many Russians are living below the poverty line, and the middle class is not yet enjoying the benefits of the economic boom, such as long-term and cheap mortgage loans.

Experts said celebrating victory would be premature, as Russia's GDP per capita is only about $7,000, which is comparable to Mexico. Calculated in terms of GDP (PPP) per capita, Russia is ahead of all countries of the Commonwealth of Independent States (CIS), but its figures are half of the Baltic countries' indices, let alone Europe.

On the other hand, compared to the situation 15 years ago, Russia has indeed seen an economic miracle.

Many economists say that Russia's virtue is its dynamically growing market. The world's leading rating agencies have noticed this, along with the influential Organization for Economic Cooperation and Development (OECD), which has upgraded Russia's rating the other day, moving it from the fourth to the third risk group according to its classification.

This appears to be the source of the Russian economic officials' show of optimism. But to propel the country's economic development, they need the trust of foreign investors and ordinary Russians.

I don't think the government is exaggerating our current achievements. They know about structural problems in the economy, the excessive share of the oil and gas sector in GDP, and the average monthly wage, which is only about $400. However, people must know that the commendable scale of macroeconomic growth can soon result in a qualitative change in the country's economic climate. The first positive signs are the growth of the average wage by 13.5% in 2006 (30% in education and 37% in healthcare).

In a poll conducted on the http://www.rian.ru/vote/, 23% of the respondents said they wanted to believe in the "Russian economic miracle" but see no reasons for it. More than 15% of the polled don't believe in miracles in Russia. Over 40% mistrust the economists' claims about the Stabilization Fund as a reliable safety net, and think that the probability of a Russian economic miracle heavily depends on oil prices.

There were cases in history when a combination of several macroeconomic factors together with a wise economic policy produced mind-boggling effects in Germany and Japan after WWII, and recently in South Korea, China, and the "Asian tigers" - India, Malaysia, Indonesia, Thailand, South Korea, Japan and Hong Kong.

Yet only some 5% of Russians referred to historical experience, and 6%-7% of those who believe in the Russian miracle said it was astounding that Russia's GDP had overcome Soviet GDP, thanks to a clever economic policy of the current authorities. Only 3% said they felt the [positive] effects of the economic change.

An increase in these figures by at least five to 10 times would propel the Russian economy into the future. Therefore, explosive economic development is impossible in Russia without the optimism and enterprise of the public, who alone can determine the parameters of the nascent "Russian economic miracle."